The increase in home values have helped many homeowners right the ship in terms of having equity in their house. Back in January 2012, 41% of homeowners were upside down in terms of owing more on their home than what their house was worth. One year later, only 18% of the county’s houses are underwater. That is great news for the housing industry. Now many homeowners who have been sitting on the sidelines wanting to sell are now able to.
One of the most asked questions, especially from 1st time homebuyers, concerns mortgage insurance. Typically buyers want to understand what it is, exactly, why they need it, and do they have to pay it for the entire term of their home loan.
So… what exactly is mortgage insurance, aka private mortgage insurance or PMI?
PMI is insurance that protects the mortgage lender against default on the note by the borrower. As the borrower, you pay the PMI premium, and your lender is the beneficiary of the policy ensuring that if you stop paying your mortgage, the lender is paid by the insurance company.
Who needs PMI?
You do, if your down payment is less than 20 percent of the appraised value or sale price, you will be required to buy mortgage insurance
How much does it add to your payment each month?
Well that varies depending on the size of your down payment, the loan amount, your credit score and the loan program, but you can generally figure on paying between .4% and 1.5% of the loan amount annually. To determine the monthly amount, divide that number by 12.
How long do you have to pay for PMI?
This answer, once again, varies. It depends on how your mortgage is worded, and some lenders offer programs that allow you to pay the entire insurance premium in a lump sum at closing. But generally if you have a conventional mortgage, you’ll pay for a minimum of the first year of your loan. Once you pay down the balance of your mortgage below 80% of the original purchase price or value, and you’re current on payments, you can request that your lender remove the insurance. You will generally need to have your home re-appraised, which in some cases a change in value will help you meet the equity requirement and get your PMI removed. Once your equity ratio reaches 78% as scheduled, the HPA act requires lenders to remove your PMI under specific rules. FHA loans require you to pay mortgage insurance for at least the first five years, and in order to have it removed, your loan balance must be down to 80% of the original purchase price or value – a new appraisal will not be accepted.
How can you avoid taking out PMI?
Well there are some options, if you qualify or can manage it. Veteran can apply for VA loans, which has no private mortgage insurance. USDA loans have mortgage insurance but at reduced rates. Another option… put down more than 20% as a down payment. Sometimes taking a higher interest rate will eliminate the PMI requirement (lender paid PMI), just do the math to figure out if this option will help your bottom line payment each month. See if you’ll qualify for a combination loan (80/10/10) which includes an 80% first mortgage, 10% down payment, and 10% as a second mortgage. Some banks or lenders offer special loans for certain occupations which may not require PMI. It doesn’t ever hurt to ask!
Bottom line, what’s in it for me?
PMI enables borrowers with less cash to have a greater opportunity to buy a home. Because of PMI, you could potentially purchase a home with as little as a 3-5% down payment.
The Homeowners Protection Act of 1998, or “PMI Cancellation Act”, signed into law by President Bill Clinton protects homeowners rights with regards to mortgage insurance – you can read more about the law here – http://www.federalreserve.gov/boarddocs/caletters/2004/0405/CA04-5Attach1.pdf
The Mortgage Guys welcome your questions regarding your Atlanta home purchase, home mortgage, or refinance. Contact us today!
When you start thinking about putting your Atlanta home up for sale there are many considerations, from where you’re moving, to who’s listing your property, to who’s handling your mortgage. Before you take the next big step and actually list your home it’s important to get it ready to sell, especially as the Atlanta real estate market begins to change.
The Mortgage Guys have listed 10 basic tips for getting your home in tip-top shape for sale. Here’s how to create a “move-in ready” home that will sell faster and for more money:
Remove furniture – makes the house look bigger! Whatever you can live without send to a local storage unit with a month to month rental. A de-cluttered home says there’s plenty of storage space available. Remove knick-knacks – especially personal items, photos, religious items. Buyers want to see themselves in a house, so making your home more generic will help them achieve that feeling. And clean out your closets, bathroom drawers and kitchen cabinets because every buyer considers available storage space.
- OUT WITH THE OLD!
If your furnishings are old, outdated and worn, it might be worth the trouble and expense to replace them with new or gently used furnishings in light, neutral colors and updated styles. Consider visiting a local consignment shop for replacement items from sofas to bedding, accessories to art. This may include updating appliances in your kitchen to stainless steel, which are much in demand.
- CREATE PURPOSE!
Rooms look bigger if you bring furniture in from the walls and create conversation groupings of chairs and sofas, giving furnishings a purpose. And while you’re at it, make sure that every room has a purpose and adds overall value to the home and is easy for the buyer to recognize the purpose of the space.
- FIX IT!
Make cosmetic repairs to woodwork, trim, walls and doors. Ensure carpets are clean and wood floors are finished and without scuffs, scratches and dents. Finish unfinished projects and put tools and ladders out in the garage or shed.
Enlarge the look of rooms by painting adjoining rooms with the same color, creating one larger space. Choose lighter more neutral colors appropriate to each space- bold colors have been known to reduce sales price offers. However, some rooms, like bedrooms can benefit from deeper tones that make the space feel warm, romantic or intimate.
- LIGHT IT UP!
Check to ensure all fixtures have the maximum wattage bulbs in them so that when the Realtor shows your home, they can truly show off the warmth and functionality of the house. Be sure that you have task lighting in the kitchen, ambient lighting in the bedroom, and some accent lighting throughout.
- ODD IS IN!
Interior designers recommend accessorizing with odd numbers, especially three. Arrange your odd counts asymmetrically (in a triangle rather than a row). Choose groupings of varied heights and widths, but select items to group based on a common theme (color, texture…).
- FRESHEN UP!
Bring in freshly cut flowers, stems or greenery from your garden and make them a focal point in your kitchen, dining room, even the bathrooms.
- CLEAN IS GREEN!
A clean home will demand a higher price. Hire a professional cleaning service if you need the help, but be sure to get floors, windows, counters and other surfaces spotless before showing your home. Pet areas need extra attention to prevent unfriendly odors from scaring potential buyers away from your property. Neutralize odors (including the litter box), and add homey scents by baking cookies just before potential buyers come through. The best bet is to make your dough ahead, shape into balls, and freeze. Then just pop a dozen in the oven an hour or so before the appointment.
- DON’T NEGLECT THE CURB APPEAL!
Outside your home requires attention as well. Clean debris from plant beds, mow the lawn and trim bushes and shrubs. Plant brightly colored annuals along walkways or in pots near the entrance. Nothing says “move in ready” like freshly mulched beds. Fertilize the lawn to green it up, same with plants. If you have a porch, add a rocker or two with plush pillows and a book or magazine. You only get once chance at that first impression!
The extra time you spend preparing your home for sale in the Atlanta real estate market can certainly help your house stand-out from other available properties. Staged homes sell faster and for more than their counterparts, so get moving!
While guidelines and rules vary by lender, here’s a basic list of features:
- Your current mortgage must be current on all payments
- You must be receiving a clear benefit from the refinance
- You may not take cash-out on the loan
- Often there are minimal credit requirements and less paperwork meaning the process is faster and less expensive
Current mortgage – up to date and current is the number one requirement, meaning this path is not one for anyone who’s behind or in any danger of foreclosure. Clear benefit means your rate has to drop enough to cover all related fees, or convert from an adjustable to a fixed-rate loan.
What type of mortgages can be streamlined?
FHA – makes it easy to refinance your current FHA mortgage in good standing to a lower rate. FHA has permitted streamline refinances on insured mortgages since the early 1980s. What makes this process streamlined? There is no appraisal, so you can be underwater in your home by a little or a lot, and still be able to refinance your home. Keep in mind that you have to be either lowering your monthly payment or converting from an ARM to fixed rate loan, and you cannot take any cash out on the loan when you do an FHA streamline-refinance. Record low mortgage rates make this option very attractive to borrowers.
VA – also has streamline refinance option for current VA borrowers called the Interest Rate Reduction Refinancing Loan or IRRRL. With the VA’s options, as with the FHA loan, you must be paying less each month or going from an adjustable to fixed rate loan, and again, don’t expect cash back. The VA streamline refinance doesn’t require an appraisal or much credit work and with this loan, you can refinance at no cost as the option to roll the costs of the new loan into the new mortgage. Since VA borrowers have already taken care of their Certificate of Eligibility, the process is much easier and faster than an initial VA mortgage loan.
HARP – is a new mortgage program for homeowners who owe more on their home than the home is worth (also known as underwater). HARP (Home Affordable Refinance Program) and HARP 2.0 offer refinance options for Fannie Mae and Freddie Mac loans older than June 1, 2009, with the loan to value ratio of 80% or more. You must be current on payments of your existing loan. This loan carries limited fees and closing costs. It is possible to have a loan servicer (the financial institution that collects your monthly mortgage payments and has responsibility for the management and accounting of your loan) to be different than the owner of your mortgage. To see if your loan is owned by Fannie Mae or Freddie Mac, visit their websites – Fannie Mae Freddie Mac
Easy = Best?
While a streamline refinance may be the easiest option, it may not be the best option for you and you should shop different options other than your current lender or loan type to find the best rate/cost of the loan especially if you’re not underwater, not in a credit situation, and working at the same job for 2 or more years. Savings on a lower rate may offset the additional time and paperwork required for a more conventional approach to refinancing your home. Call The Mortgage Guys to discuss your options for refinancing your Atlanta home!
For the last three weeks on the Mortgage Guys blog, we’ve been discussing shadow inventory and how it effects the housing market. Shadow inventory refers to the amount of unlisted bank-owned homes that are not yet on the market as well as homes in preforeclosure that are likely headed to a trustee sale and will become bank-owned themselves.
This week, we’ll discuss how new construction helps the outlook of the current real estate market. According to part three of the Wall Street Journal article, new home building has been as its lowest levels since World War II in 2009, 2010 and 2011. This has helped to offset the potential damage from elevated levels of foreclosed properties, because there are fewer new homes available on the market.
Additionally, according to the article, Census data shows the share of vacant homes for rent is down to the lowest level in 10 years, which has a vacancy rate of 8.6 percent. The vacancy rate of homes for sale is down to 2.1 percent, the lowest in six years. However, most financial advisers argue that new construction is still just relatively small amount of the overall housing inventory.
Hopefully, these three posts will help homeowners gain more insight into the housing market. If you have more questions or concerns, don’t hesitate to contact The Mortgage Guys in Atlanta, GA. We’re happy to sit down with you to discuss a variety of financing options that will suit your family best.
Part Two: Shadow Inventory: Part Two of Three
Last week on our blog, we introduced the first of three blog posts examining a Wall Street Journal article that takes a deeper look into shadow inventory, and how it effects the housing market. We introduced shadow inventory as the amount of unlisted bank-owned homes that are not yet on the market as well as homes in preforeclosure that are likely headed to a trustee sale and will become bank-owned themselves.
How banks dispose of shadow inventory and whether there are enough buyers willing to purchase these homes is worrisome to many financial advisers. Bank-owned foreclosures began rising again 2010 after a drop in the volume of bank-owned properties throughout 2009. Since September 2010, banks have been slowing down the foreclosure process, particularly in judicial states where courts are overwhelmed by the number of cases and banks have struggled with documentation of the mortgages they own.
Additionally, non-judicial states have recently passed laws imposing new requirements on banks before they foreclose, which is likely to further slow the process.
Shadow Inventory in Concentrated Markets
As previously stated in the part one of the article, shadow inventory isn’t a national phenomenon. It is concentrated in particular markets, and even in submarkets of those markets. These markets are very specific, and only in certain areas.
Stay tuned for next week’s blog post where we analyze the last of these three posts from The Wall Street Journal. If you have any questions or concerns about shadow inventory and how it effects the surrounding housing market in Atlanta, don’t hesitate to contact The Mortgage Guys.
View the first blog post: Shadow Inventory: What is it and Should We Worry?
Photo courtesy of Flickr.