When it comes to buying a Dallas Fort Worth property, the last thing you want is to have to pay an extra fee for Private Mortgage Insurance, or PMI. Let’s look at ways to avoid paying PMI when buying a home in Dallas Fort Worth, and how to keep your monthly mortgage payments as low as possible:
What Is Private Mortgage Insurance?
It’s normal for purchasers to get carried away with the excitement of closing on their new home and sign on the dotted line before fully comprehending the key elements of their mortgage.
PMI is an insurance policy taken out by the lender with premiums paid by the homeowner. The monthly payment for the premiums is simply added to the owner’s monthly mortgage payments – so it can be easily overlooked by an inexperienced owner.
This insurance policy’s primary purpose is to cover any losses incurred by the lender if the new homeowner fails on their mortgage. PMI does not exist to help the homeowner and is solely in place to protect the mortgage lender’s financial interests.
Now, let’s look at some ways to stop yourself from ever having to make a single PMI payment.
The All-Important Down Payment
By far the simplest way to completely avoid those additional PMI payments is to put twenty percent of the total Dallas Fort Worth purchase price down at closing.
This means that, if you are buying a house at $200,000, you would be putting down $40,000 at the time of closing. Putting down the 20% on your new home, signals that you have the necessary funds and also immediately increases your equity in the property.
With both of these qualifications satisfied, the lender can relax, and you’re automatically less of a potential liability to the lender.
Piggyback Mortgage
Taking out a second loan to cover the remaining cost of the missing portion of that 20% down payment is a considerably less common way to avoid PMI.
This is normally done through a home equity line of credit (HELOC) or conventional home equity loan. Keep in mind that the qualifying funds with both of these loans are dependent on the equity you have built in the home already, which is going to be rather limited as you’re already under 20% equity.
After you’ve paid off the remaining down payment, you’ll be free of PMI payments, but you’ll have to figure out how you’ll pay off your new loan sum with the home equity loan. As is customary, run the figures yourself several times to get a clear sense of what to expect.
Lender-Paid Mortgage Insurance
Although less desirable than the previous two options, electing to go the LPMI route does eliminate paying PMI.
The distinction is that the lender pays for the PMI charges in exchange for a higher mortgage rate. This means you’ll avoid paying PMI in lieu of what will almost certainly be higher long-term mortgage payments until you either pay off the loan or refinance for a lower interest rate after accumulating significant equity in the property.
While an option, it’s an immediate potential saving for almost certainly more costs down the road.
Loan Programs
Finally, what is likely the most useful way to avoid paying PMI is to see if you qualify for any local, state, or federal loan programs that eliminate PMI entirely.
VA loans for service veterans and USDA loans for rural Dallas Fort Worth house acquisition and construction are two examples of these types of loans. Contact your local branch of the Federal Housing Administration and explain your home-buying situation to determine whether you qualify for any of these programmes.
Guidance to Avoid Paying PMI When Buying a Dallas Fort Worth House
If you’re looking for ways to avoid paying PMI when buying a house in Dallas Fort Worth, contact us today at 972-284-9713!