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When most people go shopping for a home, they get what’s called “house fever.” They decide that they want a house, and won’t let anything get in the way of them doing so. It doesn’t matter if they have a lot of debt that they need to take care of, or have no money put away for a decent down payment. Most people won’t wait until they can save up and pay 20% down on a house and then get stuck paying private mortgage insurance (PMI).

Essentially private mortgages insurance is an insurance policy that will pay the bank if you get foreclosed on. When the bank forecloses a home and sells it, usually they don’t get all of their money back, this is where PMI kicks in. The private mortgage insurance policy that the homeowner was paying for will give the amount of money not made up from the sale of the home. If you get a mortgage and can’t afford to give a 20% down payment, usually you’ll get stuck paying PMI depending on the type of loan that you have. You can expect PMI to be about $50.00 a month for every $100,000 that your home is worth.

A lot of people who are on a road to financial prosperity want to get rid of their debts as soon as possible. Who can blame them? A lot of people develop plans to pay off their debts by paying on the one of with the highest interest rate first, or the smallest amount first, and then working their way through all of their debts. Hundreds of thousands of Americans are actively pursuing a plan like this through Dave Ramsey’s Total Money Makeover. He teaches what are called “the baby steps” which includes paying off your debts from smallest to largest.

A very frequent question among his listeners is whether or not people should try to get rid of their private mortgage insurance as part of their debt snowball by increasing their home equity to above 20%. This means making large extra principal payments on your home. After all, PMI is another payment that you have to make every money, who wouldn’t want to get rid of it?

If you’re very close to getting rid of your PMI say by a few thousand dollars, just go ahead and kick butt until it’s gone, but if you would have to pay $5,000 or more on your mortgage, you should wait to try to get rid of your PMI until you have done some other important things first. You should first get rid of your consumer debts, such as car loans, credit cards, personal loans, and the like. You should also put at least three months of expenses in the bank before focusing on paying down your PMI.

The reason for this is so that you have some cushion in your financial budget before going full speed ahead to pay off your private mortgage insurance. You don’t want to be throwing thousands of dollars a month toward your mortgage payment only to have an emergency happen and then find yourself in another big financial mess.

A great way to get a lower mortgage is to buy a less expensive home. Even in a seller’s market you can still get a good deal on a prefabricated home. There are hundreds of different styles and sizes of manufactured homes to choose from if you know where to look!