Here are two loan programs that you can utilize to avoid mortgage insurance even if you don’t have a 20% down payment.
Mortgage insurance = insurance you pay with your mortgage payment that insures the lender against a loss on the loan (e.g. a default on the mortgage)
When buying or refinancing a home with than 20% equity/down payment in the property, you will have to pay an additional fee for mortgage insurance with your mortgage payment. The amount of monthly mortgage insurance you have to pay is largely dependent on the amount of equity you have in the property.
For example, if you are a first-time home buyer and you plan on putting 5% as a down payment, you will most likely be paying more in mortgage insurance than if you were to put 10% of the property value as a down payment.
Typically the only way to avoid this mortgage insurance payment is to put a 20% down payment on the house when you buy it. However, did you know that you can put as little as 10% down and not have a mortgage insurance payment?
Two of the most common ways that this can be done are through an LMPI (Lender Paid Mortgage Insurance) Loan and through an 80/10/10 loan.
The Lender Paid Mortgage Insurance Loan (LPMI) allows home buyers to avoid their mortgage insurance payment by putting at least 10% down on the property. With this type of loan, interest rates are typically around .25% – .375% higher than if you were to typical 10% down loan with a mortgage insurance payment.
Another method of avoiding the mortgage insurance payment is to apply for an 80/10/10 loan. With this loan 80% of the home value is put on a 30 year fixed mortgage, 10% of the home value is put on Home Equity Line of Credit (HELOC), and the other 10% is the down payment that you would have to make.
This method typically works best for homeowners who have good credit, as the minimum credit score requirement is 700+.
These are just two of the most common methods of avoiding mortgage insurance, however if you want to find out all of your options for reducing your mortgage payment, feel free to give us a call at 1-800-676-1300.