Saturday, February 20th is “Love Your Pet Day” in the United States. But those of us who are pet owners, we know that EVERY DAY is Love Your Pet Day. But it’s not a bad idea to take a moment our of our busy schedules to give a little extra attention and love to our wonderful furry, feathered or scaly friends who have been especially helpful to our mental and emotional well-being during the current pandemic.
So, in honor of “Love Your Pet Day,” Sound Investments, Inc. is sponsoring our first annual “Love Your Pet Day Contest.” We invite you to post a picture of your special pet to our Facebook page by March 14th. We’ll gather them together and on March 15, we’ll open up voting so people can start select who they think should be “The 2021 #1 Pet.” On March 14th, we’ll tally up the votes and the person who submits the pet with the most votes will receive a $25 Amazon Gift Card from Sound Investments that can be used to get a special treat for your special pet. In March, we urge you to get your family and friends to check this Facebook page and vote for their favorite four, two or no-legged personality!
Mortgage insurance benefits the lender if a borrower with less than a 20% down payment defaults on their loan. Most conventional mortgages greater than 80% and all FHA loans require the borrower to have this coverage.
Private mortgage insurance on conventional loans can range from 0.5% to 2.25% based on the loan-to-value and the credit worthiness of the borrower. A $350,000 mortgage would have a monthly mortgage insurance premium of $146 a month at the low-end of the scale and over $600 on the high-end.
You may request that your mortgage servicer cancel the PMI when the principal balance reaches 80% of the original value at the time the loan was made. You should have received a PMI disclosure form when you signed the mortgage documents stating the date. If you have made additional principal contributions, it will accelerate the date.
Other criteria considered to cancel the PMI on your loan is:
The request must be in writing. You must be current on your payments with a good payment history. The lender may ask that you certify there are no junior liens in effect. If the lender is concerned that the value has declined, an appraisal may be required to show that it is eligible. Conventional loans are supposed to remove the mortgage insurance when the unpaid balance is 78% of the original purchase price.
Another possibility is that the lender/servicer must end the PMI the month after you reach the midpoint of your loan’s amortization schedule. For a 30-year loan, it would be after the 180th payment was paid. The borrower must be current on the payments for the termination to occur.
With the rapid appreciation that many homes have enjoyed in recent years, homeowners may be able to refinance their home and if the new mortgage amount is less than 80% of the current appraised value, no mortgage insurance would be required.
The owner would incur the cost of refinancing but eliminate the cost of the mortgage insurance. To calculate the savings, subtract the new principal and interest payment from the old principal and interest with PMI. Then, divide the savings into the cost of refinancing to determine the number of months necessary to recapture the cost.
FHA loans have two types of mortgage insurance premium: up-front and monthly. For loans with FHA case numbers assigned on or after June 3 2013 with LTV% greater than 90%, the MIP will be paid for the entire term of the loan. If that is the case, refinancing on a conventional loan is the only way to eliminate the MIP. For loans with original LTV% less than 90%, the MIP is collected for 11 years until the balance is 78% of the original amount.
When buying a home, purchasers may not have enough resources for a large down payment. It is understandable to use the best mortgage available to buy the home. The next goal should be to manage the mortgage to lower the overall costs. In this article, we explored eliminating the private mortgage insurance.
Many homeowners with mortgages pay for both types of insurance but only one of them protects the owner.
Homeowner’s insurance covers damage to your property and losses from fire, burglary, vandalism, and other named natural disasters. When an insured has a loss, they file a claim with the insurance carrier which would be subject to the deductible mentioned in the policy.
If the homeowner has a mortgage on the property, the lender will require that the borrower carry adequate insurance on the property and name the lender as an additional insured. This protects the lender that the home will continue to be sufficient collateral for the loan in case of a loss.
Mortgage insurance is not like homeowner’s insurance in that it is solely for the protection of the lender if the borrower defaults on the loan. Usually, lenders require mortgage insurance on any loan greater than 80% loan-to-value. Occasionally, they may require it on some loans less than 80% based on their underwriting requirements and possibly, from anticipated risk from the borrower.
VA loans do not require mortgage insurance. Conventional lenders must remove the mortgage insurance when the loan amortizes below the stated percentage. FHA loans require mortgage insurance for the life of the loan.
When a property appreciates so that when the owners refinance, the loan-to-value ratio is less than 80%, no mortgage insurance would be required. This can be a strong motivation for some owners to refinance to save the cost of the mortgage insurance.
Mortgage insurance premiums are not regulated by law like homeowner’s insurance is in most states. Most buyers are concerned about the interest rate on their mortgage, but few question the amount of the mortgage insurance premium.
The homeowner can select the carrier for his homeowner insurance, but the lender determines the carrier for the mortgage insurance. When you are interviewing lenders, the type of insurance that will be required and the price of the mortgage insurance should be included in the discussion.
A solid FICO Score helps optimize your ability to obtain a better home loan. And, since the overwhelming majority of us don’t have the ability to purchase a new home with a cash payment, getting a good loan with great terms is essential to our ability to purchase a new property. It also can have a major impact on your finances going forward over many years.
A FICO score is the credit score created by the Fair Isaac Corporation (FICO). Lenders use borrowers’ FICO scores, along with other details on borrowers’ credit reports, to assess credit risk and determine whether to extend credit. Having a strong FICO Score positions you favorably for quicker approval and better lending rates.
There are several ways you can optimize your score. The main “levers” or contributors to your score are:
Your Payment History
The Amount of Money You Owe
The Length of Time of Your Established Credit
Any New Credit You Have Applied for and/or Received
You can improve your FICO Score, and therefore increase your ability to qualify for favorable home loans by managing these levers. For example, you can:
Pay all your bills on time.
It’s important to avoid going to collections because an account that goes to collections stays on your credit report for 7 years. This is true even if you pay it off.
Keep your credit card balances low. Having higher AVAILABLE credit improves your FICO Score.
Pay off your debts. Lower levels of outstanding debt helps your score. Also, consolidating your debt so you have fewer accounts may also help.
The number of credit inquiries you make do affect your score. So, don’t make inquiries you don’t really need.
Don’t open accounts you don’t need.
Make sure you show you have managed credit responsibly. Responsibly managed levels of credit will result in you being rated as a better risk than if you had no credit or debts at all.
Watch the short video below:
Check out more helpful hints to make buying a home easier on our Home Buying Tips category page. Click here to learn more.
A 1031 exchange gets its name from Section 1031 of the U.S. Internal Revenue Code, which allows you to avoid paying capital gains taxes when you sell an investment property and reinvest the proceeds from the sale within certain time limits in a property or properties of like kind and equal or greater value.
It is estimated that as many as two-thirds of investment properties use this provision.
We recommend you speak with your realtor and/or tax professional to discuss 1031 exchanges whenever you intend to sell an investment property and are intending to purchase additional properties. Email us at firstname.lastname@example.org or call 510.377.8853 to learn more.
Ideally, each party will pay their own closing costs associated with the purchase and the sale of a home, but they can be negotiable based on lender requirements and market conditions.
The fees are usually paid at the settlement and will be itemized on the closing statement. Buyers should be aware of them before contracting for a home. If a mortgage is involved, the lender will want to verify that the borrower has ample funds available at closing to pay for them.
Buyer’s closing costs can range between two to five percent of the sales price. The real estate agents should be able to give you an estimate of what a buyer can expect. The most accurate estimate will come from the lender at the time the loan application is made. They may or may not include other fees that will be charged to buyers by the title or escrow company.
Buyers are required to be provided a standard Closing Disclosure form at least three business days before the loan closing date. This document will include the loan terms, estimated monthly payments, loan fees and other charges. This can be compared to the loan estimate provided by the lender when the application was made.
Fees connected to a mortgage
Loan origination fee … This is the lender’s fee for processing the mortgage application. It can vary in amount but typically, it can be one percent of the mortgage amount. It may be possible to negotiate this fee into the rate of the mortgage.
VA funding fee … This is a fee charged to the veteran for closing the loan. It can be paid in cash or rolled into mortgage. The amount is based on the status of the veteran, their down payment and whether they have had a VA loan before.
Appraisal … This is a fee paid for a licensed appraiser to determine the value of the property. It validates that the mortgage will not exceed the purchase price and that the buyer has enough down payment based on the type of mortgage applied for.
Attorney fee … This fee is charged to ensure that the legal documents are drawn properly so the lender will have an enforceable mortgage. It is not for legal representation of the buyer.
Discount points … A point is one percent of the mortgage. These fees are considered prepaid interest and can be used to adjust the interest rate on the mortgage.
Lender’s title insurance … This coverage insures that the lender has an enforceable lien from title claims on the property. This policy is usually issued in connection with an owner’s title policy and is priced separately.
Mortgage insurance … Most loans made in excess of 80% of loan to value require mortgage insurance to protect the lender from loss if the property must be foreclosed on. There is no mortgage insurance requirement on VA loans. FHA mortgage insurance premium has two parts. There is an up-front charge of 1.75% of loan amount and then, a monthly amount which is added to the payment. Conventional loans usually collect the first month’s premium in advance and subsequent amounts are rolled into the mortgage payment.
Recording fees … These are fees that are for filing the legal documents with the municipal or county recorders. The documents would include the mortgage and the deed.
Survey fees … This fee is necessary, based on requirements of the lender, to verify property lines, shared fences and driveways and to identify any other encumbrances.
Underwriting fee … This is a separate fee that covers the research and determination that the entire loan package meets the lender’s requirements.
Fees required by mortgage for escrow account
Property taxes … Lenders can require two to three months taxes to be held in escrow so that there will be enough to pay them in full 60 to 90 days before they are due.
Property insurance … Insurance is paid in advance and the annual premium will be due at closing. The lender further requires one additional month’s amount so that one month prior to the anniversary date, the premium can be paid for the renewal.
Flood insurance … The lender may require flood insurance on the property based on their assessment of the location in a flood zone or proximity to a flood zone.
Fees connected to purchase of a home
Settlement fee … This is the buyer’s portion of the fee paid to the title or escrow company, or attorney who handles the closing of the sale.
HOA Fee … Home Owner Association fees are usually paid in advance by the owner. They are prorated at closing for the amount paid that the seller does not benefit from.
Owner’s Title insurance … This coverage insures that the buyer, the new owner, received clear and marketable title from the seller. It will protect the new owners’ interests should they be challenged. Even though it may not be required, it is recommended.
Pest inspection … A pest inspection by a licensed exterminator can be required by a buyer to determine if there are active termites or termite damage, dry rot or another pest infestation.
Property inspection … A home inspection conducted by a professional can be required to determine structural integrity of the property as well as all the systems in the home. It can include but not be limited to plumbing, electrical, roof, heating and air conditioning, appliances and other things.
Title search … Sometimes, title companies waive this fee when an owner’s title policy is issued. It can be customary that a separate fee is charged in addition to the premium for the title insurance.
Transfer taxes … When government taxes are required, these fees must be collected.
The Consumer Financial Protection Bureau is a U.S. government agency that makes sure banks, lenders and other financial companies treat the public fairly. You can download a Closing Disclosure Explainer from their website.
Debt-to-Income ratio is a tool that lenders use to qualify buyers for a mortgage and is an important factor in determining loan approval. It provides an indication of the amount of debt that a potential borrower is obligated to in relation to how much income they have.
Total monthly debts are determined by adding the normal and recurring monthly debt payments such as monthly housing costs, car payments, minimum credit card payments, personal loan payments, student loans, child support, alimony, and other things.
By dividing the monthly income into the monthly debt, you arrive at a percentage of the monthly income. Lenders actually look at two different ratios commonly called the front-end and the back-end.
The front-end ratio is the proposed total house payment including principal, interest, taxes, insurance, mortgage insurance if required, and homeowner association fees. Lenders generally don’t want these expenses to be more than 28% of the monthly gross income.
The back-end ratio includes the same items that are in the front-end ratio plus any other monthly obligations like the ones mentioned earlier. Lenders prefer to see this ratio not to exceed 36% of monthly gross income but some lenders may extend that to 43%. Borrowers obtaining an FHA mortgage might also be allowed an even higher back-end ratio.
If a borrower had $8,000 monthly gross income, their proposed house payment should not exceed $2,240 or 28% of their monthly gross income. Then, their house payment and monthly debt should ideally not exceed $2,880 or 36% of their monthly gross income.
For the sake of an example, let’s say that their monthly debt was $900. That would only leave $1,980 for the maximum house payment. The monthly debt became a limiting factor affecting the house payment.
In addition to determining whether the buyer qualifies for the mortgage, it could affect the interest rate. Having good credit and having the proper ratios can result in being approved for a mortgage. On the other hand, if the debt is on the upper side of an acceptable range, the lender may charge a higher interest rate for the addition risk of a marginal borrower.
While the math is not difficult to come up with your ratios, it is not necessarily a do-it-yourself project. A trusted lending professional can assess your situation and give you an accurate picture of what price home you can afford and the rate you can expect to pay.
Both things are important to know before you start looking at homes and especially before you contract for one. All lenders are not the same. Call me to get a recommendation of a trusted mortgage professional who specializes in the type of mortgage you want. Download this FREE Buyers Guide.
If for whatever reason you decided not to buy last year, you may actually be better off now. As you can see, even though a property may have increased in price by 6%, with interest one percentage lower, your total and monthly payments may actually be lower.
The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. Rolanda Wilson and Better Homeowners do not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. Rolanda Wilson and Better Homeowners. will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.
Selling a home and buying a lower priced home that meets your current needs can be to your advantage in an “Up” market like the current one with low inventory. The advantage is that you can maximize the price for the home you’re selling and not have to reinvest it all in your replacement.
Just to illustrate the point, let’s say there is a 10% premium in the sales price of a home currently. If you’re selling a home for $750,000, it would be $75,000. If you replaced the home with a $500,000 home, the premium would be $50,000 which means you’re $25,000 ahead.
Let’s further assume that your home is debt free so that when you sell it, you have a large cash equity. Instead of paying cash for the replacement home, get an 80% loan at today’s low interest rates and reinvest the proceeds to supplement your retirement.
You may be able to get as low as a 2.5% mortgage and earn significantly more on the proceeds in other investments.
Home prices are up significantly over last year and they’re selling on average in three weeks. Inventory is down and there is less competition for your home than normal which can lead to a higher price. Closed sales increased 9% from August to September according to a Zillow report.
Moving down in an “up” market may be to your advantage. It could lower your cost of housing by saving on property taxes, insurance, utilities and maintenance while being able to take cash out of your home to reinvest in your retirement.
You’ll be using “other people’s money” to free up your equity that you can reinvest at a rate higher than you’ll be paying on your mortgage. The difference would be profit.
To explore this opportunity, give me a call at 510.377.8853, and we’ll look at your numbers.
Up to $500,000 of capital gain on the sale of their home for couples filing jointly and $250,000 for single filers is excluded from income tax if they own and use it as their principal residence for 2 of 5 of the previous years.