How can borrowers avoid private mortgage insurance (PMI)?

Making a down payment of at least 20% of the home’s purchase price is a widely recognized strategy for borrowers to avoid private mortgage insurance (PMI). PMI is typically required by lenders when a homebuyer makes a down payment of less than 20%. The insurance protects the lender in case the borrower defaults on the loan, as it indicates a higher risk when the borrower has less equity in the property.

When a borrower puts down 20% or more, they are considered to have a significant investment in the property, which reduces the lender's risk. This lower risk often allows the borrower to avoid the cost of PMI altogether, making homeownership more affordable in the long run.

Other options may be helpful in different contexts, such as having an excellent credit score or choosing certain government loan programs, but they do not directly eliminate the need for PMI based solely on the structure of the loan and the down payment. Similarly, refinancing every year would not inherently affect PMI unless it also involved increasing equity through a larger down payment. Therefore, the most straightforward and effective method to avoid PMI is by making a substantial down payment of at least 20%.