For conventional mortgage loans, the general down payment formula is pretty straightforward. Most lenders require 20 percent down, and for borrowers who are unable to meet this sum up front, private mortgage insurance (PMI) is often required to protect the lender from the risk of default.

At Community Lending Group, we have certain loans that will allow you to avoid costly insurance premiums. There are also a few other ways to circumvent or avoid insurance payments within conventional loans – let’s take a look at these.

Single Premium

A single premium structure for PMI allows you to make a single lump payment at closing. Think of it this way: If your mortgage amount is $250,000 and you can only put down 5 percent, or $12,500, you’ll likely have a PMI of 2.5 percent, or $6,200. That may seem like a lot, but if you factor that out over the five-year period by monthly payments, you’ll pay closer to $10,000 in monthly premiums. If you can come up with the lump sum up front, you can save thousands.

Low Down Payment Loan

Not all conventional loans require PMI even with a smaller down payment. These loans may come with higher mortgage rates, depending on the market and your credit score. But for some people, that trade-off is worth it to avoid PMI.

Lender Pays

Another situation where a lender will charge higher rates is when they themselves pick up the mortgage insurance. This larger amount of interest you pay might be tax-deductible in some situations, making this a win-win option if it’s available.

Pay the 20 Percent

The simplest way to avoid paying private mortgage insurance is to pay the 20 percent down payment. This will allow you to receive lower mortgage rates plus avoid PMI.

Piggyback Loan

If you can get most of the way to a 20 percent down payment but just fall a bit short, a separate loan can make up the rest of that. If you can afford to temporarily make two loan payments to get back to even, this is a good way to avoid insurance.

Interested in learning more about mortgage insurance or any of our other mortgage services? Speak to the brokers at Community Lending Group today.