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If you're entering the home buying process, the term PMI will probably pop up on your radar. So what is PMI, and what does it have to do with your bottom line?

Credit Pacific Service Union Private Mortgage Insurance, or PMI, is required on most mortgages with a loan-to-value ratio of 80% or more. In other words, if you put less than 20% down when buying a home, you will probably have to pay PMI.

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Credit First Service Union A third-party insurer provides PMI to protect the mortgage lender. This is a critical point. Many homebuyers think PMI is designed to somehow protect them, but this is not the case. PMI protects the lender in case you default on your loan.

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Card Credit Mobile Service The only way PMI benefits a buyer is by helping them qualify for a loan in the first place. Beyond that, PMI does nothing for the homebuyer is merely one more thing to pay each month (normally half a percent of the loan amount).

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Card Credit Discover Service This is not to say that PMI is all bad. It helps people with bad credit (or those who can't afford a 20% down payment) obtain a loan they wouldn't otherwise be able to obtain. So for some, PMI is the only path to homeownership. But for others, PMI is more avoidable.

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Credit Public Service Union Even if you can't afford a 20% down payment, there are ways to avoid paying PMI:

9. No Responsibility To Sell Mispriced Products Or Services. Buy. or services listed at an incorrect price, rebate or refund, or containing any other incorrect information or typographical errors. Buy.com shall have the right to refuse or cancel any such orders whether or not the order has been confirmed and your credit card charged. If your credit card has already been charged for the purchase and your order is canceled, Buy.com shall immediately issue a credit to your credit card account in the amount of the charge.

Card Credit Processing Service PMI Sidestep #1

Center Credit Service Union You can get an 80-10-10 loan. In this option, you would pay 10% down and then obtain two loans for the remaining 90%. And because no single loan accounts for more than 80% of the home's value, you would avoid having to pay PMI. Interest on the second loan (the loan for 10%) will be higher, but the two loan payments combined will still probably be lower than a single loan with PMI on top.

Card Credit Service Wireless PMI Sidestep #2

Credit Security Service Union Another way to avoid PMI (while putting less than 20% down) is to pay a higher interest rate.

Credit Report Service Here's the key to the two approaches above. Mortgage interest is tax deductible -- PMI is not. In the options above,you could conceivably pay less each month and have more to write off at tax time. With the PMI option, you might end up paying more each month with less of a write-off.

Blogspot Com Christian Bottom line: PMI can help some people qualify for a loan who might not qualify otherwise. But in most cases, PMI is best avoided if at all possible -- or discontinued as soon as you reach the 20% equity mark (80% loan-to-value or lower).

Christian Counseling Credit * Copyright 2006, Brandon Cornett. You may republish this article in its entirety, provided you leave the byline, author's note and website hyperlink intact.

Credit Federal Service Union About the Author

Credit Monitoring Service Brandon Cornett is the editor of HomeBuyingInstitute.com, one of the Internet's largest and most respected libraries of home buying information -- more than 100 expert articles in 12 different home buying categories! Put this knowledge to use by visiting http://www.HomeBuyingInstitute.com.

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