Private Mortgage Insurance

Another potentially huge expense that many people don't expect is private mortgage insurance, or PMI.

Private Mortgage Insurance is required on all loans when the loan to value (LTV) is 80% or greater.

That means if you are borrowing 80% or more than the equity that is in your home, you will be required to pay private mortgage insurance.

So What Exactly Is Private Mortgage Insurance?

Private mortgage insurance is insurance that YOU get to pay for in order to protect the lender. If something happens to the property, the lender is protected from absorbing any of the losses. But you'll be the one paying for it.

For many people, a mortgage with PMI is their only option. If you can avoid it however, it's in your best interest to do so. Paying for someone else's insurance isn't the wisest investment that you can make.

If you want to avoid paying for PMI, you'll have to come up with over 20% of the home value as a down payment before you get the loan.

You can consider alternative sources of credit, sometimes borrowing the money elsewhere may be cheaper then paying for private mortgage insurance over the long run.