How to Avoid Needing to Pay Private Mortgage Insurance

Whether you rent or make mortgage payments, you’ll have a monthly housing expense — why wouldn’t you want to put that money towards something you own instead of a home someone else owns? 

Of course, the first hurdle is getting financed. Most traditional banks like to see a debt to income ratio of no more than 40%. "I have that," you say, but did you remember that on top of your Mortgage rate comes a hefty payment called Private Mortgage Insurance? This insurance is automatic if your home has less than an 80% LTV. That cost is substantial and can make an otherwise qualified buyer unqualified.

What Is PMI?

PMI (Private Mortgage Insurance) is insurance coverage that protects the lender if a borrower defaults on a home loan.

How Much Does PMI Cost?

PMI rates vary by credit score and other factors, but they typically range from 0.58 percent to 1.86 percent of the original loan amount. 

For example, a $230,000 loan with $15,000 down and a credit score of 680 to 699 might have a PMI of around 1.21 percent, or $217 a month, on top of the standard mortgage payment.

Do you still qualify if you must add that additional payment to your mortgage?

How to Avoid PMI

There are a few ways a borrower can avoid PMI without making a large down payment.

PMI is no longer required once a mortgage’s loan-to-value, or LTV (loan divided by value), has reached 80 percent. This can happen in one of two ways; a homeowner has a large down payment so that the loan’s value is 80 percent of what the home is worth, or the custom home build is managed by a company, like CMGWA, who's intention is to ensure the home has more than 20% equity when they're done so the LTV reaches 80 percent.

Once the home loan’s LTV value reaches 80 percent, PMI is usually no longer required and can be requested to be removed from the monthly mortgage payment. Once a mortgage drops to 78 percent, the federal Homeowners Protection Act requires the lender to cancel PMI automatically.

Build Your New Home With CMGWA

Construction Management Group of WA wants to help you reach your goal of getting your dream custom home built with NO PMI insurance needed. Most of the time, our process saves our clients enough money that at final appraisal they have over an 80% loan to value situation, saving our clients hundreds of dollars on their monthly mortgage payment.

Schedule a meeting with us and we'll explain how we do this.