Knoxville Mortgages For First Time Buyers – How To Avoid PMI
There are many different Knoxville mortgages for first time buyers. Oftentimes, these mortgages come with mortgage insurance, which can be a costly expense in addition to your monthly mortgage payment. Depending on your loan type, your mortgage insurance can be anywhere from $50 to $200 or more a month.
What many buyers don’t know is that it is possible to avoid mortgage insurance. Here is how to avoid mortgage insurance when you buy your first Knoxville home for sale.
Quick Review: What Is Mortgage Insurance?
Mortgage insurance is there to protect the investor of a loan should a loan go into default should you start missing payments. Mortgage insurance is typically required on all loans where the buyer doesn’t have a 20% down payment. Mortgage insurance is paid for by the buyer.
Put 20% Down On House
The easiest way to avoid private mortgage insurance is to put 20% down on a home. Unfortunately, that’s easier said than done. It can take time and sometimes be hard to save up that much for a down payment, especially when you want to get into a home now.
For a vast majority of loans, 20% down is the desired amount down in order to avoid mortgage insurance. When there is less than that put down, lenders will often require you to pay for mortgage insurance. When you put 20% down on a home, a lender is only taking an 80% risk on the money they loan you.
Find A Loan Without Mortgage Insurance
Another way to avoid mortgage insurance is to find a loan that has no mortgage insurance.
For those who have served, VA loans never charge borrowers for mortgage insurance. It doesn’t matter how much a buyer borrows, a VA loan never requires a buyer to pay for mortgage insurance. This is a major reason why VA loans are a great option for those who have served.
There are other loan options out there, too, without mortgage insurance. Oftentimes, these loans are offered by local banks and credit unions. Since many credit unions are not for profit, they offer mortgage options that are not all about cost (i.e. why they don’t charge private mortgage insurance.) Credit unions and local banks are able to do this since they keep the loans in-house.
If you’re interested in finding a loan without PMI, do some research and see if the cost is worth doing it.
Consider Lender Paid PMI
In order to avoid paying mortgage insurance on a monthly basis, there is something called lender paid mortgage insurance.
With lender paid mortgage insurance, a lender will purchase the mortgage insurance to protect themselves if a buyer defaults and a buyer will take a slightly higher interest rate as a result. This allows a buyer to avoid the monthly payment of mortgage insurance. And, with a very small interest rate increase, there is not a huge difference to a borrower in their monthly payment.
Depending on how long you may want to stay in a home, lender paid mortgage insurance may or may not be a great idea. If you don’t plan to stay in the house for the full life of the loan or you don’t plan to pay off your loan early, lender paid PMI may not make sense, since you will be paying more over the life of the loan.
Bottom Line: You Can Avoid PMI, Too.
Private mortgage insurance is sometimes a necessary evil. It allows buyers to get into a home when they don’t have a full 20% down payment. Still, with enough research, you may be able to avoid mortgage insurance altogether.
Buying your first Knoxville home is an exciting and overwhelming experience. If you’re like most first time buyers, you may not be sure where to start. If there is anything we can do to help you in your home search, please do not hesitate to contact us. We’ve helped countless homeowners buy their first home and we’d love to do the same for you. Rick can be reached at 865-696-9002 or via email at Rick@KnoxvilleHomeTeam.Com. Kati can be reached at 865-696-1888 or via email at Kati@KnoxvilleHomeTeam.Com.
Are you ready to start your home search? Visit our home search page to get started today. Or, be sure to keep up with our Knoxville First Time Home Buyer’s Blog to keep up with the latest information about buying your first home.