First of all, what is a PMI payment? It is important to understand Private Mortgage Insurance before buying a home. PMI protects lenders in the event that you default on your VA home loan. PMI has allowed some people to own a home with as little as a three percent down payment.
In order for Private Mortgage Insurance to work…
- You must have at least a 3% or 5% (depending on your lender) down payment.
- The lender will only finance up to 80% of the home’s total value. This will minimize the lender’s total risk in your loan.
- The lender will open a PMI policy for your loan. Most of the time, you will pay the total amount of the PMI policy at closing. Sometimes, the cost of the PMI will be divided into your monthly payments.
- In the event that you default on your loan, the lender automatically receives the 15% that you were not responsible for at the closing.
Obviously, PMI payments can be quite significant. In order to get out of paying PMI, you must have more than a 3 or 5% down payment. Sometimes, you can qualify for a second loan. People sometimes use this second loan for their down payment. However, this second loan directly affects the debt-to-income ratio. If this ratio is too low, it could prohibit you from being able to buy a home at all. Down payment gifting programs are also an option. These programs help the buyer make the down payment by indirectly using seller funds.
When all is said and done, there is no way to completely “waive” PMI payments. The only way to fore go these payments in all is to have at least a 20% down payment. If you have a 20% down payment or more, the lender’s risk is minimized on your VA Loan and private mortgage insurance is not a necessity.