Private Mortgage Insurance (PMI) allows prospective homeowners to purchase a home with a less-than-normal down payment. PMI gives your lender insurance or security against those funds until you've built up enough equity in the property. In return for that coverage, the borrower will pay an insurance premium along with the monthly mortgage payment.

Because your down payment is lower, your monthly payments will be higher. The typical rate for private mortgage insurance is about $140 on $200,000. Basically, you're paying for an insurance policy on the balance of your mortgage in case you go into default or foreclosure.

There are benefits and disadvantages to private mortgage insurance. PMI allows many people who can't come up with a 20 percent down payment, like young couples, to still get into the housing market. The downside is the additional cost of the insurance and the fact that the PMI portion of your mortgage payment is not tax deductible. Keep reading to learn how you can save money on your private mortgage insurance.

1. Don't forget your equity.

As you build equity in your home, you'll reach a point where you no longer need the private mortgage insurance. Most homeowners hit this point after just a few short years of making monthly payments. Once you've hit that 20 percent equity marker, you need to look into dropping your PMI. Remember, your lender won't always contact you, so it's important to pay attention to your PMI drop-date.

2. Look into an FHA loan.

The Federal Housing Administration (FHA) was created to help homeowners purchase homes with low down payments. Essentially, the FHA provides insurance on up to 97 percent of a home's mortgage. Although maximum FHA mortgage amounts will vary depending on the county, they typically range between $170,000 and $400,000 for single-family properties.

3. If you're a veteran, you can save on a VA loan.

Veterans' Affairs home loans will insure the mortgage even without any down payment. The money still comes from a private lender, but VA will guarantee it. This can save you on your down payment, interest rates and private mortgage insurance.

4. Look into secondary financing.

Another option is to avoid private mortgage insurance all together. If you're close to a 20 percent down payment but just need a few thousand dollars to make up the difference, you may save more money by taking out a small loan or line of credit to fill in that final few percent. The longer-term savings make make the additional loan worth it.

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