What is one way to avoid private mortgage insurance?

What is one way to avoid private mortgage insurance?

• A. Borrowing less than $100,000
• B. Putting 20% or more down when purchasing a home
• C. Choosing a fixed interest rate
• D. Taking out a second mortgage

Answer: (B)

Putting 20% or more down when purchasing a home is an effective way to avoid private mortgage insurance (PMI). Lenders typically require PMI for borrowers who put down less than 20% of the home's purchase price. This insurance protects the lender in case the borrower defaults on the loan. By making a larger down payment, you reduce the lender's risk and, as a result, may be able to eliminate the requirement for PMI altogether. In contrast, borrowing less than $100,000 may not necessarily exempt a borrower from PMI, as this requirement usually depends on the percentage of the down payment relative to the home's value, rather than the loan amount alone. Choosing a fixed interest rate does not impact PMI requirements, as it concerns the structure of the loan itself, not the down payment ratio. Taking out a second mortgage could complicate financing options and does not inherently eliminate the need for PMI if the primary mortgage still requires it based on the down payment size.

Putting 20% or more down when purchasing a home is an effective way to avoid private mortgage insurance (PMI). Lenders typically require PMI for borrowers who put down less than 20% of the home's purchase price. This insurance protects the lender in case the borrower defaults on the loan. By making a larger down payment, you reduce the lender's risk and, as a result, may be able to eliminate the requirement for PMI altogether.

In contrast, borrowing less than $100,000 may not necessarily exempt a borrower from PMI, as this requirement usually depends on the percentage of the down payment relative to the home's value, rather than the loan amount alone. Choosing a fixed interest rate does not impact PMI requirements, as it concerns the structure of the loan itself, not the down payment ratio. Taking out a second mortgage could complicate financing options and does not inherently eliminate the need for PMI if the primary mortgage still requires it based on the down payment size.