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How to Get the Best Mortgage Series – Week 8

Welcome back to this week’s episode in our mortgage series! Here, I’m walking you through everything you need to know to find the mortgage that best fits your unique financial goals. This week, we’re diving into Private Mortgage Insurance (PMI)—what it is, why it matters, and whether avoiding it is the right move for you.

What Is PMI, and Why Does It Exist?

PMI often gets a bad rap, but it’s not the villain some make it out to be. Simply put, PMI is an extra payment required by lenders if you’re unable to put 20% down on a conventional loan. It’s a way for the lender to protect themselves in case you default on the loan since they’re covering a larger portion of the home’s cost.

How Much Does PMI Cost?
Typically, PMI costs between $20–$50 per month for every $100,000 borrowed. The exact amount depends on factors like your credit score, loan amount, and down payment size.

Good news for conventional loans: Once you’ve built up 20% equity in your home, PMI goes away. FHA loans, however, require PMI for the life of the loan unless you refinance.

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Why Does PMI Confuse So Many Buyers?

You’ve probably heard mixed messages:

• Some people will warn you to avoid PMI at all costs.
• Others might tell you it’s just part of the homebuying process, especially for first-time buyers.

So, what’s the truth? Like most financial decisions, it depends on your situation. My goal is to help you understand your options so you can make the best choice for you and your family.

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Ways to Avoid PMI

While PMI isn’t always something to fear, there are options to minimize or eliminate it:

1. First-Time Homebuyer Programs
Many state and local programs help first-time buyers with low down payments and waive PMI if you meet certain credit or income requirements.

2. “Buy Out” Your PMI with a Higher Interest Rate
Some lenders allow you to avoid PMI by accepting a slightly higher interest rate (around 0.125–0.25%). This can work well if you only plan to live in your home for a short time—say 5 years or less.

3. Explore Piggyback Loans
With this option, you take out two loans to avoid PMI:

• 80/10/10 Loan: Put down 10%, borrow 80% with a first mortgage, and 10% with a second mortgage.
• 80/15/5 Loan: Similar, but you only put down 5%.

While these options can work, second loans often come with higher risks, like adjustable rates.

4. Pay PMI Upfront
You may have the option to pay PMI as a one-time upfront fee, either in cash or as part of your loan balance. This spreads the cost over the life of the mortgage, resulting in smaller monthly payments.

5. Consider Tax Deductions
In some cases, PMI is tax deductible—but only if your adjusted gross income is below $110,000 (or $55,000 if married filing separately). For higher earners, avoiding PMI might make more sense.

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Why PMI Could Be a Good Thing

Paying PMI could help you achieve homeownership sooner—and that’s no small thing! Here’s why:

• Get Into Your Home Faster
  Saving up for a 20% down payment can take years. In the meantime, you’re spending money on rent instead of building equity in a home of your own.
• Lock in Lower Interest Rates
  If interest rates are low, buying sooner—even with PMI—might save you more in the long run compared to waiting and risking higher rates or home prices.
• Ride the Market’s Growth
  If home prices in your area are increasing, buying now means you can benefit from that appreciation. As your home’s value grows, you’ll build equity faster and cancel your PMI sooner.
• Avoid Draining Your Savings
  Putting all your money into a down payment could leave you without enough cash for emergencies. Paying PMI temporarily might be a safer financial decision.

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The Bottom Line

Should you avoid PMI? Maybe. But should you let PMI keep you from buying the home of your dreams? Absolutely not! PMI is just a tool—it’s not inherently good or bad.

The key is understanding how it fits into your financial picture. Whether you decide to avoid it or embrace it, I’m here to guide you every step of the way. Together, we’ll find a solution that gets you into your next home confidently and comfortably.

Let’s talk about your options!

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