What is PMI (Private Mortgage Insurance)? When is it required? Can I avoid paying it?
Private Mortgage Insurance (PMI) is insurance required by lenders to protect them against the risk of borrowers defaulting on their mortgage payments. You pay for PMI either upfront when your loan closes, or you can pay PMI by having a higher interest rate. PMI is required by lenders for loans that have a loan-to-value ratio of more than 80%. For example, if you have a single loan for $90,000 on a home that is worth $100,000, your loan to value is 90%, and the lender will require PMI. You can avoid PMI by using combo loans (i.e. two loans). With combo loans, your 1st mortgage would be at or below 80% of the propertys value, and you would borrow the remaining amount with a 2nd mortgage. Combo loans allow you to avoid paying mortgage insurance when you are borrowing more than 80% of your homes value, and using combo loans can also reduce your overall monthly mortgage payments.
