PMI or the Private Mortgage insurance is a form of an insurance policy that will protect loan lenders from that risk of default, and even foreclosure. At most of the time, the need gets imposed on those homebuyers who cannot afford to make a down payment of 20% and above. Buying a PMI is always a necessity before signing off the loan.
The PMI will come with extra charges but is beneficial in that, a buyer who cannot afford higher down payments gets financial aids at affordable rates. But which is the minimum down payment that will help you avoid the PMI?
The first way to avoid the PMI is by making sure that you meet the loan-to-value (LTV) ratio of at most 80%. It means you must own a fifth or 20% of the value of the property. It’s the simplest way that a borrower can avoid the PMI. The challenge is the fact that the down payment size is not feasible to most of the loan applicants.
20% being the minimum down payment to avoid PMI, there are additional ways that you can use. A great example is a piggyback mortgage. In this case, you take a home equity loan at the same time as your first mortgage. 80% of the property value gets covered by the first loan, 10% by the second mortgage and the other 10% by the down payment. In this way, you get a chance to lower the LTV, and it eliminates the need to pay the PMI for most of the borrowers.
Finally, the borrower can consider including the PMI in the loan’s interest and paying it within the mortgage life. In this way, the borrower will need not to pay the PMI before taking the loan.
If you want to take the most straightforward route to pay no PMI, consider completing a 20% down payment. However, if this isn’t realistic for you, consider other options as discussed above.