Most of us can’t afford a 20% down payment. Let’s face it—that’s $30,000 you’d need to save for a $150,000 home! But that’s what it typically takes to avoid something called private mortgage insurance. There is a way around PMI. We’ll tell you about that in a moment. First let’s explain exactly what PMI is. Private Mortgage Insurance is insurance that gives the lender a little extra peace of mind with homebuyers who are investing less money up front. PMI for a 150 thousand dollar home with ten percent down will cost about 800 dollars up front and about 400 dollars a year for roughly a decade. The extra money you pay is not tax deductible and neither is the amount you pay up front. But, there’s an easy way around PMI. Take out another mortgage so your down payment does add up to 20 percent. Say you’re putting ten percent down on your 150 thousand dollar home. 

To avoid PMI, you’d just borrow another ten percent, or 15 thousand dollars, from another mortgage lender. Combined, you’d have 20 percent to put down and you’d avoid PMI. Now, your second mortgage would last 15 years—not 30. And yes, you’d pay a slightly higher interest rate. But the interest on THAT mortgage IS tax deductible. And when you’ve paid off that second loan, you’ll have built considerably more equity in your home than if you’d just put ten percent down and paid the PMI.