Some people have successfully avoided the need for private mortgage insurance by using the piggyback loan strategy. With this kind of mortgage lender, you're using more than one loan in order to pay for the real estate. You make a 20% down payment, but only by using a second (piggyback) mortgage to pay for part of that down payment. So, you might have an original loan for 80%, a second loan for 10%, and a 10% out of pocket down payment. This way, you avoid the need for private mortgage insurance.

However, the cost for private mortgage insurance might actually be lower than what you pay for the interest on your second loan, depending on the factors listed beforehand. This used to be rare, but today, private mortgage insurance is tax-deductible. That means that it is now less expensive for some homeowners to get private mortgage insurance than it is for them to go for the second mortgage loan. This law will be in effect until at least 2010. It doesn't apply to mortgage agreements signed before January 1, 2007.

Although private mortgage insurance doesn't affect everyone, for many people, this is an expense they have to pay. Be prepared for it. If you are going to purchase a home using a mortgage, it is important to understand your expenses before you sign on the dotted line.

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