Private Mortgage Insurance Explained
Many first time homebuyers has grumbled about paying private mortgage insurance. This article discusses the subject of private mortgage insurance, also known as "PMI." Private Mortgage Insurance, unless the owners are insane, every business in the United States carries some form of insurance to protect against losses. The various lending institutions that issue home loans, equity lines, and refinances to borrowers are no different. The insurance they carry is private mortgage insurance.Private mortgage insurance protects a lending institution from losses if you default on your home loan and your home goes into foreclosure. Essentially, the lending institution is going to be covered for any shortages between the cost of liquidating the home and the amount of the loan. This is of particular importance to a lender when the housing market pulls back from high valuations. In such a pull back, it is not uncommon to see the total mortgage balance exceed the value of the home. Obviously, this makes lenders uncomfortable. Most homeowners understand the need for private mortgage insurance. The grumbling starts, however, when they find out who has to pay for the insurance. Yes, you the homeowner, are on the hook. As the homeowner, you are paying for insurance that will protect the lender if you default. While this may not seem fair, keep in mind the lender is giving you a rather sizable chunk of money. If you are still grumbling, there is a way to avoid paying mortgage insurance.The 20% Down Rule: If you accept a home loan, the 20% figure will become an extremely important figure. Why? Because 20% is a magic figure in the world of home loans and mortgages. If you make a down payment of 20%, you are not required to obtain or pay for private mortgage insurance.
With PMI premiums running $1,000 or more a year, it makes sense to make a 20% down payment if at all possible. What if you can't scrape together 20% of the home value for the down payment? You have two options: You can either get a piggy back loan, which is getting one loan at 80% of the purchase price and another loan at 10-20% of the purchase price, but with a higher interest rate. OR you're stuck paying PMI, but not forever. Once your equity in the home reaches 20% of the valuation, you can cancel the PMI. Keep a close eye on your equity as lending institutions are under no duty to tell you when the magical 20% figure is reached. Oddly, they almost never seem to remember! PMI, Private mortgage insurance is expensive, but you can avoid it with a sizeable down payment. If you do not have that much money on hand, try to keep in mind your home in Nashville is an investment and the home loan gives you the ability to buy it.
Friday, June 16, 2006
Thursday, June 15, 2006
WHAT YOU NEED TO KNOW TO APPLY FOR A MORTGAGE
Applying for your first home loan might seem like an easy process simply because people buy and sell homes every day. However, buying a home is not like buying a new piece of furniture or even a new car, and applying for a home mortgage can be a time consuming process requiring a lot of patience. But, if you know what to expect up front, the home mortgage process will be much easier and a lot less stressful.The following 3 tips will help you save time and money when researching and applying for a home mortgage to suit your specific needs.
Nashville Home Mortgage Tip #1: Interest Rates - before choosing a lender you will want to shop around to see what current mortgage rates are. Shopping for mortgage rates online is a timesaver and you can frequently find lower rates as well. Some of these companies have hidden fee though, so be careful! Your mortgage rate will affect how much money you have to pay back over the term of the loan, so the lower the better.
Nashville Home Mortgage Tip #2: Fixed or Variable Interest Rate - when it comes to your mortgage there are more options than just a loan you pay back over a set amount of time. You can choose different mortgage interest rates that work best for your current and future situation. So, before you apply for a mortgage do some research on variable and fixed interest rates to find what will work best for you.
Nashville Home Mortgage Tip #3: Down Payment - when first applying for a Nashville mortgage you might not know the specific amount of the down payment you will be required to pay. If you have questionable credit, many times a lender will require you to pay between 10% and 20% of the home's value up front, but if you have good credit you can make a lower down payment AND get a great rate. This depends on the lender, so shop around.
When buying or selling Nashville homes be sure you use a Nashville Realtor that is honest, trustworthy, and a great negotiator, be sure to use Josh Anderson! We save our clients time, money and headaches!
Nashville Home Mortgage Tip #1: Interest Rates - before choosing a lender you will want to shop around to see what current mortgage rates are. Shopping for mortgage rates online is a timesaver and you can frequently find lower rates as well. Some of these companies have hidden fee though, so be careful! Your mortgage rate will affect how much money you have to pay back over the term of the loan, so the lower the better.
Nashville Home Mortgage Tip #2: Fixed or Variable Interest Rate - when it comes to your mortgage there are more options than just a loan you pay back over a set amount of time. You can choose different mortgage interest rates that work best for your current and future situation. So, before you apply for a mortgage do some research on variable and fixed interest rates to find what will work best for you.
Nashville Home Mortgage Tip #3: Down Payment - when first applying for a Nashville mortgage you might not know the specific amount of the down payment you will be required to pay. If you have questionable credit, many times a lender will require you to pay between 10% and 20% of the home's value up front, but if you have good credit you can make a lower down payment AND get a great rate. This depends on the lender, so shop around.
When buying or selling Nashville homes be sure you use a Nashville Realtor that is honest, trustworthy, and a great negotiator, be sure to use Josh Anderson! We save our clients time, money and headaches!
FIRST TIME HOMEBUYERS
Many call it the American dream, but home ownership can become a nightmare for first-time buyers who aren't prepared.
Many buyers get trapped in homes they can't afford because of expensive mortgages that may be Adjustable Rate(ARM), interest -only, or negative amortization.
As you may know, I am a real estate consultant with Keller Williams in Nashville, TN. I think There is a need to educate first-time home buyers because they can be victimized by predatory lenders.
Buying your first home can be a little scary because it's probably the biggest investment you've ever made, but if you are educated by your Realtor with information when you see a loan officer, you're not as likely to get into something that's not right for you or that you will not be able to afford down the road.
Here's some advice on what first-time buyers should do before purchasing a home:
Check your credit rating: The average credit score in the U.S. is 678. Beome familiar with what's on your credit report because you will use it for big purchases and many people are surprised when they see it for the first time. Your credit is affected in a lot of different ways as well.
Credit ratings are used by lenders to determine what interest rate to charge for a mortgage, but not all are accurate. Sometimes bad debts from one person are listed on the credit report of another person with the same or similar name, which can lower a credit score.
Besides mistakes, delinquent debts also can drag down credit ratings. Fix your credit as soon as you can because you get better rates for having a better score!
Pay off bills: Lenders consider all forms of debt when determining how much to lend for a home loan, so buyers can qualify for higher mortgage limits if they first pay off other loans. Never make a big purchase, such as buying a new car, when you are about to buy a home.
Mortgage lenders typically reduce home loan limits by $10,000 for every $50 a couple owes in minimum monthly payments for credit cards or car loans. Couples who owe $500 a month in credit and car payments, therefore, can have their mortgage limits slashed by $100,000.
Calculate what's affordable: Home shoppers routinely are advised to get prequalified for a mortgage so they know how expensive a home they can buy.
But just because a lender says they're qualified for a certain size loan doesn't mean buyers can afford the payments. Always try to get Pre-approved instead of Pre-qualified!
Lenders should look at debt-to-income ratios to determine what people actually can afford to pay every month. This should not exceed 28%.
I think home buyers should fill out a detailed monthly income and expense record.
Just because a mortgage broker says a couple qualifies for a $2,500-a-month loan payment doesn't mean they have that much to spare.
Most first-time buyers don't realize that in addition to paying for the principal and interest on their loan, they also will have to pay property taxes, mortgage insurance and probably more for water, sewer, electricity and gas than they did as a renter.
Be responsible and never buy more house than you really can afford. Just because you are approved for $250,000 does not mean you have to spend that amount. Stay within your means. Do the math. It's smart to figure out what payment you can live with comfortably.
Research loans: Many people think they're getting great loans, but a lot of times they are not. Many mortgages will stick you with hidden fees until yo uget to the closing table or some type of adjustable fee or penalty, so be careful to go with a reputable lender.
Some mortgages require buyers to pay 4 percent of the loan in advance in the form of "points," even when the buyers' credit scores qualified them for upfront payments half that high.
Many buyers also get confused when getting funding from a combination of mortgages, like a first loan that covers 80 percent of the debt and a second loan that covers the remaining 20 percent.
The second loan always has a higher interest rate than the first loan because it's more risky for the lender, but it gets you out of paying the PITI (principal, interest, taxes, and Insurance)
Two loans aren't always necessary. Buyers with a credit score of 680 or higher should be able to get 100 percent financing with one mortgage at a good rate.
I think borrowers should be wary of adjustable-rate loans and those that require interest-only payments.
Pick an agent: Not all real estate agents are equally talented or committed to helping first-time buyers. Some agents do not care or do not want to educate buyers, but this is very important at all stages, particularly for first time homebuyers! There is a learning curve with homebuying and you need to learn and know all the steps. Many first timers do not know what earnest money is and do not understand the purpose, but it is a consideration and it shows the seller that you are serious about buying their property. The higher the earnest money amount, the more serious you look. Typically, you offer 1% of the asking price, but if it is a hot market, you may want to offer more because there will be many offers on the table.
Shop for a home: Start with a condo if you have to and work your way up from there. This is not your forever and ever home, just a starter. You need to realize this is your first home. It is your foot in the door. After you build up equity, then you can move up.
Make deal contingent: Before signing any purchase contract buyers should make sure it lets them get their down payment back if something goes wrong.
These contingency clauses should include a requirement that the home pass an extensive home inspection as well as financing.
Shop around for a good home inspector and be present during the inspection. Your agent should have a list of inspectors, lenders, title companies and anything else you may need. Be present during the inspection if yo ucan and if not, have your agent present. Avoid using any inspector recommended by the seller or the seller's agent.
Buyers also should be able to get their down payment back if the appraised value of the house shows the sales price was too high.
Read everything: Loan documents and sales contracts typically are extensive and complicated. You must read your documents. If you don't understand everything, it's OK to get someone to explain it to you.
Compare what you were told would be in the documents -- interest rates and loan conditions -- with what's printed.
Ask question...do not be embarrassed. Buyers also should be wary of verbal promises that aren't included in the contracts. If it's not in writing, it doesn't exist!
Expect closing costs: Even if a 100 percent loan has been arranged, buyers typically must come up with some cash for required fees.
You should have at least 3 percent of your loan amount available to cover closing costs. Some mortgages will allow you to wrap it into your mortgage, but if you cannot afford the 3%, my opinion is that you should not be buying a house!
I recommend buyers have at least two months worth of mortgage payments in reserve to cover emergencies as well.
FOR MORE INFORMATION: Call me at 615.509.7000 or visit my website at www.joshandersonrealestate.com
Many buyers get trapped in homes they can't afford because of expensive mortgages that may be Adjustable Rate(ARM), interest -only, or negative amortization.
As you may know, I am a real estate consultant with Keller Williams in Nashville, TN. I think There is a need to educate first-time home buyers because they can be victimized by predatory lenders.
Buying your first home can be a little scary because it's probably the biggest investment you've ever made, but if you are educated by your Realtor with information when you see a loan officer, you're not as likely to get into something that's not right for you or that you will not be able to afford down the road.
Here's some advice on what first-time buyers should do before purchasing a home:
Check your credit rating: The average credit score in the U.S. is 678. Beome familiar with what's on your credit report because you will use it for big purchases and many people are surprised when they see it for the first time. Your credit is affected in a lot of different ways as well.
Credit ratings are used by lenders to determine what interest rate to charge for a mortgage, but not all are accurate. Sometimes bad debts from one person are listed on the credit report of another person with the same or similar name, which can lower a credit score.
Besides mistakes, delinquent debts also can drag down credit ratings. Fix your credit as soon as you can because you get better rates for having a better score!
Pay off bills: Lenders consider all forms of debt when determining how much to lend for a home loan, so buyers can qualify for higher mortgage limits if they first pay off other loans. Never make a big purchase, such as buying a new car, when you are about to buy a home.
Mortgage lenders typically reduce home loan limits by $10,000 for every $50 a couple owes in minimum monthly payments for credit cards or car loans. Couples who owe $500 a month in credit and car payments, therefore, can have their mortgage limits slashed by $100,000.
Calculate what's affordable: Home shoppers routinely are advised to get prequalified for a mortgage so they know how expensive a home they can buy.
But just because a lender says they're qualified for a certain size loan doesn't mean buyers can afford the payments. Always try to get Pre-approved instead of Pre-qualified!
Lenders should look at debt-to-income ratios to determine what people actually can afford to pay every month. This should not exceed 28%.
I think home buyers should fill out a detailed monthly income and expense record.
Just because a mortgage broker says a couple qualifies for a $2,500-a-month loan payment doesn't mean they have that much to spare.
Most first-time buyers don't realize that in addition to paying for the principal and interest on their loan, they also will have to pay property taxes, mortgage insurance and probably more for water, sewer, electricity and gas than they did as a renter.
Be responsible and never buy more house than you really can afford. Just because you are approved for $250,000 does not mean you have to spend that amount. Stay within your means. Do the math. It's smart to figure out what payment you can live with comfortably.
Research loans: Many people think they're getting great loans, but a lot of times they are not. Many mortgages will stick you with hidden fees until yo uget to the closing table or some type of adjustable fee or penalty, so be careful to go with a reputable lender.
Some mortgages require buyers to pay 4 percent of the loan in advance in the form of "points," even when the buyers' credit scores qualified them for upfront payments half that high.
Many buyers also get confused when getting funding from a combination of mortgages, like a first loan that covers 80 percent of the debt and a second loan that covers the remaining 20 percent.
The second loan always has a higher interest rate than the first loan because it's more risky for the lender, but it gets you out of paying the PITI (principal, interest, taxes, and Insurance)
Two loans aren't always necessary. Buyers with a credit score of 680 or higher should be able to get 100 percent financing with one mortgage at a good rate.
I think borrowers should be wary of adjustable-rate loans and those that require interest-only payments.
Pick an agent: Not all real estate agents are equally talented or committed to helping first-time buyers. Some agents do not care or do not want to educate buyers, but this is very important at all stages, particularly for first time homebuyers! There is a learning curve with homebuying and you need to learn and know all the steps. Many first timers do not know what earnest money is and do not understand the purpose, but it is a consideration and it shows the seller that you are serious about buying their property. The higher the earnest money amount, the more serious you look. Typically, you offer 1% of the asking price, but if it is a hot market, you may want to offer more because there will be many offers on the table.
Shop for a home: Start with a condo if you have to and work your way up from there. This is not your forever and ever home, just a starter. You need to realize this is your first home. It is your foot in the door. After you build up equity, then you can move up.
Make deal contingent: Before signing any purchase contract buyers should make sure it lets them get their down payment back if something goes wrong.
These contingency clauses should include a requirement that the home pass an extensive home inspection as well as financing.
Shop around for a good home inspector and be present during the inspection. Your agent should have a list of inspectors, lenders, title companies and anything else you may need. Be present during the inspection if yo ucan and if not, have your agent present. Avoid using any inspector recommended by the seller or the seller's agent.
Buyers also should be able to get their down payment back if the appraised value of the house shows the sales price was too high.
Read everything: Loan documents and sales contracts typically are extensive and complicated. You must read your documents. If you don't understand everything, it's OK to get someone to explain it to you.
Compare what you were told would be in the documents -- interest rates and loan conditions -- with what's printed.
Ask question...do not be embarrassed. Buyers also should be wary of verbal promises that aren't included in the contracts. If it's not in writing, it doesn't exist!
Expect closing costs: Even if a 100 percent loan has been arranged, buyers typically must come up with some cash for required fees.
You should have at least 3 percent of your loan amount available to cover closing costs. Some mortgages will allow you to wrap it into your mortgage, but if you cannot afford the 3%, my opinion is that you should not be buying a house!
I recommend buyers have at least two months worth of mortgage payments in reserve to cover emergencies as well.
FOR MORE INFORMATION: Call me at 615.509.7000 or visit my website at www.joshandersonrealestate.com
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