Month: March 2023

What is PMI? Get All the Facts Today

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What is PMI? Get All the Facts Today

When it comes to buying a home, whether it is your first time or your fifth, it is always important to know all the facts. With the large number of mortgage programs available that allow buyers to purchase a home with a down payment below 20%, you can never have too much information about Private Mortgage Insurance or PMI.

What is PMI?

Historically, the less a homeowner has invested in a property, the higher the chance the owner will walk away from it if payments fall behind. PMI protects lenders against the higher risk of low-down-payment loans by paying the losses if those loans go into default.

Freddie Mac defines PMI as:

“An insurance policy that protects the lender if you are unable to pay your mortgage. It’s a monthly fee, rolled into your mortgage payment, that is required for all conforming, conventional loans that have down payments less than 20%.”

As the borrower, you pay the monthly premiums for the insurance policy, and the lender is the beneficiary. Freddie Mac goes on to explain that:

“The cost of PMI varies based on your loan-to-value ratio – the amount you owe on your mortgage compared to its value – and credit score, but you can expect to pay between $30 and $70 per month for every $100,000 borrowed.” 

According to the National Association of Realtors, the average down payment for all buyers last year was 10%. For first-time buyers, that number dropped to 6%, while repeat buyers put down 14% (no doubt aided by the sale of their home). This just goes to show that for a large number of buyers last year, PMI did not stop them from buying their dream homes.

Here’s an example of the cost of a mortgage on a $200,000 home with a 5% down payment & PMI, compared to a 20% down payment without PMI:

The larger the down payment you can make, the lower your monthly housing cost will be, but Freddie Mac urges you to remember:

“It’s no doubt an added cost, but it’s enabling you to buy now and begin building equity versus waiting 5 to 10 years to build enough savings for a 20% down payment.”

Of course, the home owner will pay higher monthly payments to cover the cost of the PMI insurance. But the payment doesn’t last the life of the loan. Once a homeowner’s equity reaches 20%, PMI insurance can be cancelled, along with monthly PMI payment.

If you are currently paying PMI or if you’re thinking about buying ahome with less than a 20% down payment, the information in this report could save you thousands of dollars.

Your Legal Rights

The Homeowners Protection Act of 1998 stipulates that lenders must automatically cancel private mortgage insurance (PMI) once an owner’s home equity reaches 22%. The law will save many qualifying homeowners thousands of dollars each year by eliminating their PMI payments. But other qualifying homeowners will save even sooner.

Why? Because the savvy homeowner knows the law also requires a lender to cancel PMI at the 20% equity level if the homeowner makes a written request. Without a written request, the lender is allowed to continue charging PMI until the owner’s equity reaches 22% on the loan pay-down schedule.

Request vs Automatic

If you have reached 20% equity in your home through payments and market appreciation, then you can request to have PMI eliminated. This was always the case before 1998 law, but most homeowners didn’t know they had the option to do so. Now, however, the law requires lenders to send letters to homeowners, letting them know they’ve reached enough equity in their home from loan pay-down to cancel their PMI policy. But they are not required to send those letters until the equity reaches 22%.

Catch 22

For automatic PMI cancellation, lenders calculate equity using the amount of payments made and the original loan amount. Market value is not considered. To establish equity gained from appreciation, you must order (and pay for) a professional appraisal of the property’s worth.

Bottom Line

If you have questions about whether you should buy now or wait until you’ve saved a larger down payment, let’s get together to discuss our market’s conditions and to help you make the best decision for you and your family. Schedule your free no obligation consultation today!

And please, don’t forget to download

My Buyers’ Guide:

“Things to Consider When Buying a Home”

As a home buyer, there’s plenty you need to know. You’re about to make the largest financial investment of your life, but with my Home Buyers Guide, you’ll have the information you need about buying a home, right at your fingertips.

Here’s what you will find inside:

  • The Cost of Renting vs Buying
  • 2 Myths That Might be Holding You from Buying
  • Why Pre-Approval Should be Your First Step
  • What You Need to Know About Mortgage Process
  • What to Expect When Home Inspecting
  • And More!

The best part is, our Guide is free and available to download right now. All we need is your name and email, and we’ll send it directly to you.

How to Get the Most Money When Selling Your Home

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Every homeowner wants to make sure they get the best price when selling their home. But how do you guarantee that you receive maximum value for your house? Besides helping buyers fall in love with your property by using Home Staging Tips. Here are two keys to ensuring you get the highest price possible when selling your home.

1. Price it a LITTLE LOW 

This may seem counterintuitive. However, let’s look at this concept for a moment. Many homeowners think that pricing their home a little OVER market value will leave them room for negotiation. In reality, this just dramatically lessens the demand for their house and buyers’ desire to submit an offer (see chart below).

Instead of the seller trying to ‘win’ the negotiation with one buyer, they should price it so that demand for the home is maximized. By doing this, the seller will not be fighting with a buyer over the price, but will instead have multiple offers fighting with each other over the house.

Realtor.com gives this advice:

“Aim to price your property at or just slightly below the going rate. Today’s buyers are highly informed, so if they sense they’re getting a deal, they’re likely to bid up a property that’s slightly underpriced, especially in areas with low inventory.”

Also Read:

What Renovations Will Get You the Most Bang for Your Buck?

2. Use a Real Estate Professional

This, too, may seem counterintuitive, as the seller likely believes that he or she will net more money if they don’t have to pay a real estate commission. With that being said, studies have shown that homes typically sell for more money when handled by a real estate professional.

Research posted by the National Association of Realtors revealed that:

The median selling price for all FSBO homes was $185,000 last year. When the buyer knew the seller in FSBO sales, the number sinks to the median selling price of $163,800. However, homes that were sold with the assistance of an agent had a median selling price of $245,000 – nearly $60,000 more for the typical home sale.”

Bottom Line

Price your house at or slightly below the current market value and hire a professional. This will guarantee that you maximize the price you get for your house. Ready to start? Click here to schedule seller consultation.

And please, don’t forget to download

My Sellers’ Guide:

“Learn How to Have a Successful Home Sale”

This guide is a supplement to the information provided above, and it describes in detail traditional and modern marketing techniques and lists my real estate services you can expect me to provide including:

  • Accurately pricing your home.
  • Enhancing the perceived and real value of your home, enabling you to command a higher asking price by using latest marketing techniques.
  • Providing unmatched marketing including professional staging, photography, video and custom property web sites.
  • Showing latest statistics on how buyers search for homes today.
  • Securing a qualified buyer within your specific time frame.
  • And More!

The best part is, my Guide is free and available to download right now.

Just provide your name and email, and I’ll send it directly to you.

Your Step-By-Step Guide to Mortgage Pre-Approval

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If you find yourself sitting in a strange hallway, waiting for a stranger in a suit to size you up and decide if you’re worthy as your palms sweat and your breath gets just a little bit harder to push out, you might be waiting for your appointment for your mortgage pre-approval. You’re one step closer to owning your own home, but this one is a doozy.

Let’s talk mortgage pre-approval step-by-step.

Step One: Mortgage Pre-Qualification Versus Pre-Approval

You probably already have a pre-qualification letter saying that you can probably buy a house in a particular price range, so why isn’t this enough? A lot of home buyers find this part of the process confusing, and frankly, it can be. Your pre-qualification was probably done over the phone or on your first meeting with your lender. They asked you a bunch of questions about your income, your job and maybe even pulled a “soft” credit report to get some idea about your debts.

Based on this information, they gave you the details on the kinds of programs you’re eligible for and how much you can expect in buying power. You probably got a letter that you could show your Realtor to help guide the buying process. The difference between the pre-qualification and the pre-approval is simple: a pre-qualification is based largely on your word. If you give the lender incorrect information, they’ll give you a pre-qualification letter that’s not right.

A pre-approval, on the other hand, takes a harder look at your background, work history and requires a full credit report and FICO score to ensure that you can, in fact, pay back a note.

Step Two: Documentation

Your next meetup with the nice banker is going to be to deliver documents, provide consent to pull a full credit report and, if you’ve already found one, give them the information on the home you’ve put under contract (in some areas your Realtor can do this last bit for you).

Documentation you’ll be asked to bring will include pay stubs, bank statements and tax returns, along with other information that may be needed to verify your income source or sources. Self-employed people, for example, are sometimes required to prepare profit and loss statements (or just pony up more tax returns). If you have assets like a 401(k) or even a CD, you’ll want to bring the details on these, too.

Step Three: The Loan Estimate Form

You’re going to get a copy of something called the Loan Estimate Form, probably at the same meeting where your lender pulls that full credit report and takes all your papers away. This form explains exactly how much they expect you’ll need to bring to closing, along with itemized estimated fees to plan for at closing. If you’re shopping your loan, collect these and compare them side by side before you make your final choice.

But don’t spend too much time crunching the numbers. Just like your contract (and the National Association of Realtors) says, “Time is of the Essence.”

Step Four: Acceptance

Once you’ve had a few minutes to review the paperwork and you’ve made your final pass through the numbers, all that’s left is to call the lender you’ve chosen and let them know you need that pre-approval letter sent over to your Realtor.

Understand that a pre-approval is not a guarantee that you’re going to get the money you need to close. Several things can go wrong along the way through underwriting, including, but not limited to:

– Unverifiable income (this is often due to issues with overtime)
– A change to your credit score.
– An increase in your debt to income ratio
– An undocumented change in employment
– Assets that are unverifiable

The best plan is be totally honest with your lender when you get your pre-approval so that you don’t get a last minute call telling you that your loan has been denied (this actually happens, so pay everything on time and don’t take out new credit lines or add to old ones until you’ve got the keys in your hand).

When is the Best Time to Make an Offer?

Ideally, you should have a pre-approval letter in hand before you so much as set foot into the first house you’re considering for purchase. After all, the seller isn’t going to think you’re all that serious without one, nor will they be keen to want to negotiate under these circumstances.

Help your banker help you get the best deal on the house of your dreams, save everybody a lot of headaches and get that pre-approval first. Knowing how much your closing costs are going to be will also help your Realtor write your contract accordingly if they should need to be wrapped into your mortgage.

Basically, that document is the key to everything. So, no pressure…

Also read: “Pre-Approval: First Step in Home Buying Process” and “Mortgage Application Process: Why So Much Paperwork”.

 

NATASHA LINGLE Realtor in Vienna VA

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