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I want to purchase a home using a conventional 30 year loan @ 3.50% interest. I want to get out of paying the Private Mortgage Insurance. I understand I need to pay upfront more than 80% LTV. I understand that this is the loan to value ratio. Is the value, the value of the sales price or the appraisal price?

Let's say that the home cost $130,000 and the appraisal was set at $160,000.

In a different scenario, If I pay down payment of 5% instead of 20%. How can I calculate, when I get to 80% LTV? Do I need to include the interest?

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    To avoid PMI, you need to borrow less than 80% of the purchase price of the property. (In some places, purchasing the property itself counts as a de facto appraisal.) Calculating how long it takes to get away from the PMI is a standard "amortization schedule" calculation -- but note that to maintain a constant payment amount a large portion of your early payments will mostly be going into interest rather than significantly reducing the principal, so this may take longer than you would expect. – keshlam May 19 '15 at 3:10
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I have bought two houses with 10% down and no PMI in loans structured by the mortgage broker with primary mortgage at 80% of the value, and a second loan for 10%. In the first case, a HELOC with the same bank; in the second case, a secondary mortgage at a second bank.

Do not expect to get the same best rate of 3.5% on a secondary mortgage. It's riskier for the bank, so it's going to be a higher rate. However, unlike PMI, it's deductible interest, and the principal balance is relatively low, so it's pretty manageable to pay off early. You should be able to make a comparison spreadsheet to determine if this would be cheaper than PMI.

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Prior to closing your mortgae broker should be able to give you a PMI disclosure & amortization schedule to show how much you will be paying within the term (usually no more that 10 years or less) if you decide to put down less that 20% of LTV.

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