PMI, or Private Mortgage Insurance, is a way for mortgage companies to be protected in case of the borrower defaulting on their loan. It’s additional money that you have to pay every month on your mortgage. How can you avoid PMI in Texas on your mortgage?
Borrowers will usually require PMI if the borrower is putting less than 20% down on a conventional mortgage, and you can then get rid of it after you build your equity up to 20%.
PMI is sort of a necessary evil for many mortgage programs. For homeowners that don’t have the ability to put down 20% on their home, which is a group growing every year, this is a path to home ownership and wealth building.
It is money that you pay each month that does not go towards paying off your home though, so that needs to be weighed.
A couple of ways to keep from paying PMI:
Making a larger down payment can both help you avoid having to pay PMI, but also lower your monthly payment. You can also likely get a lower interest rate, cut down on fees and build equity more quickly.
VA Loans, which are loans guaranteed by the Department of Veterans Affairs, are mortgages offered to current and veteran military service members and their spouses. While they will require a one-time funding fee, they are PMI-free.
Many states have mortgage and down payment assistance programs that help first-time homeowners that qualify. The programs can include low-down-payment options and keep PMI off of your loan, or offer lower rates on PMI.
USDA Loans, eligible for many suburban and rural borrowers, do not have PMI baked in. However, they do have two fees that replace it. They require an upfront guarantee fee of 1 percent of the loan amount, along with an annual 0.35 percent fee.
The upfront fee is often rolled into the loan financing and is paid at closing, while the annual fee is part of your monthly payment and is paid throughout the whole loan.
Sure, if it’s possible, you should avoid paying PMI in Texas. However, it’s not a reality for many borrowers, who want to buy a home and can’t afford a 20% down payment. PMI is not a bad thing, just necessary for many borrowers who don’t have another option, and it isn’t forever.
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