Mortgage Loans Without PMI: What You Need to Know

If you’re searching for ways to buy a home without the added cost of private mortgage insurance (PMI), you’re not alone. PMI is often required on loans where the buyer puts down less than 20% of the home’s purchase price, making monthly payments higher. However, there are mortgage loans without PMI that allow homebuyers to avoid this expense, saving money in the long run. This article will guide you through some options for mortgage loans without PMI and help you understand how to qualify.

What is PMI?

Private mortgage insurance, or PMI, is a fee that lenders charge on mortgages where the borrower has less than a 20% down payment. This insurance protects the lender in case the borrower defaults on the loan. PMI can add significant costs to your mortgage payments, typically ranging from 0.3% to 1.5% of the loan amount per year. While PMI makes it easier for homebuyers with low down payments to qualify for a loan, it can increase monthly expenses for homeowners.

Options for Mortgage Loans Without PMI

There are several ways to avoid PMI while still purchasing a home with less than a 20% down payment. Let’s take a closer look at mortgage loans without PMI and how they can help you keep costs down.

VA Loans:

If you are a veteran, active-duty service member, or an eligible spouse, a VA loan might be an excellent option for you. VA loans are backed by the U.S. Department of Veterans Affairs and offer the benefit of no PMI, regardless of the down payment. Additionally, VA loans typically come with competitive interest rates and may not require any down payment at all.

Key advantages of VA loans include:

• No PMI: VA loans are one of the few mortgage options that offer mortgage loans without PMI by default, allowing veterans to save on insurance costs.
• Lower Interest Rates: VA loans often have lower interest rates than conventional loans.
• No Down Payment Required: In many cases, you can finance 100% of the home’s value.

Piggyback Loans

A piggyback loan is a creative way to avoid PMI on a conventional loan by splitting the mortgage into two separate loans. With this strategy, you take out a primary mortgage for 80% of the home’s price and a secondary loan (often a home equity loan or line of credit) for 10% of the purchase price. You then make a 10% down payment.

Here’s how a piggyback loan works:

• 80-10-10 Structure: With an 80-10-10 loan, you finance 80% through a primary mortgage, 10% through a secondary loan, and put down 10% in cash.
• No PMI Requirement: By keeping the primary mortgage at 80% of the home’s value, you avoid PMI.
• Flexible Payment Options: Depending on the structure of your piggyback loan, you may have flexibility in how you pay off the secondary loan.

Lender-Paid Mortgage Insurance (LPMI)

Another way to obtain a mortgage loan without PMI is by opting for lender-paid mortgage insurance (LPMI). With LPMI, the lender covers the cost of PMI in exchange for a slightly higher interest rate. This can be an attractive option if you plan to stay in the home for the long term and want to keep your monthly payments predictable.

Benefits of LPMI include:

• No Monthly PMI Payments: LPMI eliminates the monthly PMI expense.
• Increased Simplicity: With LPMI, your mortgage insurance costs are built into your loan, which can simplify budgeting.
• Ideal for Long-Term Borrowers: LPMI may make sense if you plan to stay in your home long enough to benefit from the higher interest rate.

Conventional Loans with a 20% Down Payment

Although this may not be feasible for all buyers, putting down 20% is the simplest way to avoid PMI on a conventional loan. By making a larger down payment, you reduce the lender’s risk and eliminate the requirement for PMI altogether.

Some strategies to help reach a 20% down payment include:

• Down Payment Assistance Programs: Many state and local programs offer down payment assistance to eligible buyers.
• Saving Over Time: If immediate homeownership isn’t essential, saving for a larger down payment can help you avoid PMI.

Is a Mortgage Loan Without PMI Right for You?

Choosing a mortgage loan without PMI depends on your financial situation and long-term homeownership goals. For military members, VA loans provide a cost-effective path without PMI, while piggyback loans and LPMI may appeal to buyers with limited down payments who want to keep monthly costs down. Understanding your options and comparing each scenario with your budget will help you make the right decision.

Working with a Knowledgeable Lender

Selecting the best mortgage option to avoid PMI requires expert guidance. At Pilgrim Mortgage, we can help you explore mortgage loans without PMI and choose the path that aligns with your financial goals. Our team is here to answer any questions you have about loan structures, down payment options, and interest rates to help you make an informed decision.

Avoiding PMI can be a smart financial move if you’re looking to keep your mortgage costs manageable. Contact Pilgrim Mortgage today to learn more about your options for mortgage loans without PMI and to start your journey toward homeownership with confidence.