Appraised Value

• Lender stipulations afford homeowners the ability to forgo paying mortgage insurance premiums by putting down at least 20% of the total sales price of the property. However, a lesser-known fact is to take into account the appraised value of the property. Once a home acquires at least 20% of equity in comparison to the loan amount, the mortgage insurance premium is no longer necessary.
  
  So the question is, what does that have to do with the appraisal? Simply, the appraised value of a property is derived by an independent assessment taken from a licensed state appraiser that evaluates the property's value and worth as determined by improvements and market value to the property. The minimum 20% equity requirement can be reached by either adding significant improvements to a property or purchasing a property for a very large discount, thusly eliminating the need for private mortgage insurance (PMI).
  
  

Conventional Loan Option

• While the normal requirement for a loan is to have at least 20% to put toward the sales price of the property in order to avoid mortgage insurance premiums, there are loans available to consumers where such things can be avoided.
  
  A conventional loan, for example, can be an 80/10/10 loan. What this means is that a consumer will take out a primary loan of 80% of the sales value of the property, a secondary loan of 10% of the total loan amount and finally a loan of 10% that goes towards the down payment. In simple terms, this gives consumers the option of financing the down payment into the loan amount.
  
  The loan of the down payment can come with a lesser interest rate when compared to the cost of what many mortgage insurance premiums will incur over time. In many cases, an 80/10/10 loan will only be granted to consumers with exemplary credit histories and who have demonstrated no late payments within at least 12 months prior to application for the mortgage.
  
  

Making Decisions

• While mortgage insurance premiums are a necessary evil for most homebuyers in the market, it is important to decide whether or not a conventional loan is most suitable, when compared to a more straight-laced FHA loan. Consumers need to understand that using a 80/10/10 loan that two loans will need to be paid each month in order to maintain the home, or choose to pay mortgage insurance for several years will be less expensive in the long run. Either way, the decision should be made based on how long you are planning to live in the home.
  
  If you are planning to live in the home for less than 5 years, paying mortgage insurance would (in many cases) be less expensive than taking out two mortgages on the property. However, if planning on living the home for over 5 years, a conventional loan scenario should be evaluated to see if the savings will exceed the original expense.