Mortgage insurance is an additional cost that many homebuyers in Washington may wish to avoid. This insurance protects lenders in case the borrower defaults on their loan, and it can significantly increase monthly payments. Fortunately, there are several strategies you can employ to steer clear of mortgage insurance.
1. Make a Larger Down Payment
One of the most straightforward ways to avoid mortgage insurance is to make a larger down payment. Typically, lenders require private mortgage insurance (PMI) if your down payment is less than 20% of the home's purchase price. By saving up to put down at least 20%, you can bypass PMI altogether, resulting in lower monthly payments.
2. Consider a Piggyback Loan
A piggyback loan is a second mortgage that covers part of your down payment. For example, you might take out a primary mortgage for 80% of the home’s value and a second loan to cover 10%, allowing you to put down only 10% of the purchase price. This strategy enables you to avoid mortgage insurance while still keeping your monthly payments manageable.
3. Look for Lender Paid Mortgage Insurance (LPMI)
Some lenders offer a program called lender paid mortgage insurance (LPMI). In this scenario, the lender covers the cost of mortgage insurance but will charge a slightly higher interest rate on the loan. While this option may mean you’ll pay more in interest over time, it can be beneficial for those who want to avoid upfront mortgage insurance costs.
4. Explore FHA Loans with Lower Down Payment Options
Although FHA loans typically require mortgage insurance, they allow for lower down payments. In Washington, some programs might offer assistance with down payments, which could potentially reduce the mortgage insurance aspect or at least make it more manageable. Research various state and local programs targeting first-time homebuyers for assistance.
5. Utilize VA Loans
If you are a veteran or an active member of the military, you may be eligible for a VA loan. VA loans do not require mortgage insurance, regardless of the down payment amount. This can provide substantial savings for eligible borrowers and is an excellent option for homebuyers in Washington.
6. Increase Your Credit Score
Improving your credit score can help you not only qualify for better mortgage rates but potentially avoid mortgage insurance costs. A higher credit score demonstrates to lenders that you are a lower risk, which may allow you to negotiate better terms, including eliminating the need for mortgage insurance.
7. Shop Around for the Best Loan
Different lenders have varying policies regarding mortgage insurance. Shopping around can help you find a lender that offers more favorable terms or programs that waive mortgage insurance altogether. Be sure to read the fine print and understand the total cost of your loan compared to what you might be saving by not having mortgage insurance.
By applying these strategies, you can avoid paying mortgage insurance in Washington, saving you money in the long run. Whether through a larger down payment, alternative financing options, or shopping for the best lender, you have several avenues to explore. Consult with a mortgage professional to determine the best approach for your unique situation.
