If you put less than 20% down on a home, many mortgage lenders require that you take out private mortgage insurance. The insurance can cost you several hundred dollars. It's there to protect the lender should you default.

At closing, you will pay anywhere from a couple months' premiums to more than a year's premium, in advance.

To avoid this insurance, make a 20% down payment … or, obtain an 80/10/10 loan. This type of loan is subdivided so that the primary mortgage lender gives you an 80% loan, and your loan officer also finds you a 10% loan that becomes your "second mortgage." Those two loans are coupled with your 10% down payment. The primary lender still has less risk involved in this scenario, and will often waive the PMI.

PMI is a good thing to have in a worse case scenario -- you suffer a job layoff or a disability. If you are not able to keep your home, the lender will allow you to sell your home up to 20% below market value. This is because the PMI is, in effect, insuring 20% of your home's value. This will allow you to produce a quick sale and pay off the mortgage, thereby saving your credit.

Be sure and ask your loan officer when the PMI can be removed from your loan. Typically, it's the point where you've accumulated 20% equity in your home.

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