PMI or Piggyback - Smart Tips Provided by GetSmart.com

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Many searching for a new home may be confused by the lending process and how much money to use for a down payment. For those who are getting ready to purchase a home and do not have 20 percent down payment, rest assured, there are some options. Whether choosing private mortgage insurance (PMI) or looking into a piggyback loan, here are some suggestions provided by GetSmart.com about what is available when purchasing a home with a low down payment.

Many searching for a new home may be confused by the lending process and how much money to use for a down payment. For those who are getting ready to purchase a home and do not have 20 percent down payment, rest assured, there are some options. Whether choosing private mortgage insurance (PMI) or looking into a piggyback loan, here are some suggestions provided by GetSmart.com about what is available when purchasing a home with a low down payment.

What is PMI?

Private mortgage insurance or PMI is a financial product that protects your lender from the chance you may not repay the money you borrowed for a home. If the down payment on your new home is less than 20 percent, typically lenders will require this insurance which protects the lender from loss. The good news is, once you have built 20 percent equity in your home, you can contact your lender and have PMI removed.

Avoid PMI through a piggyback loan

The second option is to obtain a piggyback loan. A piggyback loan can eliminate the need for PMI because the money from the second loan acts as a down payment and avoids PMI all together. The catch is that the piggyback would be a second mortgage, and therefore, it could have a higher interest rate than your first mortgage.

What option is right for you?

When choosing between paying PMI or getting a piggyback loan the most important question to ask is what is more expensive? Does it cost more in loan origination costs and through the costs a higher interest rate incurs to get a piggyback loan or does it cost more to pay PMI? Ask your lender to draw out a financial chart to show you a comparison between both options based on your particular situation.

The piggyback loan oftentimes looks like the clear winner. But not always. If you intend to own your home only a few years, the mortgage insurance might be less expensive than the piggyback. Consider also that the piggyback could be paid off while mortgage insurance could be difficult to eliminate.

Having options when it comes to purchasing your new home is a good thing. But, make sure to do your research in advance and ask your lender to help you make a prudent home buying decision.

About GetSmart®

GetSmart is a leading financial services marketplace that offers borrowers access to a range of home loan products from a network of more than 250 lenders. Consumers who visit the site at http://www.getsmart.com fill out a short and simple form to be matched with up to five lenders.

GetSmart is owned and operated by LendingTree, LLC, which is part of IAC Financial Services and Real Estate, an operating company of IAC (NASDAQ: IACI), which also owns or operates LendingTree Loans sm, LendingTree Settlement Services, LLC, RealEstate.comsm, Domania®, and iNest Realty, Inc.

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ALLISON VAIL
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