To be clear, the "no MI" option is not available with an FHA loan.  Many buyers falsely believe that there exists a government agency called FHA that loans out money to first time buyers, etc.  WRONG!  FHA is a type of government insured loan, and "government insured" means "mortgage insurance."  In fact, when taking out an FHA loan, a borrower is required to prepay several months of that mortgage insurance before the loan ever closes!  The loans are not offered by the government, but from some of the same lenders that provide conventional financing.

So let's start at the beginning.  Many reference sources will state that private mortgage insurance- (PMI) is required on all purchase loans where the loan amount covers more than 80% of the appraised home value. WRONG!  Although unsuspecting homeowners are often lured into thinking loans with mortgage insurance are to their advantage,  there are some distinct disadvantages!  Take a couple who want to purchase a $100,000 home and they only have 5% as a down payment on a 30 year fixed loan.  While an FHA loan and a loan with MI may seem to help them achieve their immediate goals (quicker affordability, opportunity for a larger home with less down, financial leverage) they may not see the downside.  The borrowers in this scenario may pay up to $60 per month in mortgage insurance.  Over a time span of 5 years, that $60. per month adds up to $3,600 - thrown out the window with no return and no tax deduction!  So why not obtain a 95% loan or an 80/15/5 piggyback loan and save all that money?!

Home buyers have a couple of alternatives to take advantage of paying no mortgage insurance.  The first alternative is called a "piggy back" loan.  This type of financing involves a first and a second mortgage that may total up to 100% of the appraised value of the home.  The first mortgage is generally an 80% loan, and the second mortgage will cover the remaining 5,10, 15 or even 20% of the purchase price.  The second mortgage is always at a higher interest rate than the first mortgage, but keep in mind that the interest paid on the first and second mortgages is in most cases tax deductible and the payment will end up being less than if you were to pay mortgage insurance.*  So not only will the home buyer save money on a monthly basis by avoiding mortgage insurance, but there will be an increase in tax deductions as well!  The other alternative is taking out a single loan from a source that offers financing with a "no mortgage insurance" or "no PMI" option.  The rates on no PMI loans may be slightly higher than loans with mortgage insurance (although rates are generally lower than FHA loans, and may be lower than PMI loans overall) but again, the interest is tax deductible whereas the money paid out on mortgage insurance is gone forever.  Single loans with a no MI option are available up to 103% of the appraised value of the home.  That means if a home sells for $100,000, a loan may be available in the amount of $103,000. with the extra $3,000 applied toward closing costs!  You may apply online by clicking the following link loanbizinc.com and your application will be forwarded to a loan officer that assists with purchase loans without mortgage insurance.