Mortgage insurance can be a significant expense for homeowners in Washington, often adding hundreds of dollars to monthly mortgage payments. However, there are effective strategies to reduce or eliminate this cost, making homeownership more affordable. Here are the best strategies for reducing mortgage insurance in Washington.
1. Increase Your Down Payment
One of the most straightforward ways to avoid mortgage insurance is by increasing your down payment. Generally, if you can put down at least 20% of the home's purchase price, you can avoid private mortgage insurance (PMI) altogether. In Washington, where home prices can be steep, saving for a larger down payment may take time, but it can lead to substantial savings in the long run.
2. Shop Around for Lenders
Not all lenders are created equal. Rates and terms for mortgage insurance can vary greatly between different financial institutions. Take the time to shop around and compare mortgage offers from multiple lenders. You may find more favorable terms, including lower insurance premiums, which can save you a considerable amount. Be sure to ask about lender-paid mortgage insurance as well.
3. Consider a Different Loan Type
Evaluate different loan types to see if you can find one that offers better mortgage insurance conditions. For instance, some loans, like FHA loans, have specific mortgage insurance structures that may be advantageous for certain borrowers. As you navigate your options, consider consulting with a mortgage broker to find the best fit for your financial situation.
4. Request an Annual Review
Many homeowners are unaware that they can request a review of their mortgage insurance premiums. As equity in your home increases, especially in a market like Washington, it may be possible to have your mortgage insurer remove PMI if your home has appreciated significantly. A professional appraisal may be necessary, so keep track of your home's market value and request an evaluation once you suspect you have enough equity.
5. Explore Government Assistance Programs
Washington state offers various assistance programs for first-time homebuyers that can help reduce the costs associated with purchasing a home, including mortgage insurance. Programs like the Washington State Housing Finance Commission (WSHFC) can provide down payment assistance or favorable loan terms, making it easier for buyers to avoid hefty mortgage insurance costs.
6. Refinance Your Mortgage
If you've already purchased a home and are stuck with mortgage insurance, refinancing your mortgage might be a smart move. If your home's value has increased and you now have at least 20% equity, a refinance can eliminate your mortgage insurance requirement. Moreover, refinancing might also help secure a lower interest rate, further reducing your monthly payments.
7. Improve Your Credit Score
A higher credit score can lead to better mortgage terms, including lower mortgage insurance premiums. If your credit score has improved since you first acquired your mortgage, consider discussing with your lender the potential for a premium reduction. Regularly monitoring your credit and taking steps to improve it can make a significant impact on your mortgage insurance costs.
8. Utilize a Piggyback Loan
Piggyback loans, or second mortgages, can be utilized to help reduce or eliminate the cost of mortgage insurance. In this strategy, a borrower takes out a second mortgage to cover a portion of the down payment, allowing the first mortgage to be less than 80% of the home's value. This way, you can avoid PMI and still get into a home with a smaller down payment.
By implementing these strategies, homeowners in Washington can effectively reduce or eliminate mortgage insurance, leading to more manageable monthly payments and greater financial freedom. Take the time to assess your options, and consult with financial professionals to ensure the best approach for your specific circumstances.
