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Many banks and lenders require private mortgage insurance (PMI) for conventional mortgage loans. PMI protects the bank or financial institution if you as a borrower cannot repay the loan. You may be worried because loans with PMI end up costing you more money in the long run. For this reason, first time home buyers and experienced home buyers alike look for loan options without PMI. Rest assured, there are many options if you are looking for mortgage loans that do not require private mortgage insurance. In this post, we will help you understand 5 mortgage loans without PMI.
Conventional Loan
A mortgage can be granted through a conventional loan with lender-paid mortgage insurance. This means you will not have to pay for PMI nor supply a 20% down payment. Instead, the lender charges you a higher rate for the life of your loan. This results in a lower long-term payment, though you will have to pay the additional charges until the loan is paid off. A bank can lift PMI after you repay 80% of a loan, but lender-paid MI charges remain until you pay off the whole loan. If you can afford the additional charges, then you should consider a conventional loan with lender-paid MI.
80-10-10 Loan
An 80-10-10 mortgage allows you to take out two loans amounting to 90% of the cost. You will then be responsible for the final 10% as a down payment. This type of mortgage takes advantage of a loophole in the system that requires PMI for loans of 90% value. Though 80-10-10 is the most common breakdown, other number combinations are possible depending on the type of property you are buying. The second mortgage of an 80-10-10 is typically a HELOC, or a home equity line of credit. If you have good credit, then taking advantage of an 80-10-10 loan could save you money. An 80-10-10 loan helps you get the mortgage you need without having to pay for PMI.
FHA Loan
A Federal Housing Administration Loan is issued by an FHA-authorized financial institution and insured by the FHA. With the FHA as the guarantor, you will not need to pay for PMI. An FHA loan is reserved for moderate or low-income borrowers. These loans request lower down payments and accept lower credit scores than most loans. You will be required to pay an upfront mortgage insurance premium and an annual MIP. You will pay the UFMIP upon closing or you can choose to have it included in the loan. You will pay the annual MIP monthly, in spite of its name. If you qualify as low to moderate income, then an FHA loan may be the best way to get a mortgage.
VA Loan
The Department of Veterans Affairs helps military service members and their spouses secure mortgage loans without PMI. A VA loan is a $0 down mortgage loan issued by a bank or lending institution that is insured by the VA. Since the government is backing the loans, they are easier for active-duty service members and veterans to get. Though there is no down payment, you will be required to pay a funding fee to the VA. Your first funding fee is typically 2.15% of the property value. Any successive loan fee is 3.3%. For veterans and active-duty military members, a VA loan is a great option to secure mortgage loans without PMI. If you are a veteran who can qualify, do not hesitate to apply for this home loan option.
USDA Loan
The U.S. Department of Agriculture offers loans for low to moderate-income borrowers looking for homes in rural areas. If you meet the qualifications, the USDA will set you up with a lender and act as the guarantor of the loan. You will have to prove you have stable income and a moderate credit score to qualify. Like any other loan, a USDA loan is subject to differing rates depending on various factors. You cannot apply for a USDA loan if you are not purchasing a home in a qualifying rural location. Also, you cannot use the funds secured through a USDA loan to buy property that produces income. If you are looking to live in a rural community but want mortgage loans without PMI, consider securing a loan through the USDA.
As a borrower who wants to avoid private mortgage insurance, you should consider these mortgage loans without PMI. Conventional loans can be secured with lender-paid insurance in exchange for a higher rate. 80-10-10 loans are a great loophole in the system to get the funds you need without paying for PMI. Additionally, the government has numerous programs set up to guarantee mortgage loans for qualifying buyers. Now you have the information you need to find mortgage loans without PMI.
