Appreciation post: That moment I learned about PMI and how to dodge it

I was sitting in my car after a lender meeting last month and just stared at the paperwork. They told me I needed private mortgage insurance because my down payment was only 8%. That would have added about $120 a month to my payment for years. Then my buddy at work who bought a house two years ago mentioned something called "lender paid PMI" and said if I took a slightly higher rate, the lender covers the insurance instead. I ran the numbers and over 7 years with the higher rate I save about $2,800 total compared to paying PMI myself. Found this whole thing after I already had my offer accepted and nearly missed the window to switch. Has anyone else had a lender try to sell you on one version without mentioning the other?

3 comments

3 Comments

schmidt.iris16d ago

Jumped in my own head reading this because I literally made the exact same mistake, like I was the one sitting in the car staring at paperwork (which is a weirdly specific scene, right?). I went with the standard PMI on my first house because my lender just said "this is what you pay" and I nodded like a dummy. Didn't find out about lender paid PMI until a year later when a buddy asked if I had "done the math on the break-even point" and I had to Google what break-even meant. You dodged a huge bullet by catching it in time, I'm still kicking myself for that extra chunk of cash I handed over every month.

blairm7716d ago

$320 a month. That's what I was paying in standard PMI before I did the math and realized my lender paid option would have been $2,400 more upfront but saved me about $11,000 over five years. Just a heads up though, lender paid PMI isn't always the better deal. You usually get a higher interest rate to compensate, so if you plan on selling or refinancing within a few years, the standard PMI might actually be cheaper. I ran the numbers both ways and the break even point for me was around year four. Still kicking myself for not thinking about it sooner.

noahwood16d ago

Well I'll be damned. I used to think PMI was just one of those things you had to pay if you didn't have 20% down, like a tax for being a little short. Never even crossed my mind there was another way around it. Reading this made me realize how much money I probably left on the table when I bought my place a few years back. Makes me want to pull out my old paperwork just to see how bad I got soaked.