How to avoid paying mortgage insurance on your next home

If we are being honest most of us could use a little more money. If you happen to be one of the few that doesn't need more money then you likely got to that point by having an eye for a deal. In either case I have a simple tip that anyone can use to potentially save them 20% on their next home purchase. That is potentially tens of thousands of dollars of market value. The reason 20% is important is that this is the point that you can stop paying mortgage insurance or PMI on your home with certain loans*.  I am going to summarize the main points you need to know in a few questions and answers.

What is mortgage insurance?

• Mortgage insurance is that pesky payment that does nothing for you, I repeat you get NO benefit out of mortgage insurance. You not only get no benefit from it, but most people cannot get a loan without it unless they are putting 20% down. If you are thinking what is this mortgage insurance you speak of? Simply put it is there to protect the investment of the lender in case you default on the loan. You pay every month to ensure the investment of the lender and it never lowers the amount you owe, now does it afford you any more protection it is solely to protect the bank.

What is the tip?

The tip is simple, mail all the houses in the neighborhood a letter. This sounds incredibly simple and it is, but the last time I used it I saved my client almost $200,000 on the purchase of their home (market value was $1,720,000 and we got it for $1,550,000). 

• So a couple questions that often come up, first where do I get a list of addresses and what should the letter say?
• The list of addresses is public information and should be available through the county of where the house is located, alternately you could ask a realtor that you know/trust to get it for you. 
• The letter should be short and to the point because people will not read it if it is lengthy. It should simply state what you want to do, namely buy a home in their neighborhood and list the reasons why they should consider selling.

The Envelope

• The most important thing you can do is avoid using a standard sized envelope. This is the most likely to be discarded since that's what bills and everything else comes in. Use a stationary or any square type envelope to increase your chances that they will open your letter. If you can hand address it or use a handwritten type font so much the better, the idea is that you want it to stand out from the rest of the mail. 

You can try the open market but that is where everyone is so the odds of finding a deal are slim. Your best bet is to think outside the box and do something few or no other people are doing. If you are working with a realtor then run this idea by him/her, it may not work for everyone but if you are looking in a specific area then it could work very well.