How to save on your Private Mortgage Insurance (PMI)

Private Mortgage Insurance (PMI) is typically required when a prospective homebuyer doesn’t have a large enough down payment (usually less than 20 percent) to pay for a home. These premiums can cost between a hundred and a few hundred dollars a month. However, there is a way to save money on your private mortgage insurance, so read on to find out how.

1. Cancel your private mortgage insurance (PMI) as soon as you can.

Most PMIs can be canceled once you’ve put enough equity in your home to equal 20 percent of the loan amount, or if the home has appreciated enough to increase the value of your initial investment.

However, this cancellation will not happen automatically; you need to call your bank and get the ball rolling. To pay off your PMI, you’ll need to show the current market value of your home and that you’ve paid back at least 20 percent of the principal you initially borrowed to purchase the home.

To do this, file all your mortgage payments and bring a summary of recent property listings in your area that show the current market value for a standard home similar to yours.

2. Look at government subsidies.

The Federal Housing Administration (FHA) offers what is called an FHA Mortgage Loan. These are not actual loans, but rather provide insurance for home buyers who have low down payments, as low as 3 percent of the home’s market value.

Instead of having to pay for private mortgage insurance, the FHA home loan program insures the loan, which means you can save on your insurance and even get a better interest rate. Not all lenders participate in the FHA program, so look for one in your area. Additionally, FHA home loans are subject to caps that differ by county or region.

3. Are you a veteran?

Through the Department of Veterans Affairs home purchase program, you may be eligible for mortgage insurance coverage through the VA. They’ll insure a purchased home, up to 100 percent financing, and save you the cost of private mortgage insurance (PMI). However, there are limits on the price of the house, and this will fluctuate depending on your region or county.

4. Check with a broker.

Before opting for standard PMI from your bank or lender, ask if you can get your own private mortgage insurance. Sometimes you can find lower rates from a private insurer instead of going directly through your bank.