3 Ways to Avoid Mortgage Insurance PMI - YouTube

what's up guys. Trell here better known as Budget Bill and today the topic I want

to discuss is for the people that are wanting to buy a home or if you know

someone else that's in the process of buying a home this video might be for

you or them or anyone else that you know that could benefit from this video and

today we are going to discuss three ways to avoid mortgage insurance also known

as PMI whether it's your first second or third home

it doesn't matter being able to avoid paying PMI is a benefit and a great way

to save money on your monthly mortgage note and also don't forget one of my

previous videos that became a big hit on this channel where I was showing you why

you should not escrow your mortgage so be sure to check that video out but

after this video link in the description so without further ado let's go ahead

and jump right into the video

what the fuck then thanks for sticking around so if it's your first time to

this channel welcome we are glad to have you my name is budget bill and I create

videos to share knowledge and information that could help you save

money I do this for free and all I ask of you in return is a quick click of the

like button as it definitely helps out the growth of this channel so let's

start off with what is PMI private mortgage insurance also known as PMI is

a type of mortgage insurance that buyers are required to pay for if you have a

conventional loan PMI is usually required when you have a conventional

loan and you make a down payment of less than 20% of the homes purchase price but

why is PMI even required I'm glad you asked PMI is required because the

mortgage lenders need more confidence in the buyer to repay the loan so they must

protect themselves in the event that you are unable to cover your mortgage and

ultimately default on the loan so this has been required as a way to lower

their lending risk so as a rule most finance programs charge mortgage

insurance as an additional fee to offset the risk they are taking on by loaning

you the money to pay for your home but as a side note please note that the PMI

fee does drop off after a few years of paying for it or when your home finance

portion drops below 80% of the homes purchase price so obviously the first

way in most common way is to put down a payment of 20% or more on your homes

purchase now majority of the time most people don't have 20% to put down let's

face it that's a lot of money depending on the house price so for example the

average home price here in Texas is around $200,000 and with that a 20% down

payment comes to about $40,000 that's crazy right and just think some of those

people out there that are living in the suburbs in those fancy homes pay

anywhere between three hundred to five hundred thousand dollars for their home

and that comes to about $100,000 in a down payment just to avoid PMI so it's

really something that most people are unable to do so they agreed to pay PMI

insurance in order to buy their home it's easier to pay a monthly fee for PMI

than it is to pay one lump sum up front it's kind of hard

letting that large amount of money leave out your bank account just to buy a home

just to move in and also from an investing standpoint you could

potentially invest that $40,000 into something else that could pay off the

PMI fee and generate some additional passive income but that's a topic for

another video now the next way to avoid PMI is the option of a lender paid

mortgage insurance or LMP I this is common or as majority of buyers main

focus is to just buy a home not to save money in the process I know before the

housing bubble happened potential buyers went in to buy a home and their only

question was how much is my monthly payment going to be they didn't care

about anything else and in doing so most people had the LMP

I attached to their loan without even knowing it they also had variable rates

that lasted for two to five years and then your mortgage would skyrocket into

something most buyers couldn't afford to pay any longer which in turn provided an

economy of homebuyers unable to afford their homes and ultimately had to

foreclose on their property so as a key reminder make sure you understand

everything on the loan estimate from the finance company so you are not left in

the dark on empty promises you can't handle sorry I went down a little rabbit

hole there but but yes LMPI is where the cost of PMI is included in the

mortgage interest rate for the life of the loan not just for a few years that

could be very costly for you if you choose this option which I would never

recommend anyone go this route this option will cause you to end up paying

way more money in interest over the life of the loan I don't recommend it but it

is an option and then we have our third way which is my favorite option which is

to split the mortgage up into two mortgage loans is that even a thing oh

yes it is yes it is it sounds weird but let me explain so every primary home

purchase I have made I typically do what's called an eighty fifteen five

long what that means is I would split my loan up into two loans one longworth 80%

of the homes purchase price the second loan worth 15% of the home

purchase price and then I pay a down payment of 5% on the homes purchase

price and with all of that you have a total of 100% of the homes price covered

now remember PMI is required by mortgage companies if you finance more than 80%

of the loan so this way I am only financing 80 percent on the first loan

or mortgage company and then I finance the other 15% with another mortgage

company so therefore I meet the requirements of not financing more than

80 percent with one mortgage company I know that might sound a little tricky to

the brain but trust me I've done it on both of my primary home purchases so

rewind it to this point right here so you can listen again and grasp this

concept we want you to save money on PMI fees but if you've grasped the concept

in great Hey moving right along so for my home I originally had to pay

two mortgages to two different companies but with technology online payments and

auto payments this process is super simple to set up I ended up setting up

my primary bank to send payments to both mortgage companies every month and now I

don't have to worry about it then as time progresses the value of the home

should increase and you would have paid down both mortgages then you could

potentially finance both loans into one loan as long as it's not more than 80

percent of the value of the home I usually advise all of my colleagues and

friends to research this option so they can to avoid PMI fees that basically

have no value to the buyer it is only a value to the mortgage

company as they make more money off of your loan now I'm not saying that they

don't actually buy additional insurance coverage but who knows right all I know

is they charge you a fee of 100 to 250 dollars per month for a PMI insurance

coverage that's almost an additional $3,000 per year of fees that don't go

towards your mortgage loan I call it a wasted money and Budget Bill doesn't

like to waste money especially when there is a loophole I mean another

option to avoid wasted money so if you are

one you know is in the process of buying a home be sure to research this option

online as well as with your finance company you are using now beware not all

companies offer this option and none of them will actually offer it to you on

their own you have to actually ask them about it and if your current mortgage

company doesn't offer it or have that available then you should actually shop

around for another company or use a loan officer broker that shops around for the

best deals and uses several mortgage companies to choose from they also have

other alternatives such as 80/10/10 which operates the same as my 80 15-5

loan so check it out if you have any questions whatsoever about this option

to avoid PMI be sure to ask them down in the comment section I try to respond to

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next video