How I Ditched My Private Mortgage Insurance (PMI)

When I purchased my first home 12 years ago, I had no idea what I was doing.  I saw the house on a Tuesday, put an offer in on a Sunday, and the road to homeownership began 5 days after my 24th birthday. Because I wasn’t really planning on buying a house at that time, I didn’t have a sinking fund for a house down payment. I simply had my regular savings funded my money I earned in my first real job out of college. Oh, and did I mention that all of this happened in the middle of the recession?

For a little financial transparency on my homebuying process, I took out a 30 year FHA loan on a foreclosed home that needed many repairs and renovations. My loan was equal to the purchase price, plus a little extra for repairs, minus my less than 20% down payment.

Because I purchased a home with less than 20% of the home’s purchase price, I was required by my lender to pay private mortgage insurance (PMI) as a condition of my mortgage loan. According to article 5 Types of Mortgage PMI, “when a borrower makes a down payment of less than 20% of the property’s value, the mortgage’s loan-to-value (LTV) ratio is over 80% (the higher the LTV ratio, the higher the risk profile of the mortgage for the lender)”. PMI was create to protect lenders in case higher risk homeowners default on the loan. While it sucks to pay extra PMI on top of my monthly mortgage payment, this condition did allow me to become a homeowner even though I could afford the 20% at the time.

After 12 years of paying private mortgage insurance, I called my lender today to get it cancelled. I did not need a script that some people try to sell online. I simply called on a whim and asked to cancel my PMI. To be honest, I was not expecting it to be cancelled but rather I was expecting them to tell me I had to get to a certain balance to qualify. I personally believe what helped sway the decision was the fact the value in my home, like many other homes in the US right now. Since the equity value increased it lowered my mortgage’s loan-to-value (LTV) ration and I am now able to save a little more each month on the mortgage.

Other Ways to Avoid PMI

Save 20% Before You Buy a House. It is easy for people in the personal finance community to dish out this piece of advice to potential homebuyers but depending on the circumstances, saving 20% on a home price can be difficult. The Statista Research Department explains that “after plateauing between 2017 and 2019, house prices in the United States saw an increase in 2020 and 2021. The average sales price of a new home in 2020 was 389,400 U.S. dollars and in 2021, it reached 408,800 U.S. dollars”. To purchase a house for $408,800 with you 20% down payment, you would need have $81,760 in liquid funds available.

Are You A Veteran or Active Military? One of the many benefits of a VA loan is that you are not required to pay PMI. This is beneficial because you can buy a home now without having to first save for a down payment.

Getting a Small Loan to Cover the Down Payment A homebuyer may be able to avoid PMI by piggybacking a smaller loan to cover the down payment on top of the primary mortgage. I personally wouldn’t recommend this option, but again, others in the personal finance community do.

Millennial First Time Homebuyers: Send Me Your Questions

Millennials are breaking into the housing market with great force with hopes of attaining one of the biggest stepping-stones to the American Dream- homeownership.   Whether or not the American Dream still exists is questionable, but one thing that is certain is that as the largest active generation in the housing market at 34%, millennials are making lemonade out of lemons and turning the boomerang generation into homeowners.

Millennial First Time Home Buyers | Get Your Questions Answered on She Makes Cents

Buying a house is the largest financial investment that most people make in their lifetime.  Its benefits, especially if the path to homeownership is achieved by establishing better money habits before buying, result in financial rewards throughout the year.

Before buying a home, first-time buyers should save for a down payment, raise one’s credit score, and figure out how much house they can actually afford.  To take the savings benefits one step further, first-time millennial buyers are urged to do a little research of their own to see what tax breaks are available that makes the home buying process a little more affordable.  

Keeping affordability in mind, the housing and financial industries have teamed up to offer resources that make the transition of renting to owning easier for first-time and millennial buyers. By anticipating some of the financial setbacks plaguing millennials, such as staggering student loan debt, the Federal Housing Administration (FHA) have changed the amount allowed to be financed and lowered some of the qualifications to attract young buyers.  I bought my house five days after my 24th birthday with an FHA loan.  This was the best move for me at that time because I was looking for a nice apartment when I came across a property that was priced so well I couldn’t miss out on the opportunity.  I hadn’t saved specifically for a home or better yet a traditional 20% down payment, but I did have enough to put down to secure an FHA loan and become a homeowner by age 24.

Homeownership is affordable, attainable, and provides financial advantages for those who choose this path over renting.  While millennials are changing the narrative of the American Dream, one thing still rings true. Homeownership is still a good way to achieve wealth in the United States and thanks to the financial advantages of homeownership, the dream is so much sweeter. She Makes Cents | Money, Career, & Lifestyle Blog for Goal Setting Millennial Women

Are you thinking about buying your first home and have questions about the homebuying process?  Leave your comment or question below and/or tweet me @shemakescents to have your question answered.