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Daily Real Estate News  |   February 21, 2006  |   Alternatives to Paying PMI If you have a buyer who doesn’t have enough money for a 20 percent down payment, the buyer can still avoid paying private mortgage insurance (PMI) through financing alternatives. Paying PMI, which compensates the lender if the home owner defaults, adds an extra $10 to $200 to a monthly bill depending on the size of the loan. Here are three strategies for avoiding PMI.
  • Piggyback loans. The borrower comes up with part of the down payment — usually 10 percent — and either the lender or the seller comes up with the rest, usually at a fairly high rate of interest.
  • Lender insurance. Some lenders don’t charge PMI. Instead, they bump up the interest rate and self insure.
  • Reappraisals. When home values are rising quickly, sometimes it is easier to take the PMI and plan to get the house reappraised as quickly as possible. After a minimum of two years, many lenders will drop PMI as long as borrowers can prove they now have 20 percent equity.
Source: MarketWatch, Marshall Loeb (02/21/06)

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