How to Avoid PMI When Buying a Home

• What is PMI? Private Mortgage Insurance (PMI) is an extra cost added to your mortgage payment when you put down less than 20% on a home.
• Why do lenders require PMI? It protects the lender in case the borrower defaults, but it doesn’t benefit the homeowner.
• Why avoid PMI? It increases your monthly mortgage costs and doesn’t go toward your home equity.
• Good news: There are several ways to avoid PMI when buying a home and save money in the long run.

1. Make a 20% Down Payment

• The simplest and most effective way to avoid PMI is to put 20% or more down on your home.
• Why It Works: Lenders waive PMI when they see a lower loan-to-value (LTV) ratio.
• How to Do It:
  • Save aggressively for a larger down payment.
  • Consider down payment assistance programs.
  • Use gifts or funds from family, if eligible.

2. Consider a Piggyback Loan (80-10-10 Loan)

• What It Is: A piggyback loan splits your mortgage into two separate loans to avoid PMI.
  • 80% of the home’s price is covered by the first mortgage.
  • 10% is covered by a second loan (often a HELOC or second mortgage).
  • 10% is your down payment.
• Why It Works: PMI is typically required only when the primary mortgage exceeds 80% of the home’s value.
• Pros: Avoids PMI while keeping your upfront costs lower.
• Cons: The second loan often has a higher interest rate.

3. Use a VA Loan (For Eligible Military Borrowers)

• VA loans do not require PMI—a major benefit for active-duty military members, veterans, and eligible spouses.
• How It Works:
  • No down payment required.
  • No PMI, even with 100% financing.
  • Competitive interest rates.
• Who Qualifies: U.S. military service members, veterans, and qualifying spouses.

4. Request PMI Removal Once You Reach 20% Equity

• If you already have PMI, you don’t have to keep it forever!
• How to Remove PMI:
  • Once you reach 20% equity (through payments or appreciation), request removal.
  • Some lenders automatically remove PMI at 22% equity, but it’s best to be proactive.
  • You may need a home appraisal to prove your home’s increased value.

5. Refinance to Eliminate PMI

• If you’re paying PMI and have built up equity, refinancing into a new loan without PMI can save you money.
• When to Consider Refinancing:
  • Home values have increased, and your LTV is now 80% or lower.
  • You’ve paid down enough principal to reach 20% equity.
  • You qualify for a lower interest rate, making refinancing worth it.

Final Thoughts

Avoiding PMI when buying a home can save you hundreds of dollars per month and thousands over the life of your loan. While making a 20% down payment is the easiest way to skip PMI, there are additional options to avoiding the cost of PMI.

At Weber Mortgage, we help buyers find the best mortgage strategies to reduce costs and maximize savings. If you’re buying a home and want to explore ways to avoid PMI, reach out today—we’ll guide you through your best options!