How to Get Rid of PMI Loans and Mortgage Insurance

What is a No PMI Mortgage Loan? PMI stands for “private mortgage insurance” and thus a “no PMI mortgage loan” is a home loan without the borrower being required to pay mortgage insurance monthly. No PMI loans have been very popular with first time home buyers for the last two decades. We will also explore how to get rid of PMI if you are already paying mortgage insurance monthly.

No PMI Loans with No Private Mortgage Insurance Ever!

Did you know there are alternatives to paying mortgage insurances on a home loan? That’s right there are a handful of lenders that offer no PMI mortgage loans in today’s marketplace.

Learn more about the new opportunities to get mortgage without PMI. If you want to not pay that extra $100 or $200 per month, there are options available in the 2024 home financing market to help you reach your goal. You need help learning about no PMI mortgage programs that may be available with your qualifications. Learn how to figure out how much the mortgage insurance payment would be.

There are new alternatives for first time home buyers to secure affordable housing without having to pay mortgage insurance monthly with a No PMI loan.

How to Avoid PMI on Conventional Mortgage Loans

When considering mortgage loans with no PMI, it’s important for homebuyers to do their due diligence while determining their eligibility criteria, and carefully consider the benefits and risks of each no private mortgage insurance program. While avoiding PMI is a significant advantage, other factors such as mortgage rates, lending costs, and affordability should always be considered.

How to Get Rid of PMI

Typically, you can eliminate PMI if market conditions drive a significant uptick in your home’s value. This entails making a formal request with your lender and commissioning a fresh appraisal. The appraisal validates that your property’s worth has surged enough for you to possess the requisite equity.

The quickest way to get rid of a PMI  mortgage involves these measures. A borrower can petition for PMI termination upon accruing 20 percent equity in the residence and having resided in it for multiple years. There are alternative methods to rid oneself of PMI prematurely: refinancing, obtaining a new appraisal for potential value appreciation, and accelerating principal payments.

Can You Get Rid of PMI without Refinancing Your Mortgage?

Certainly. Regardless of whether you request your servicer to cancel PMI, typically, your servicer is obligated to automatically cease PMI on the date when your principal balance is projected to hit 78 percent of your home’s original value. To ensure PMI is terminated on that date, it’s essential to maintain current payments.

What Is Lender Paid Mortgage Insurance and Is This a No PMI Loan?

Many people ask us if all home loans require mortgage insurance. The answer is no, at least in regard to the borrower always being required to pay private mortgage insurance. Some lenders will allow you to use LPMI which basically means that the lender is paying the PMI for you. Sounds like a great deal, right?

Well, the downside is that you will accept having a .75% mortgage rate increase. Your payment will be higher, but not paying PMI, that can be a good deal. So, presently lender paid mortgage insurance options are the most sought after no PMI loans in most states.

This could work out well for you, but you will want to talk about lender paid mortgage insurance with your lender carefully before you do it. If you do opt for LPMI, you will not be able to cancel the insurance when you reach 20% equity. Your only option to get rid of PMI is to refinance into a no PMI loan.

Some buyers decide that lender paid mortgage insurance is a good deal and they go for it. They like the fact that you can buy more house if you do not have to save for a 20% down payment.

If you do not have to put as much money down, you can use that thousands of extra cash to pay for home improvements. This is one of the many reasons people are raving about no PMI mortgage financing.

Note that money that you pay for mortgage interest can be written off each year, but you cannot do that with PMI payments. So you will want to avoid paying PMI if you can. For obvious reasons, this has become a very popular no PMI mortgage program in 2017. Why not let the lenders pay the mortgage insurance?

Piggyback Financing with No Mortgage Insurance

A popular way to avoid PMI is to bring at least a 10% down payment. Rather than getting one 90% mortgage, you will get two mortgages that have been piggybacked onto one another. A common deal is to have an 80% first mortgage and a 10% second mortgage, followed by a 10% down payment. This arrangement can avoid PMI. Piggyback loans are definitely the “old school” method for no PMI loans.

Shop Around for No PMI Loans that Reduce Your Housing Expenses Monthly

Yes, there are several unique opportunities to get a mortgage without PMI today. There are lenders available that advertise no PMI loans if you bring a 5% down payment to the table. The most likely way they are able to offer this is by paying the private mortgage insurance for you and charging you a higher interest rate. Find out if you are eligible for a zero-down home loan with no mortgage insurance.

Is this a good deal? It depends. We advise that you run the numbers on the mortgage with and without PMI at the different rates. See which no PMI mortgage requires you to pay more.

Do the Math When Considering the No PMI Mortgage

If you have a conventional loan and you are nearing 20% equity, you need to request that your lender cancel your PMI. If you do not request it, it is likely that the lender will continue to charge you the insurance. So don’t give away money – tell your lender to cancel your mortgage insurance.

However, if you have an FHA insured loan, you will have to pay mortgage insurance for the entire life of the loan, regardless of what your amount of equity is. This obviously is a bad deal, so when you are close to 20% equity, we strongly advise that you consider refinancing out of your FHA rate mortgage. There are many loan products available once you have 20% equity to avoid paying PMI.

Many people do not have the ability to put 20% down to buy their home. Or, they may have the down payment, but putting down 20% would eat up most or all of their available cash.

Most people want to do home improvements soon after they buy a home. So rather than having to put down 20% to avoid PMI, it is a good idea to avoid PMI in another way if you can.

We like the no PMI mortgage option with the lender paying for mortgage insurance. Even if you have to pay a higher rate, remember that you can write off that mortgage interest at tax time. You can’t write off your PMI payments. Also consider the tax implications when comparing mortgage options. Is PMI tax deductible?

Why Get a Home Loan with No Private Mortgage Insurance (PMI)

One of the ways that mortgage lenders evaluate risk for underwriting a mortgage is your loan to value ratio or LTV. The LTV ratio is a simple calculation done by dividing the loan amount by the home’s value. The higher your LTV, the more the risk to the lender.

Usually a mortgage with an LTV that is above 80% will require private mortgage insurance or PMI to be paid be the home owner. PMI is a substantial monthly cost that you should keep in mind when considering a home loan.

The major reasons people try to get a house loan without paying PMI include:

• PMI is expensive; see the below example to learn more
• You can get a mortgage without PMI if you put at least 20% down. While this is not easy for many people, you do avoid having to pay PMI with the higher down payment.
• Lender Paid Mortgage Insurance– This is one of the latest trends and it makes sense, because you pay a slightly higher interest rate on this mortgage, but the bank or lender pays the mortgage insurance up-front when your loan closes in escrow. It’s important when considering this option, so calculate the difference between paying PMI monthly with the lower rate mortgage when compared to the lender paid mortgage insurance option. Refinancing to get rid of PMI often makes sense. If you don’t have the equity the bank is requiring consider the lender paid mortgage insurance options as they are more attractive than ever before.

To understand what PMI can cost you, let’s review a simple example. If your home is priced at $300,000, and you are getting a loan for $270,000, the LTV ratio is 90%. You are bringing a $30,000 down payment. Depending upon your mortgage type, the PMI payment could be from $110 to $150 per month. An adjustable rate mortgage requires you to pay more for PMI than a fixed rate loan.

PMI is not always permanently required. Lenders must drop your mortgage insurance requirement when the LTV gets to 78% through both home appreciation and principal reduction. If some of the reduction of the LTV ratio is due to home appreciation, a new appraisal is needed to verify the appreciation amount.

One of the most common ways to not pay PMI is to use a a second-mortgage. This is also referred to as a piggyback loan. To do this, the borrower gets a first mortgage that is equal to 80% of the value of the home. This avoids PMI. Then, you take out an home equity loan or HELOC that is equal to the homes sale price, minus the down payment and the first mortgage amount.

So, in the above example, the borrower would get a $240,000 first mortgage, pay $30,000 down, and get a second-mortgage in the amount of $30,000. You do not need to pay PMI because the LTV ratio on your first mortgage is 80%. But you would need to pay a second mortgage with a higher interest rate than the first mortgage. There are all kinds of 2^nd mortgages, but you will always need to pay a higher interest rate. Still, the payments of the two loans together usually are less than the payment on the first mortgage plus PMI.

When Does PMI Go Away?

The Homeowners Protection Act of 1998 mandates lenders to furnish specific disclosures and terminate PMI under particular circumstances. Before this Act’s enactment, PMI cancellation was solely at the discretion of the lender. The Act specifies that for loans originated after July 29, 1999, borrowers may seek PMI cancellation under the following conditions:

The mortgage has not been delinquent for more than 60 days within the last two years or 30 days within the past year. There hasn’t been a decrease in property value based on either the actual sales price or original appraised value. The lender may request evidence of the property’s value stability, potentially necessitating a new written appraisal, with costs borne by the borrower.

The other issue with getting rid of PMI, is that you can’t have subordinate liens exist, such as a home equity loan or HELOC line of credit.
The loan-to-value (LTV) ratio reaches 80% based on actual payments or the initial amortization schedule and appraised value at the outset.

If the borrower remains current on mortgage payments, PMI must be automatically cancelled once the LTV reaches 78%, as per the original amortization schedule or when the midpoint of the amortization period is reached.

To initiate PMI cancellation, borrowers should contact their loan servicer when the loan balance dips below 80% of the home’s original value (either the contract sales price or the appraised value at purchase). This date is provided on a PMI disclosure form furnished by the lender.

Considerations with Private Mortgage Insurance

Many people have to think about PMI costs because many of them are putting less money down to get a mortgage. There are many loans today that people can get with less than 20% down. One of the most popular by far is FHA financing. It’s easy to apply online for a FHA mortgage. That loan requires only a 3.5% down payment with a 580-credit score, but it does come with a hefty monthly mortgage insurance premium.

If you have less than 20% to put down, you will have two options regarding PMI:

• Get only a first mortgage with a lower down payment and pay PMI until your LTV gets to 78%. Then PMI usually can be dropped. For people who have an FHA loan written since 2013 however, many of these loans have a permanent mortgage insurance requirement. If you put down more than 5%, you can only cancel your PMI after 11 years. If you put down less than that, you must pay PMI permanently. So, once you get to 78% LTV, you may want to consider refinancing out of your government-home loan.
• Get a second mortgage. This will probably get you a lower payment at least at first than if you had PMI. But note that the second has a higher rate than the first. It can only be eliminated if you pay it off, or refinance the first and second into one mortgage. That would usually be when the LTV gets to 80% or less.

There also are several other things to think about regarding paying PMI:

• What are the tax savings with paying PMI, rather than paying interest on your second mortgage? Tax laws in the US allow you to deduct PMI payments if your income is under $100,000 gross per year.
• What is the cost of the new appraisal to drop PMI, vs. costs of refinancing your first and second mortgage? You have to pay for the appraisal, and this can be up to $500.
• The risk that interest rates could go up from the time you get the mortgage, and the time you will refinance the first and second. If the rates rise significantly, your second mortgage rate will rise. Most second mortgages used to avoid PMI have a variable interest rate.

But the most important consideration is what you think the rise in home appreciation will be in the next several years. If you just get a first mortgage with PMI, how fast will the home appreciate so that you can drop PMI (or refinance out of an FHA lien)?

Most people want to get approved for a no PMI mortgage because it avoids having to pay mortgage insurance monthly, but there are cases where it might make sense to pay PMI. One of the most common is where a person has poor credit and can only get a HUD-backed loan from FHA with mandatory PMI for the life of the loan. Paying PMI stinks but paying rent until your credit is good enough to get a conventional loan may be worse!

Top Mortgage Loan Programs with No PMI Required

Private Mortgage Insurance (PMI) is often a necessary cost for homebuyers who make a down payment of less than 20% on their new home. While PMI serves a valuable purpose by protecting lenders in case of default, the additional monthly premium can be a financial burden for homeowners. Fortunately, there are home loan programs designed to provide a pathway to homeownership without the need for PMI. Let’s explore some of the best home loan programs that offer this advantage.

1. VA Loans:

One of the most attractive options for eligible veterans and service members is the VA (Veterans Affairs) loan. VA loans are backed by the U.S. Department of Veterans Affairs and are designed to provide affordable and accessible financing for those who have served in the military. One significant advantage is that VA loans typically do not require a down payment, eliminating the need for PMI. Additionally, VA loans often have more lenient credit score requirements, making homeownership achievable for a broader range of individuals.

2. USDA Loans:

The USDA (United States Department of Agriculture) offers loans aimed at promoting homeownership in rural and suburban areas. The USDA loan program provides 100% financing, meaning no down payment is required. This not only helps buyers overcome the obstacle of a large down payment but also eliminates the need for PMI. To be eligible for a USDA loan, the property must be located in an eligible rural or suburban area, and there are income limitations based on the area and household size.

3. HomeBuyers Choice Loan from Navy Federal Credit Union:

The Navy Federal Credit Union offers a unique HomeBuyers Choice loan that enable qualified applicants to finance up to 100% of the home’s value with no private mortgage insurance required. This no PMI loan program appeals to both first-time and existing homeowners as it provides flexibility in terms of down payment and closing costs. While this unique program is specifically offered by Navy Federal Credit Union, other credit unions and mortgage companies may have similar in-house products that do not require private mortgage insurance. Consider down-payments assistance programs that are available for borrowers with military background in the family.

4. Piggy-back Loans:

While not a government-backed program, piggyback home loans involve taking out two loans simultaneously. The first loan covers 80% of the property’s value, the second mortgage covers a portion of the down payment (i.e., 10% or 15%), and the applicant contributes the remaining down payment. This structure enables house buyers to avoid paying PMI while still allowing a small down payment. It’s important to carefully consider the terms of both loans, including interest rates and repayment terms.

5. Doctor Loans:

Some lenders offer specialized mortgage programs for medical professionals, often referred to as doctor loans. These special products recognize the earning potential of doctors, even those with high student loan debt. Doctor loans may allow for higher loan-to-value ratios without requiring PMI. These programs are designed to assist medical professionals, including physicians and dentists, in achieving homeownership with favorable terms.

As with any major financing decision, we strongly recommend you do your research, and consult with trusted financial professionals that have experience with no PMI loan programs as they are unique.

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