There’s a cost of homeownership that surprises many first-time homebuyers, one that’s easy to overlook in the excitement of going through the homebuying process.
For example, VA loans don’t require PMI, so if you qualify you could save a bundle. Look into loans insured by the Federal Housing Administration (FHA) or the U.S. Department of Agriculture (USDA).
One strategy to avoid PMI involves getting an 80/10/10 loan where you put 10% down and take out a 10% home equity line of credit and use that to satisfy the 20% down payment requirement.
Some lenders offer loans that allow you to avoid paying PMI in exchange for a higher interest rate. You’ll need to go through a qualification process, but if approved, you’ll be allowed to put down less than 20%.
A savvier approach for a first-time homebuyer might be to buy a “starter home,” a less expensive one that they can comfortably afford without having to incur PMI.