Mortgage insurance is often a necessary cost for homeowners, particularly those who put down less than 20% when purchasing a home. In Washington, that cost can add up, impacting your overall monthly payment. However, there are several strategies you can employ to reduce your mortgage insurance premiums and potentially save significant amounts over time.
1. Increase Your Down Payment
One of the most effective ways to reduce mortgage insurance premiums is to increase your down payment. By putting down 20% or more, you can typically eliminate private mortgage insurance (PMI) entirely. In Washington, where home prices can be high, this might be challenging, but saving up for a larger down payment can save you money in the long run.
2. Improve Your Credit Score
Your credit score plays a pivotal role in determining your mortgage insurance premiums. Lenders view borrowers with higher credit scores as less risky, meaning they are more likely to offer lower premiums. Before applying for a mortgage, take steps to improve your credit score. Pay down existing debt, make payments on time, and avoid opening new credit lines to boost your score.
3. Shop Around for Lenders
Not all lenders charge the same premiums for mortgage insurance. It’s essential to shop around and compare offers from different lenders. Some may offer lower rates or different insurance providers that can save you money. Be sure to investigate all options before settling on a lender for your mortgage.
4. Consider Lender-Paid Mortgage Insurance (LPMI)
Lender-Paid Mortgage Insurance (LPMI) is an alternative to traditional mortgage insurance. In this scenario, your lender pays the mortgage insurance on your behalf in exchange for a slightly higher interest rate on your loan. While this may increase your monthly payment, it can eliminate the cost of mortgage insurance upfront and may save you money if you plan to stay in your home for a longer period.
5. Regularly Review Your Mortgage Insurance
Many homeowners don't realize that mortgage insurance can be removed once you have enough equity in your home. In Washington, as soon as your equity reaches 20%, you can request the cancellation of PMI. Keep track of your home’s value and your equity, and don’t hesitate to contact your lender for a review if you believe you qualify for the removal of mortgage insurance.
6. Pay Down Your Mortgage Faster
Making extra payments on your mortgage can help you reach that 20% equity mark more quickly. Whether it’s by making bi-weekly payments instead of monthly ones or putting any windfalls such as tax refunds or bonuses toward your principal, these actions can significantly reduce the time it will take to cancel your mortgage insurance.
7. Home Improvements to Increase Value
Another way to build equity in your home more quickly is through strategic home improvements. If you’re capable of boosting your home's market value—such as through renovations or landscaping—you may find that your equity increases, allowing you to drop your mortgage insurance sooner.
By implementing these strategies, you can effectively reduce your mortgage insurance premiums in Washington, making homeownership more affordable in the long run. Be proactive about your mortgage and consider consulting with a financial advisor or mortgage expert to tailor the best approach for your financial situation.
