Lending institutions sometimes oblige home buyers to purchase PMI, or Private Mortgage Insurance. This increases the cost of owning a home, but enables lenders to avoid the risk they would face if you should stop making payments. Read on to learn about several different ways of how borrowers can avoid having to pay for PMI.

Making a larger down payment will often eliminate the need to pay for PMI. According to federalreserve.gov, most banks do not require it if the borrower makes a down payment of twenty percent or more. Not only will this enable you to avoid it, but the mortgage’s total expense will also be significantly decreased. Some cities have programs which provide low-interest loans to help first-time buyers make a larger down payment. If this is not possible, purchasing a less expensive home with the same down payment would allow the borrower to avoid paying for this insurance as well.

Taking out a second, smaller mortgage on the property is an additional alternative for home buyers to avoid the PMI requirement. Wikipedia.org indicates that this can sometimes result in a lower expense. Be sure to carefully compare the monthly cost of PMI and one mortgage with the expense of two mortgages. With some lenders, Private Mortgage Insurance is paid for in a single large payment when the loan is originated (rather than monthly); with this type, it will be necessary to compare how high the total/overall costs of both options are.

Another potential way to avoid PMI is having the government insure your mortgage. If certain qualifications are met, the Federal Housing Administration or the Department of Veterans Affairs might be willing to provide mortgage insurance at a reduced cost or for free. For the lender, this is the same as PMI, which also makes it easier for you to qualify for a mortgage. Generally, people who have served in the military (esp. during a war) or have a low level of income are more likely to qualify for this.

Finally, a somewhat different alternative to PMI is LPMI (Lender Paid Mortgage Insurance), which is paid by the bank but results in a higher interest rate. Both of these types have their own pros and cons beyond this. If you are unable to find a realistic way of how you can avoid it, keep in mind that you may be able to use the cost of PMI as a tax deduction.