Archive for the ‘How to Avoid PMI’ Category
Piggyback Loans Can Solve PMI Riddle
When buying a new home without a 20 percent downpayment, many borrowers are forced to pay for costly private mortgage insurance or PMI. Although not all mortgage loans require PMI in these situations, any mortgage that is backed by Fannie Mae or a similar government type loan will require PMI payments.
One alternative to paying PMI is to setup your mortgage in the beginning as a piggyback loan. Also referred to as 80/20, 80/10/10 or 80/15/5 mortgage loans, piggyback loans are a good alternative to PMI payments.
So what exactly is a Piggyback loan? It’s a second mortgage that you close simultaneously to your first mortgage for the remainder of the home’s costs in which you do not have downpayment money.
For example, let’s say you’re buying a $100,000 home. You have $5,000 to use as a downpayment and you want to avoid PMI. You would apply for an 80/15/5 piggyback loan. At closing, you would have a first mortgage for $80,000 (80% of your home’s value), a $15,000 second mortgage (15% of your home’s value) and you would invest 5% of your own money which would become equity.
So what if you don’t have 5% to put down? This is where you would get an 80/20 piggyback loan. In this case, 80% of the loan is on your first mortgage and the remaining 20% goes on your second mortgage. You would have no equity in this case.
For more information on PMI, check out AmericanLoanShopper.com at the link below:
http://www.americanloanshopper.com/pmi/pmi.htm
How Can I Avoid PMI?
The easiest way to avoid PMI is to invest a 20 percent down payment at the time of the loan. Lenders will not require PMI when the loan to value (LTV) is 80% or less. However, coming up with 20 percent down payment is very difficult for many borrowers. Another way to avoid PMI is to apply for subsidiary financing (home equity loan or line of credit) and close it at the same time as your first mortgage. These types of programs are referred to as 80/20, 80/10/10, 80/15/5, etc.
Another way to avoid PMI is to use a subprime or B-Credit lender. These loans will often have higher interest rates, but at least interest is tax deductible (where PMI is not). Find the no PMI program that’s right for you!