If you are purchasing your home with less of a down payment than 20 percent your lender may require you to purchase private mortgage insurance to secure your loan.
Private mortgage insurance pays your lender if you default on the mortgage. The premiums can raise your monthly payment by as much as $200 per month. There are however, steps you can take to avoid paying for private mortgage insurance.
You may be able to take out a “piggyback mortgage.” If you have at least 10 percent of your down payment you can borrow the remaining 10 percent. This piggyback loan will come at a much higher interest rate; however, this interest is a tax deductible expense where private mortgage insurance is not.
There are a variety of lenders that offer down payment loans. These lenders get a premium interest rate for their money and the homeowner is able to make the proper down payment to secure a mortgage loan.