For many, buying a home is a lifelong dream come true, a significant milestone that signifies financial security and stability. However, along with the joys of homeownership come the realities of monthly mortgage payments, and if you’re like most homebuyers, you’ve probably encountered the term “mortgage insurance.” While this insurance can be a valuable tool for many homebuyers, it’s also an expense that can significantly impact your budget.
The good news is that there are ways to save money on mortgage insurance, and in this blog post, we’ll explore the strategies on how How To Save Money On Mortgage Insurance.
Mortgage insurance doesn’t have to be a burdensome addition to your homeownership costs. By understanding how it works and taking proactive steps to reduce or eliminate it, you can make your homeownership journey not only more affordable but also more financially empowering.
Whether you’re a first-time homebuyer or a seasoned homeowner looking to optimize your expenses, read on to discover the keys to saving money on mortgage insurance and making your investment in real estate even more rewarding.
What Saves Money on Home Insurance?
Here are some ways to save money on home insurance:
- Shop around and compare quotes from multiple insurance companies.
- Bundle your home insurance with other policies, such as auto insurance or life insurance.
- Increase your deductible. A deductible is the amount of money you have to pay out of pocket before your insurance company starts paying for a claim. Raising your deductible can lower your premium.
- Ask about discounts. Many insurance companies offer discounts for things like being claims-free, having a security system, or being a member of certain organizations.
- Make your home more disaster-resistant. This could include things like installing hurricane shutters or upgrading your roof.
- Maintain your home. This could include things like keeping your gutters clean and repairing any damage to your roof.
How Much is PMI on a $300,000 Loan?
The amount of private mortgage insurance (PMI) you pay depends on several factors, including the size of your loan, your down payment, debt-to-income ratio, and credit score. The larger your loan and the smaller your down payment, the higher your PMI will be. Your debt-to-income ratio and credit score also play a role, with borrowers with higher debt-to-income ratios and lower credit scores paying more for PMI.
According to the Urban Institute’s Housing Finance Policy Center, the average cost of PMI for a conventional home loan ranges from 0.46% to 1.50% of the original loan amount per year. This means that PMI on a $300,000 loan could cost between $1,380 and $4,500 per year, or $115 to $375 per month.
Here is a table of estimated PMI costs for a $300,000 loan based on different down payments and credit scores:
| Down Payment | Credit Score | PMI Rate | Annual PMI Cost | Monthly PMI Cost |
|---|---|---|---|---|
| 10% | 720-739 | 0.58% | $1,740 | $145 |
| 10% | 680-699 | 0.98% | $2,940 | $245 |
| 10% | 640-659 | 1.31% | $3,930 | $327 |
| 20% | 720-739 | 0.46% | $1,380 | $115 |
| 20% | 680-699 | 0.79% | $2,370 | $198 |
| 20% | 640-659 | 1.23% | $3,690 | $307 |
It is important to note that these are just estimates and your actual PMI costs may vary. To get a more accurate estimate, you can use a PMI calculator or contact a mortgage lender.
You can also cancel PMI once you have 20% equity in your home. This means that you have paid down your mortgage to the point where you owe only 80% of the original purchase price of the home. You can request that your lender cancel PMI at this time, or you may be able to do so automatically.
Is a $5000 Deductible High For Homeowners Insurance?
Whether or not a $5,000 deductible is high for homeowners insurance depends on a number of factors, including the value of your home, the cost of living in your area, and your personal financial situation.
In general, a higher deductible will result in a lower monthly premium. However, it is important to make sure that you can afford to pay the deductible out of pocket if you need to file a claim.
According to the Insurance Information Institute (III), the average homeowners insurance deductible in the United States is $1,000. However, deductibles can range from $250 to $25,000, depending on the factors mentioned above.
If you have a high-value home or live in an area with a high risk of natural disasters, you may want to consider a higher deductible. However, if you are on a tight budget, you may want to choose a lower deductible.
It is important to weigh the pros and cons of a higher deductible before making a decision. You should also talk to your insurance agent to get a personalized recommendation.
How to Avoid Mortgage Insurance Without 20% Down
There are a few ways to avoid mortgage insurance without 20% down:
- Get a piggyback loan. A piggyback loan is a combination of two mortgages that together add up to 90% of the purchase price of the home. The first mortgage is for 80% of the purchase price, and the second mortgage is for 10% of the purchase price. This allows you to avoid paying mortgage insurance on the second mortgage.
- Get an FHA loan. FHA loans allow borrowers to put down as little as 3.5% on a home. However, FHA loans require mortgage insurance premiums (MIP), which are typically higher than PMI premiums.
- Get a VA loan. VA loans are available to eligible veterans and service members, and they do not require a down payment or mortgage insurance.
- Get a USDA loan. USDA loans are available to borrowers who are buying a home in a rural area. They do not require a down payment, and they have very low mortgage insurance premiums.
If you are not eligible for any of these programs, you may still be able to avoid PMI by making a larger down payment. Even if you can only afford to put down 10% or 15%, this will reduce the amount of money you need to borrow and lower your monthly mortgage payments.
No PMI Mortgage Programs 2023
Here are some no PMI mortgage programs available in 2023:
- Fannie Mae HomeReady: This program allows borrowers to put down as little as 3% on a home with a credit score of 620 or higher. The program also offers income limits, which vary depending on the area.
- Freddie Mac Home Possible: This program is similar to the HomeReady program, but it has a lower credit score requirement of 660.
- USDA Loan Program: This program is available to borrowers who are buying a home in a designated rural area. Borrowers with a credit score of 640 or higher can qualify for a no-down-payment loan.
- VA Loan Program: This program is available to eligible veterans and service members. There is no down payment requirement, and borrowers do not have to pay PMI.
- Navy Federal Credit Union Home Buyer Choice Program: This program is available to Navy Federal members with a credit score of 660 or higher. Borrowers can put down as little as 3% on a home and avoid PMI.
- CitiMortgage HomeRun Mortgage: This program is available to borrowers with a credit score of 620 or higher. Borrowers can put down as little as 3% on a home and avoid PMI.
To qualify for a no PMI mortgage program, borrowers must typically meet the following requirements:
- Have a good credit score
- Meet the income limits for the program (if applicable)
- Make a down payment of at least 3%
Borrowers should also be aware that there may be other fees associated with no PMI mortgage programs, such as origination fees and appraisal fees. It is important to compare offers from multiple lenders before choosing a loan program.
If you are interested in learning more about no PMI mortgage programs, you should contact a lender or mortgage broker. They can help you determine if you qualify for a program and find the best loan for your needs.
Alternatives to Homeowners Insurance
There are a few alternatives to homeowners insurance available, but it is important to weigh the pros and cons of each option before making a decision.
One alternative to homeowners insurance is a self-insurance plan. This means that you would be responsible for paying for any damages to your home out of pocket. Self-insurance can be a good option if you have a high net worth and can afford to cover the cost of repairs or rebuilding your home. However, it is important to have a financial cushion in place to cover unexpected expenses.
Another alternative to homeowners insurance is shared-risk insurance. This type of insurance is typically offered by cooperatives or mutual insurance companies. Shared-risk insurance pools the risk of homeowners in a specific area. This means that if one homeowner has a claim, the cost is spread out among all of the policyholders in the pool. Shared-risk insurance can be a good option for homeowners who live in areas with high insurance rates.
A third alternative to homeowners insurance is homestead exemption. A homestead exemption is a legal document that reduces the amount of equity that is subject to creditors in the event of bankruptcy or foreclosure. Homestead exemptions can vary from state to state, but they can provide some financial protection for homeowners in the event of a financial hardship.
It is important to note that there are some risks associated with not having homeowners insurance. For example, if your home is damaged by a fire or other covered event, you may have to pay for the repairs or rebuilding out of pocket. You may also have difficulty getting a mortgage or refinancing your home if you do not have homeowners insurance.
If you are considering an alternative to homeowners insurance, it is important to talk to an insurance agent to get advice on the best option for your needs.
How to Avoid Mortgage Insurance on FHA Loan
There are a few ways to avoid mortgage insurance on an FHA loan:
1. Make a down payment of 20% or more. This is the best way to avoid FHA mortgage insurance (MIP), as it will eliminate the need for it altogether.
2. Get a lender-paid mortgage insurance (LPMI) loan. This type of loan allows you to avoid MIP by having the lender pay it on your behalf. However, this will typically result in a higher interest rate on your loan.
3. Refinance your FHA loan to a conventional loan once you have 20% equity in your home. Once you have 20% equity in your home, you can refinance your FHA loan to a conventional loan, which does not require MIP.
If you cannot make a down payment of 20% or more, you may be able to reduce the amount of MIP you pay by doing the following:
- Getting a shorter loan term. Shorter loan terms typically have lower MIP rates.
- Improving your credit score. A higher credit score will qualify you for a lower MIP rate.
- Choosing a lender with lower MIP rates. Not all lenders offer the same MIP rates. Be sure to compare quotes from multiple lenders before choosing a loan.
It is important to note that MIP is not the same as private mortgage insurance (PMI). MIP is required by the FHA, while PMI is required by private mortgage lenders.
Conclusion
Mortgage insurance can be a significant expense for homeowners, but there are a few things you can do to save money on it. By following the tips in this blog post, you can reduce the amount of MIP you pay or avoid it altogether.