In Washington State, mortgage insurance can be a significant additional cost when purchasing a home, especially for those with smaller down payments. However, there are several strategies to avoid paying for unnecessary mortgage insurance, which can save you money in the long run. Here are some effective tips to help you navigate this expense.
Before exploring ways to avoid mortgage insurance, it’s crucial to understand the two main types: Private Mortgage Insurance (PMI) and Mortgage Insurance Premium (MIP). PMI is typically required for conventional loans with a down payment of less than 20%, while MIP is associated with FHA loans. Knowing which applies to your situation will help you make informed decisions.
One of the simplest ways to avoid mortgage insurance is to make a larger down payment. By putting down at least 20% of the home's purchase price, you can eliminate PMI on conventional loans. This not only avoids insurance costs but also reduces your monthly mortgage payments.
Some lenders offer Lender-Paid Mortgage Insurance (LPMI), where the lender covers the cost of mortgage insurance in exchange for a higher interest rate. While this doesn’t eliminate the cost altogether, it can simplify payments. Be sure to calculate the long-term costs to determine if this option is right for you.
Washington State offers various programs designed to assist homebuyers, some of which may include options to avoid mortgage insurance. For example, the Washington State Housing Finance Commission has several loan programs that allow for lower down payments without PMI obligations. Research available programs and see if you qualify.
A higher credit score can significantly impact your mortgage terms, including your mortgage insurance requirements. Lenders typically charge lower rates and may waive PMI for borrowers with a credit score of 740 or higher. Invest time in improving your credit before applying for a mortgage.
A piggyback mortgage, also known as an 80/10/10 loan, allows you to take out two loans simultaneously. The first mortgage covers 80% of the home’s price, the second (a smaller loan) covers 10%, and the last 10% is your down payment. This strategy can help you avoid PMI altogether.
If you've previously purchased your home and pay PMI, consider refinancing your mortgage. If your home has appreciated in value and your equity exceeds 20%, you may qualify for refinancing without PMI. This is an excellent opportunity to lower your monthly payments.
Once you secure your mortgage, it’s essential to review your insurance terms and requirements periodically. If you reach the 20% equity threshold through payments or home price increases, you can request to have PMI removed. Keeping track of your equity can save you from unnecessary costs.
Avoiding unnecessary mortgage insurance may take some planning and strategy, but the financial benefits can be significant. By understanding your options, making informed decisions about your mortgage, and leveraging available resources in Washington, you can save money and manage your housing costs more effectively.
