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By Joe Giunta http://www.about-online-loans.com
August 12, 2001

PMI: How to Avoid Paying Private Mortgage Insurance.

Do you have less than 20 percent down to put towards a home? That doesn't mean you have to pay Private Mortgage Insurance. For a complete description of PMI please refer to the article “PMI: What is it and how much does it cost?”

If you were ever wondering how to avoid Private Mortgage Insurance you basically have 3 options:

1. The first option is put 20 percent down. Many people either wait until they save enough to avoid PMI or they borrow the money from a friend, family or other loved one.

2. The second option is to get 80-10-10 financing.

Obtaining 80-10-10 financing means that you don't have to pay PMI. The reason for the name is because your lender will provide you with an 80 percent first mortgage and a 10 percent second mortgage. This only leaves you with having to put down 10 percent of the home loan amount. You can also receive an 80-15-5 which works the same way except you only put down 5 percent. Keep in mind that with any home loan, the less money you put down, the higher your interest rate will be.

Something that you should note is that the interest rate on the second mortgage may be higher than the first mortgage. Second mortgages are risky loans and therefore may have a higher interest rate. You should always check with your lender about your rate options. Another thing to consider is that with this type of home financing the balance of your 30 year amortized second mortgage may be due in as little as 5 years. This means that you may have to refinance the mortgage to avoid paying it in full.

3. The third option is to pay the PMI until you acquire at least 20% equity in your home. This can be achieved relatively quickly if the value of homes in your area are abruptly increasing. You will also gain equity as you pay off your mortgage. You may be able to stop paying PMI in as little as 1 year. Also note that it may be up to YOU to prove to your lender that you have at least 20 percent equity in your home. This means you are responsible for paying the appraisal fee. Don't worry about the fee, it is usually around $300 and it will save you thousands of dollars in the long run.

Please visit one of our home loan sources for more info about these options.




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