Private Mortgage Insurance (PMI) is often required for homebuyers who put down less than 20% when purchasing a home. While PMI helps protect lenders, it can add hundreds of dollars to your monthly mortgage payment without offering any benefits to the borrower. Fortunately, there are ways to avoid paying PMI. Here are some strategies to help you sidestep this extra cost:

1. Make a 20% Down Payment

The simplest way to avoid PMI is by putting down at least 20% of the home's purchase price. Lenders typically require PMI when the down payment is less than this threshold, so saving for a larger down payment can eliminate the need for PMI altogether. While saving 20% may seem daunting, it can save you significantly in the long run by lowering your monthly payment and avoiding PMI costs.

2. Use a Piggyback Loan

A piggyback loan is a financing option that can help you avoid PMI without putting down 20%. In this setup, you take out two loans: one for 80% of the home's value and a second loan (often called a second mortgage) to cover the remainder of the down payment, typically 10% or 15%. The remaining 5% to 10% is covered by your own funds. While you'll need to make payments on both loans, you can avoid PMI by keeping your primary mortgage under the 80% threshold.

3. Consider Lender-Paid Mortgage Insurance (LPMI)

Some lenders offer Lender-Paid Mortgage Insurance (LPMI), which means they pay the PMI premiums on your behalf, but in exchange, you'll have a higher interest rate on your loan. While this eliminates the monthly PMI payment, the higher interest rate can result in paying more over time. It's important to carefully compare the total costs of LPMI with a standard mortgage that includes PMI to determine if this option makes sense for you.

4. Use a VA Loan (for Veterans)

If you're a qualifying veteran, active-duty service member, or eligible spouse, you may be able to take advantage of a VA loan. VA loans don't require PMI, even with a down payment of less than 20%. This can save you a substantial amount of money over the life of your loan. VA loans also often come with competitive interest rates, making them a great option for eligible borrowers.

5. Get Your Home Reappraised

If your home's value has significantly increased since you purchased it, you may be able to eliminate PMI by requesting a home appraisal. If the new appraisal shows that you now have at least 20% equity in the property, you can ask your lender to cancel PMI. Be prepared to cover the cost of the appraisal, but this can be a cost-effective way to eliminate PMI without having to wait for your mortgage balance to drop.

6. Pay Extra Toward Your Loan

If you don't start out with a 20% down payment, you can still eliminate PMI early by paying down your mortgage faster. Making extra payments toward your principal balance will help you reach 20% equity sooner, allowing you to request the cancellation of PMI once you hit that mark.

Conclusion

While PMI can be an additional cost for homebuyers, there are several ways to avoid or eliminate it. Whether through a larger down payment, a piggyback loan, or paying down your mortgage more quickly, avoiding PMI can save you money and reduce your monthly payments. By exploring these options, you can make your homeownership journey more affordable in the long run.