As I was driving into the office today, I heard a national mortgage company advertising lender paid mortgage insurance, and I thought about how misleading the ad was to the public.
So, here is an overview of mortgage insurance.
What is mortgage insurance? Basically, mortgage insurance protects the lender if you default on your loan. It is not home owner's insurance in any way, and really offers the home owner no protection at all. For a conventional loan, it is not required if you are putting down 20%. For an FHA loan, the MI is always required. And, for conventional loans, it is actually Private Mortgage Insurance, which is why it is abbreviated as PMI. For FHA and USDA, it is just MI.
PMI and MI can vary in terms of cost due to the following factors: Loan type, Loan Amount, LTV, and credit score.
PMI can be removed after a minimum of two years if the loan to value hits 78%. That can happen from additional principle payments or appreciation. Either way, you will likely have to have an appraisal from the banks approved list of appraisers. In fact, they will most likely order the appraisal themselves. You will also have had to have on time payments for at least 24 months.
One hitch with FHA loans is that the MI cannot be removed.....ever. This is a recent change, that is often misunderstood.
So, what's with lender paid PMI? The lender makes the interest rate higher to pay for the PMI. It will usually result in a lower payment versus a payment with normal PMI. The hitch comes in that your rate will be locked in higher. So, if you were to keep the loan for the full 30 years, you would actually pay more than if you had PMI that could be removed.
The point is that the lender isn't paying it for you out of the goodness of their heart. You pay a higher rate. It may be worth it. You may be able to afford a larger, nicer, more expensive home with lender paid MI. But, just know going into it that there are pluses and minuses to this loan product.
If you have questions, don't hesitate to call me at 678-992-3817. If you have feedback, please leave it below!
And, as always, "Make the Wise Move".
You may already know all this information, but I run into a lot of clients that have questions about this. Figured I would get it right from the horse's mouth.
By Keith Loria
Our military personnel do a great deal for our country, and one of the ways the government thanks them for their service is with the VA loan program, which allows both past and current military personnel a better option for financing.
Originally established in 1944 as part of the Servicemen’s Readjustment Act, a VA loan is available for any individual who has served in active duty in any branch of the U.S. military for a minimum of 90 days, and it has helped millions of people and their families purchase a home.
In addition to servicemen and servicewoman, non-active duty personnel, such as individuals in the Army Reserves or National Guard, may apply for a VA-backed mortgage, provided they have completed six years of service. The spouses of deceased or missing military members are also eligible if they have not remarried.
The major advantage of a VA loan is that it doesn’t require a down payment. It also doesn’t have private mortgage insurance. It does require the borrower to pay a one-time funding fee on their purchase, which can be paid up front or financed into the total cost of the loan. The funding fee for regular military members is 2.15 percent of the loan. Reservists pay a fee of 2.40 percent.
According to recent figures by the Department of Veteran’s Affairs, more people took advantage of the program in 2013 than ever before, with close to 630,000 VA loans given out. This was mostly due to historically low interest rates.
Still, many veterans, especially those discharged years ago, often don’t realize that such a benefit exists. That’s why the Department of Veteran’s Affairs has increased its efforts to let veterans know about the VA loan program, and all the benefits it offers.
To qualify, borrowers must show enough monthly income after paying personal debts and housing costs to meet “residual income” levels set by the department. A VA loan must be for a primary residence and the limits on the amount someone can get are based on area median home prices. The 2014 limits range from $417,500 to $1,094,625.
One other important note: borrowers who received a dishonorable discharge from any military branch are not eligible.
To learn more about the VA loan program, contact our office today.
Reprinted with permission from RISMedia. ©2014. All rights reserved.
In Trulia’s 2014 Rent vs. Buy Report, they explained that home ownership remains cheaper than renting throughout the 100 largest metro areas in the United States; ranging from an average of 5% in Honolulu, all the way to 66% in Detroit, and 38% Nationwide!
click here for other interesting details from Trulia's report.
Edited 10/01/2013- I was dead wrong yesterday.
Well, no matter which side of the isle you are on, the government shutdown could affect you. As far as Real Estate transactions go.... this is a big deal.
President Obama said specifically that "Federal loans for rural communities, small business owners, families buying a home will be frozen,"
Yesterday, I went into each of the loan products and what the impact would be. Well, if you aren't already in process, there will be significant delays regardless of the loan product.
Mortgage companies use a system to verify SSN's and another system to verify tax returns/income. These systems are obviously run by the IRS. And, these systems are currently shut down.
Until the government is started back up, cash offers should carry even more weight than normal.
What is a Due Diligence Contingency?
When going into a contract, there are several protections for the buyer. This post will be covering the due diligence contingency. IN other words, the deal is contingent on the buyer doing their due diligence. Due diligence is defined: Reasonable steps taken by a person in order to satisfy a legal requirement, esp. in buying or selling something.
The due diligence contingency is active for a specified length of time. This time is negotiable and can be any length that the parties agree on. The seller will want this as short as possible and the buyer will want this as long as possible. This length of time is called the due diligence period.
The easiest way to describe the due diligence period is a period of time that the buyer can terminate the contract for any reason. This is the time that you will get your inspection completed, get any additional information about the HOA you need to know, and, well, do your due diligence. In other words, discover any and all information that would cause or preclude you from buying the home.
The most common reason that someone terminates a contract during due diligence is that the inspection uncovers an issue that the seller is not willing to fix. However, as mentioned above, the buyer can terminate the contract for any reason. If at any point during the due diligence, the buyer changes their mind, they get their earnest money returned.
Don't hesitate to make an offer!
As many buyers, especially those purchasing below $150,000.00 realize, there is a lot of competition in the market right now. There aren't enough homes being listed and those that are are getting put under contract within days, if not hours. If you want to sleep on it, you won't have the opportunity to purchase it when you wake up in many cases.
So, right now, it is imperative that you put in an offer as quickly as possible, and use the due diligence period to fully investigate it and ensure you want to go forward.
Word of caution:
Some REO companies do not allow for due diligence, they have an inspection period. These are a bit more restrictive in the reasons you can terminate the contract. However, these companies move slowly in responding. You won't have signed contracts for a few days. Until the contract is signed, it is not binding and you can terminate.
No one wants to rush the decision to purchase a home. It is a huge purchase and you want to be sure that this is the home for you. That said, you absolutely cannot handle these decisions the way we have traditionally handled them. You can't 'think about it'. You have to act. Be decisive and know you have protections if you discover something that makes the house not work for you.
Oh, and of course, make sure you have an agent that knows how to protect you, and someone that can explain all the contingencies.
Happy Hunting and good luck!
David and Amanda Blanton
Make the Wise Move!