Mortgage insurance is often a significant extra cost that homebuyers face when securing a loan, particularly when they are unable to make a large down payment. In Oklahoma, there are several strategies you can implement to avoid paying mortgage insurance while still achieving your dream of homeownership. Here are some effective methods to consider.
1. Make a Larger Down Payment
One of the most straightforward ways to avoid mortgage insurance is to make a down payment of at least 20% of the home's purchase price. By doing this, you demonstrate to lenders that you are a lower-risk borrower, thereby eliminating the need for mortgage insurance. While saving for a larger down payment might take time, it can save you a considerable amount in the long run.
2. Explore VA Loans
If you are a veteran or an active-duty service member, you may qualify for a VA loan. VA loans do not require mortgage insurance, regardless of your down payment amount. This government-backed loan option is an excellent way to avoid extra costs and provides favorable terms for eligible borrowers in Oklahoma.
3. Consider USDA Loans
For those looking to buy a home in rural areas of Oklahoma, a USDA loan may be a suitable alternative. These loans are designed for low-to-moderate-income buyers and do not require mortgage insurance, making them an appealing option if you meet the eligibility criteria for the program.
4. Look for Lenders Offering No PMI Options
Some lenders in Oklahoma offer loan products specifically designed to eliminate private mortgage insurance (PMI). These options typically require a higher interest rate or a slightly larger down payment than conventional loans, but they can be an excellent way to avoid paying mortgage insurance altogether. It's always worth shopping around to find lenders who provide these kinds of loans.
5. Piggyback Loans
A piggyback loan, or second mortgage, allows you to take out a smaller loan to cover part of your down payment. For example, you could take a first mortgage for 80% of the home’s price and a second mortgage for 10%, contributing the remaining 10% as your down payment. This strategy can help you avoid PMI by keeping your first mortgage at 80% or less of the home's value.
6. Request a Lender-Paid Mortgage Insurance (LPMI) Option
Some lenders offer a Lender-Paid Mortgage Insurance option, where they take on the cost of mortgage insurance in exchange for a slightly higher interest rate. This can be advantageous if you prefer to avoid the additional monthly expense of PMI while keeping your upfront costs low.
7. Monitor Your Home's Equity
Once you've purchased your home, it's important to stay aware of your home's equity. As you pay down your mortgage and if the value of your home increases, you may reach a point where you can request the removal of PMI. In Oklahoma, you generally need to have 20% equity in your home for PMI to be canceled. Keeping track of property value trends can help you time your request effectively.
8. Shop Around for the Best Deal
Different lenders have varying requirements and options regarding mortgage insurance. It's essential to compare different lenders in Oklahoma to find the best terms for your mortgage. Take the time to explore your options and find a lender that meets your financial needs while minimizing additional costs like mortgage insurance.
By implementing these strategies, you can significantly enhance your chances of avoiding mortgage insurance while purchasing your home in Oklahoma. Whether through larger down payments, exploring specialized loan options or strategically managing your mortgage terms, making informed decisions can lead to substantial savings in your home financing journey.
