How to Avoid Private Mortgage Insurance

Private Mortgage Insurance (PMI) is an insurance product that you buy for your mortgage company to insure that the company does not lose any money on your house if you stop making payments. It provides no protection for you.

	Make a big down payment. The bigger the better. Before buying a house for the first time, make sure you have paid off all consumer debt (cars, credit cards, student loans, etc), having a 3-6 month emergency fund in savings, and a large down payment. A 20% down payment is always excellent. A 100% down pay is the best!
	If you already have a loan with PMI, first work on paying off consumer debts before you work on paying down your mortgage. Consumer debts are almost always more toxic than mortgage debt. Once you are in a good position, the mortgage companies are generally required to cancel the PMI once you have 20% equity in your home.
	If the home has gone up in value since your purchase, you could get your house re-appraised, and if the amount you owe on the loan is less than 80% of the value of the house, then most mortgage companies will drop the PMI. For example, if you bought a house for $140,000 and borrowed all $140,000 and you have a hot market and your house re-appraises for $200,000 just one year later, then you'll probably still owe around $137,000, but 80% of the value is $160,000, so you owe less than 80% of the value, so the mortgage company would drop the PMI.
	Another alternative, either when purchasing a home or refinancing is to get a piggyback loan. The primary loan will be 80% of your home value, so it will not require PMI. The piggy back loan is a secondary mortgage, that usually has worse terms and a higher interest rate, but requires no PMI since the bank is making more money on interest anyhow. However, READ THE TERMS CAREFULLY. Many piggy back loans have a balloon payment (that is, you have to pay off the entire loan early), and they may have other bad characteristics, such as fees for paying it off early, and the high interest rate may mean that your payment would be higher than if you used PMI anyhow!