In the past, what was a common practice by homeowners to avoid mortgage insurance?

Homeowners commonly took out a second mortgage as a strategy to avoid mortgage insurance, especially when financing a home with a loan amount that exceeds 80% of the home’s value. Mortgage insurance is typically required by lenders when borrowers do not provide a down payment of at least 20%. By taking out a second mortgage, homeowners could receive a smaller first mortgage that stayed below the 80% threshold, thereby avoiding the additional cost of mortgage insurance. This practice allowed borrowers to finance their homes while staying within more favorable loan terms and costs.

Other strategies, such as refinancing, may also adjust the terms or rates of a primary mortgage but do not necessarily circumvent the need for mortgage insurance in the same direct manner. Switching to a conventional loan could potentially eliminate mortgage insurance if the borrower meets the necessary equity requirements, but simply choosing a conventional loan doesn’t guarantee the avoidance of mortgage insurance. Lastly, while personal loans might offer some financial benefit, they generally do not serve as an alternative financing method to avoid mortgage insurance in the context of home buying.