f you're entering the home half a percent of the loan
buying process, the term amount).
PMI will probably pop up on
your radar. So what is PMI, and This is not to say that PMI is
what does it have to do with your all bad. It helps people with bad
bottom line? credit (or those who can't afford
a 20% down payment) obtain a loan
Private Mortgage Insurance, or they wouldn't otherwise be able
PMI, is required on most to obtain. So for some, PMI is
mortgages with a loan-to-value the only path to homeownership.
ratio of 80% or more. In other But for others, PMI is more
words, if you put less than 20% avoidable.
down when buying a home, you will
probably have to pay PMI. Even if you can't afford a 20%
down payment, there are ways to
A third-party insurer provides avoid paying PMI:
PMI to protect the mortgage
lender. This is a critical point. PMI Sidestep #1:
Many homebuyers think PMI is You can get an 80-10-10 loan. In
designed to somehow protect them, this option, you would pay 10%
but this is not the case. PMI down and then obtain two loans
protects the lender in case you for the remaining 90%. And
default on your loan. because no single loan accounts
for more than 80% of the home's
The only way PMI benefits a buyer value, you would avoid having to
is by helping them qualify for a pay PMI. Interest on the second
loan in the first place. Beyond loan (the loan for 10%) will be
that, PMI does nothing for the higher, but the two loan payments
homebuyer is merely one more combined will still probably be
thing to pay each month (normally lower than a single loan with PMI
on top. month with less of a write-off.
PMI Sidestep #2: Bottom line: PMI can help some
Another way to avoid PMI (while people qualify for a loan who
putting less than 20% down) is to might not qualify otherwise. But
pay a higher interest rate. in most cases, PMI is best
avoided if at all possible -- or
Here's the key to the two discontinued as soon as you reach
approaches above. Mortgage the 20% equity mark (80%
interest is tax deductible -- PMI loan-to-value or lower).
is not. In the options above,you
could conceivably pay less each * Copyright 2006, Brandon
month and have more to write off Cornett.
at tax time. With the PMI option,
you might end up paying more each
About the Author:
Brandon Cornett is the editor of http://HomeBuyingInstitute.com, one of the Internet's largest and most respected libraries of home buying information -- more than 100 expert articles in 12 different home buying categories! Put this knowledge to use by visiting http://www.HomeBuyingInstitute.com.
Source: www.isnare.com
