6.18.2004
Can I avoid PMI without 20% down? by Dan Hoffman
In my previous article we looked at mortgage insurance, or PMI, and how you can stop paying it. Today we will look at different approaches to financing or refinancing a home that avoid PMI from the start.
Remember that PMI is added to a conforming mortgage loan when you buy a house with a down payment smaller than 20% of the purchase price, and can easily add $50, $100, or more to your monthly payment. The obvious and best way to avoid PMI is to put down 20% when you buy the house. But many people don’t have the 20%, or don’t want to tie that much cash up when they first buy a house. If you fit in that category, then you should consider these options. There are pros and cons to each approach, so there is no single option that’s best for everyone. Think about your personal bill paying and financial planning habits, and how long you plan to stay in the house, before deciding on the option that’s best for you.
1) Get an 80/20 loan – This is actually two separate loans. The first loan is a conforming mortgage loan for 80% of the purchase price, which by definition does not require PMI. You then get a second mortgage loan to cover the rest of the money needed to purchase the house. The second loan can be for 20% or less, depending on the down payment you plan to pay. Second mortgages never require PMI. Pros: the combined monthly payment is lower, even with the higher rate on the second loan, and all of the interest may be tax deductible. (PMI is not tax deductible.) Cons: You’ll get a competitive rate for the main 80% loan, but second mortgages carry higher interest rates, currently about 10%, and you have to make two payments each month. Also, PMI can be removed after you reach 22% equity, but you’re stuck paying the higher interest second mortgage until you pay it off, no matter how much your house appreciates in value.
2) Get a non-conforming or sub-prime loan – Sub-prime lenders specialize in higher risk loans, like people with lower credit scores or no money down loans. Because these loans do not conform to FNMA guidelines anyway, they do not require PMI. These lenders do charge higher rates to offset the risk, but if you have good credit the increase in rate may be negligible. Rates vary based on each borrower’s situation, so compare this to your other options before making your decision.
3) Consider a purchase HELOC – This is becoming one of today’s most popular purchase loans. HELOC stands for Home Equity Line Of Credit. A HELOC is like a cross between a conventional mortgage and a credit card. You get a line of credit based on the amount of equity in your home. In the case of a purchase, the bank “pretends” that you own the new house, gives you a line of credit for 100% of the value, and then you use the money to actually purchase the house. As you pay down the loan, your equity is always available to you. For example, suppose you buy a house for $200,000, and sooner or later pay the loan down to $160,000. Now you want to buy a car, put in a pool, or remodel the kitchen for $20,000. You can simply write a check against your HELOC for the $20,000. There are no additional fees or closing costs because this is not a new loan, the lender just adds the $20,000 on top of you $160,000 balance so you now owe $180,000. All of the interest on this loan may be tax deductible. The interest rate varies with the prime rate, and your payments vary based on the current loan balance and rate. Prime rate usually changes slowly, so the rate is more stable than many other adjustable rate loans, you keep the flexibility of always having your equity available, and your payment decreases as you pay down your balance. As interest rates rise, you can offset the increase in payments by paying off part of your balance without the need to refinance.
Remember that in some cases your best option may be a conventional loan with PMI. Work with a mortgage broker or financial advisor who understands these options and can explain the impact each option will have on your specific situation, and avoid working with anyone who takes a “one size fits all” approach.
~Dan Hoffman Email me here.
Florida Real Estate - Tampa Clearwater Homes
Florida Real Estate - Beautiful Tampa Bay Homes
In my previous article we looked at mortgage insurance, or PMI, and how you can stop paying it. Today we will look at different approaches to financing or refinancing a home that avoid PMI from the start.
Remember that PMI is added to a conforming mortgage loan when you buy a house with a down payment smaller than 20% of the purchase price, and can easily add $50, $100, or more to your monthly payment. The obvious and best way to avoid PMI is to put down 20% when you buy the house. But many people don’t have the 20%, or don’t want to tie that much cash up when they first buy a house. If you fit in that category, then you should consider these options. There are pros and cons to each approach, so there is no single option that’s best for everyone. Think about your personal bill paying and financial planning habits, and how long you plan to stay in the house, before deciding on the option that’s best for you.
1) Get an 80/20 loan – This is actually two separate loans. The first loan is a conforming mortgage loan for 80% of the purchase price, which by definition does not require PMI. You then get a second mortgage loan to cover the rest of the money needed to purchase the house. The second loan can be for 20% or less, depending on the down payment you plan to pay. Second mortgages never require PMI. Pros: the combined monthly payment is lower, even with the higher rate on the second loan, and all of the interest may be tax deductible. (PMI is not tax deductible.) Cons: You’ll get a competitive rate for the main 80% loan, but second mortgages carry higher interest rates, currently about 10%, and you have to make two payments each month. Also, PMI can be removed after you reach 22% equity, but you’re stuck paying the higher interest second mortgage until you pay it off, no matter how much your house appreciates in value.
2) Get a non-conforming or sub-prime loan – Sub-prime lenders specialize in higher risk loans, like people with lower credit scores or no money down loans. Because these loans do not conform to FNMA guidelines anyway, they do not require PMI. These lenders do charge higher rates to offset the risk, but if you have good credit the increase in rate may be negligible. Rates vary based on each borrower’s situation, so compare this to your other options before making your decision.
3) Consider a purchase HELOC – This is becoming one of today’s most popular purchase loans. HELOC stands for Home Equity Line Of Credit. A HELOC is like a cross between a conventional mortgage and a credit card. You get a line of credit based on the amount of equity in your home. In the case of a purchase, the bank “pretends” that you own the new house, gives you a line of credit for 100% of the value, and then you use the money to actually purchase the house. As you pay down the loan, your equity is always available to you. For example, suppose you buy a house for $200,000, and sooner or later pay the loan down to $160,000. Now you want to buy a car, put in a pool, or remodel the kitchen for $20,000. You can simply write a check against your HELOC for the $20,000. There are no additional fees or closing costs because this is not a new loan, the lender just adds the $20,000 on top of you $160,000 balance so you now owe $180,000. All of the interest on this loan may be tax deductible. The interest rate varies with the prime rate, and your payments vary based on the current loan balance and rate. Prime rate usually changes slowly, so the rate is more stable than many other adjustable rate loans, you keep the flexibility of always having your equity available, and your payment decreases as you pay down your balance. As interest rates rise, you can offset the increase in payments by paying off part of your balance without the need to refinance.
Remember that in some cases your best option may be a conventional loan with PMI. Work with a mortgage broker or financial advisor who understands these options and can explain the impact each option will have on your specific situation, and avoid working with anyone who takes a “one size fits all” approach.
~Dan Hoffman Email me here.
Florida Real Estate - Tampa Clearwater Homes
Florida Real Estate - Beautiful Tampa Bay Homes
5.30.2004
What is PMI, and How Do I Get Rid of It? by Dan Hoffman
Mortgage insurance, or PMI, is added to a house payment when someone buys a house with a down payment of less than 20%. Basically, FNMA guidelines require a 20% down payment so that if the borrower defaults, or stops repaying the loan, the lender can foreclose and recoup their money. The 20% allows enough room for the foreclosure sale to cover such costs as damage to the house, legal and court costs, late penalties, etc. in addition to the 80% loan.
Many borrowers do not have 20% to put down, so the lender takes out an insurance policy to cover the missing part of the 20%. A borrower buying a house with no down payment will pay a higher PMI than a borrower putting down 10%. PMI can add an extra $50, $100, or more to a monthly payment.
Pay attention to the equity in your house if you are already paying PMI. Each month, when you make your house payment, you pay down your loan balance at little bit. In most areas, the value of your house is also rising each month. When this combination puts you in a 22% equity situation, which means your loan balance is 78% of the value of your home or less, you can have your PMI removed. You’ll have to hire a state certified appraiser to appraise your home, which will cost around $300 to $350. It also helps if you use an appraiser who is approved by your lender – call them for a list of appraisers before you start. You’ll need this appraisal to prove to your lender that you “own” at least 22% of your home. If you want an estimate of your homes value before you pay for an appraiser, contact the Realtor who sold you the house, or use one of the many free services on the internet such as www.ezHomeFree.com. Once you have the proof in the form of an appraisal, contact your lender and in most cases they will eliminate the PMI.
Another alternative is to refinance your home. This is more expensive than just hiring an appraiser, but if your lender is very difficult to deal with and refuses to drop the PMI, it may be worth the expense. Many people choose this option to switch to a different type of loan, for example, a 15 year mortgage instead of 30 to pay off the loan faster, or a home equity line of credit (HELOC), or even a loan with flexible monthly payments, so you can pay more or less each month according to your schedule.
I understand there is a third option, although I don’t personally know anyone who has tried it. It involves filing claims for PMI refunds each month in small claims court, and getting default judgments when the lender fails to show up. Of course, you must be making your payments on time. If you have any experience with this method, I would love to hear about it. Please email me at info@ezHomeFree.com.
In my next article we’ll look at ways to avoid PMI from the start when buying or refinancing a house.
~Dan Hoffman Email me here.
Florida Real Estate - Tampa Clearwater Homes
Florida Real Estate - Beautiful Tampa Bay Homes
Mortgage insurance, or PMI, is added to a house payment when someone buys a house with a down payment of less than 20%. Basically, FNMA guidelines require a 20% down payment so that if the borrower defaults, or stops repaying the loan, the lender can foreclose and recoup their money. The 20% allows enough room for the foreclosure sale to cover such costs as damage to the house, legal and court costs, late penalties, etc. in addition to the 80% loan.
Many borrowers do not have 20% to put down, so the lender takes out an insurance policy to cover the missing part of the 20%. A borrower buying a house with no down payment will pay a higher PMI than a borrower putting down 10%. PMI can add an extra $50, $100, or more to a monthly payment.
Pay attention to the equity in your house if you are already paying PMI. Each month, when you make your house payment, you pay down your loan balance at little bit. In most areas, the value of your house is also rising each month. When this combination puts you in a 22% equity situation, which means your loan balance is 78% of the value of your home or less, you can have your PMI removed. You’ll have to hire a state certified appraiser to appraise your home, which will cost around $300 to $350. It also helps if you use an appraiser who is approved by your lender – call them for a list of appraisers before you start. You’ll need this appraisal to prove to your lender that you “own” at least 22% of your home. If you want an estimate of your homes value before you pay for an appraiser, contact the Realtor who sold you the house, or use one of the many free services on the internet such as www.ezHomeFree.com. Once you have the proof in the form of an appraisal, contact your lender and in most cases they will eliminate the PMI.
Another alternative is to refinance your home. This is more expensive than just hiring an appraiser, but if your lender is very difficult to deal with and refuses to drop the PMI, it may be worth the expense. Many people choose this option to switch to a different type of loan, for example, a 15 year mortgage instead of 30 to pay off the loan faster, or a home equity line of credit (HELOC), or even a loan with flexible monthly payments, so you can pay more or less each month according to your schedule.
I understand there is a third option, although I don’t personally know anyone who has tried it. It involves filing claims for PMI refunds each month in small claims court, and getting default judgments when the lender fails to show up. Of course, you must be making your payments on time. If you have any experience with this method, I would love to hear about it. Please email me at info@ezHomeFree.com.
In my next article we’ll look at ways to avoid PMI from the start when buying or refinancing a house.
~Dan Hoffman Email me here.
Florida Real Estate - Tampa Clearwater Homes
Florida Real Estate - Beautiful Tampa Bay Homes
5.06.2004
Are You Due a Refund on Your Mortgage? by Dan Hoffman
You, or someone you know, may be one of the 40,000 Florida homeowners eligible for refunds improperly charged by Fairbanks Capital Corp. Fairbanks, a mortgage servicing company based in Utah, was ordered in a settlement with Florida state regulators to pay $1.65 million in refunds.
Florida regulators claimed that Fairbanks was making improper charges, including unnecessary appraisal payments and fees for releasing borrowers from mortgages that were paid off. As part of the deal, the company agreed to improve their customer service, put a stop to unjustified late fees, and implement procedures to avoid charging unwarranted insurance on loans. Fairbanks had reached a similar settlement with the Federal Trade Commission (FTC) last November.
If you have questions you should contact the Department of Financial Services at 800-342-2762 or the attorney general’s office at 866-9No-Scam.
~Dan Hoffman Email me here.
Florida Real Estate - Tampa Clearwater Homes
Florida Real Estate - Beautiful Tampa Bay Homes
You, or someone you know, may be one of the 40,000 Florida homeowners eligible for refunds improperly charged by Fairbanks Capital Corp. Fairbanks, a mortgage servicing company based in Utah, was ordered in a settlement with Florida state regulators to pay $1.65 million in refunds.
Florida regulators claimed that Fairbanks was making improper charges, including unnecessary appraisal payments and fees for releasing borrowers from mortgages that were paid off. As part of the deal, the company agreed to improve their customer service, put a stop to unjustified late fees, and implement procedures to avoid charging unwarranted insurance on loans. Fairbanks had reached a similar settlement with the Federal Trade Commission (FTC) last November.
If you have questions you should contact the Department of Financial Services at 800-342-2762 or the attorney general’s office at 866-9No-Scam.
~Dan Hoffman Email me here.
Florida Real Estate - Tampa Clearwater Homes
Florida Real Estate - Beautiful Tampa Bay Homes
4.30.2004
New Bill Offers More FHA Money by Dan Hoffman
A new bill introduced in the US House of Representatives is trying to increase the limits on FHA loans, making it easier for consumers in more expensive areas to purchase a home with FHA mortgage insurance.
The Federal Housing Administration, or FHA, insures mortgages and thus provides lenders with protection against losses as the result of homeowners defaulting on their loan. FHA insurance allows consumers who qualify to get a loan to purchase a home with very little cash investment and more flexible income and debt ratios than would normally be required. This gives many people who are unable to qualify for a conventional mortgage the opportunity to own their own home.
Currently, the FHA cannot insure a loan greater than $290,319, which is 87% of the conforming loan limit. In many places around the county, including New York and California, the median home price far exceeds this limit. The new bill, called the “FHA Single Family Loan Limit Adjustment Act of 2004,” would eliminate the current limit and allow FHA limits to increase to each local areas median home price.
You can find out more about the FHA at http://www.hud.gov/offices/hsg/fhahistory.cfm
~Dan Hoffman Email me here.
Florida Real Estate - Tampa Clearwater Homes
Florida Real Estate - Beautiful Tampa Bay Homes
A new bill introduced in the US House of Representatives is trying to increase the limits on FHA loans, making it easier for consumers in more expensive areas to purchase a home with FHA mortgage insurance.
The Federal Housing Administration, or FHA, insures mortgages and thus provides lenders with protection against losses as the result of homeowners defaulting on their loan. FHA insurance allows consumers who qualify to get a loan to purchase a home with very little cash investment and more flexible income and debt ratios than would normally be required. This gives many people who are unable to qualify for a conventional mortgage the opportunity to own their own home.
Currently, the FHA cannot insure a loan greater than $290,319, which is 87% of the conforming loan limit. In many places around the county, including New York and California, the median home price far exceeds this limit. The new bill, called the “FHA Single Family Loan Limit Adjustment Act of 2004,” would eliminate the current limit and allow FHA limits to increase to each local areas median home price.
You can find out more about the FHA at http://www.hud.gov/offices/hsg/fhahistory.cfm
~Dan Hoffman Email me here.
Florida Real Estate - Tampa Clearwater Homes
Florida Real Estate - Beautiful Tampa Bay Homes
4.14.2004
Mortgage Financing Clause: Get Out of Jail Free? by Dan Hoffman
Most people purchase Florida real estate by obtaining a mortgage loan for all or part of the purchase price, and take advantage of the financing contingency clause built into most standard contracts. This clause basically says that the buyer will try hard to get a home mortgage loan, and if they cannot get a home loan, they will be refunded their deposit. I’ve noticed that many buyers take this very casually, like the “Get Out of Jail Free” card in the Monopoly game. They assume that if they need to back out of the deal for any reason, all they need to do is find a mortgage lender that will deny their loan & get their deposit back.
In a recent Florida court case, Quirch vs. Coro, 28 FLW 680 (2003), the court had a different opinion. In this case, Mr. & Mrs. Buyer entered into a Florida real estate purchase contract with a financing contingency clause and a $60,000 escrow deposit. They got approved for a mortgage loan, but cancelled due to high closing costs. They applied with a different mortgage lender, and were again approved for their home loan. Several days later, Mr. Buyer became gravely ill. When the lender found out about the illness, they rescinded the loan commitment. The buyers advised the sellers that they could not satisfy the contract’s financing contingency and asked for their deposit to be returned.
The sellers refused to authorize the return of the deposit and insisted that the buyers were obligated to proceed with the purchase contract, claiming that the first mortgage lender satisfied the contingency, and the buyers did demonstrate “due diligence and good faith” since they took no further action after the lender rescinded the mortgage loan commitment. The case went to court, and the trial court ruled in favor of the buyers.
The sellers filed an appeal, and the 3rd District Court of Appeal reversed the trial court’s findings and ruled in favor of the seller, stating that the issue of due diligence and good faith was a question of fact and the that the buyers could not prove that they weren’t able to obtain financing from another lender.
Often a seller will simply let the buyer back out and return their deposit, especially when homes are selling quickly, but don’t let this give you a false sense of security. This case points out the fact that you should never count on the seller’s generosity when you enter into a contract. Be sure you understand your contractual obligations before you sign. Your real estate agent should thoroughly explain the contract to you and answer all of your questions, but consult your attorney if you need legal advice.
~Dan Hoffman Email me here.
Tampa Florida Real Estate & Clearwater Florida Real Estate
Florida Real Estate: Beautiful Tampa Bay Homes
Most people purchase Florida real estate by obtaining a mortgage loan for all or part of the purchase price, and take advantage of the financing contingency clause built into most standard contracts. This clause basically says that the buyer will try hard to get a home mortgage loan, and if they cannot get a home loan, they will be refunded their deposit. I’ve noticed that many buyers take this very casually, like the “Get Out of Jail Free” card in the Monopoly game. They assume that if they need to back out of the deal for any reason, all they need to do is find a mortgage lender that will deny their loan & get their deposit back.
In a recent Florida court case, Quirch vs. Coro, 28 FLW 680 (2003), the court had a different opinion. In this case, Mr. & Mrs. Buyer entered into a Florida real estate purchase contract with a financing contingency clause and a $60,000 escrow deposit. They got approved for a mortgage loan, but cancelled due to high closing costs. They applied with a different mortgage lender, and were again approved for their home loan. Several days later, Mr. Buyer became gravely ill. When the lender found out about the illness, they rescinded the loan commitment. The buyers advised the sellers that they could not satisfy the contract’s financing contingency and asked for their deposit to be returned.
The sellers refused to authorize the return of the deposit and insisted that the buyers were obligated to proceed with the purchase contract, claiming that the first mortgage lender satisfied the contingency, and the buyers did demonstrate “due diligence and good faith” since they took no further action after the lender rescinded the mortgage loan commitment. The case went to court, and the trial court ruled in favor of the buyers.
The sellers filed an appeal, and the 3rd District Court of Appeal reversed the trial court’s findings and ruled in favor of the seller, stating that the issue of due diligence and good faith was a question of fact and the that the buyers could not prove that they weren’t able to obtain financing from another lender.
Often a seller will simply let the buyer back out and return their deposit, especially when homes are selling quickly, but don’t let this give you a false sense of security. This case points out the fact that you should never count on the seller’s generosity when you enter into a contract. Be sure you understand your contractual obligations before you sign. Your real estate agent should thoroughly explain the contract to you and answer all of your questions, but consult your attorney if you need legal advice.
~Dan Hoffman Email me here.
Tampa Florida Real Estate & Clearwater Florida Real Estate
Florida Real Estate: Beautiful Tampa Bay Homes
4.06.2004
Community Association Blues by Dan Hoffman
Many homes today, especially in Florida, are subject to usage restrictions imposed by a community association. A community association is a nonprofit corporation established to protect the home values in a community, and may be called a homeowners’ association (or HOA), a condominium association, property owners’ association, or cooperative association.
When purchasing a home, it is important to understand how these restrictions will affect your lifestyle. At the very minimum, get answers to these questions:
1) How much are the monthly assessments, and when are they due?
2) What do the assessments cover?
3) What responsibilities does the homeowner have?
4) What is the annual budget?
5) Does the association have a sufficient reserve fund?
6) Is the community age restricted? Many retirement communities only allow homeowners that are 55 & over, or 62 & over.
7) Are the homeowners unhappy with the elected board?
8) Are there any special assessments pending or under consideration that are not yet approved?
9) How many and what types of vehicles are allowed, and where can you park them? Many associations only allow boats in a closed garage, and do not allow commercial vehicles.
10) Are pets allowed? What kinds, how many, & are there size or weight limits?
11) What are the rules with respect to rentals, decorations, flags, antennas, satellite dishes, fences, patios, and home businesses?
Be sure to review a copy of the community restrictions before you buy, and consult with an attorney if you do not understand them. A little trouble in advance can save you a huge headache later.
~Dan Hoffman
Florida Real Estate - Tampa Clearwater Homes
Florida Real Estate - Beautiful Tampa Bay Homes
Many homes today, especially in Florida, are subject to usage restrictions imposed by a community association. A community association is a nonprofit corporation established to protect the home values in a community, and may be called a homeowners’ association (or HOA), a condominium association, property owners’ association, or cooperative association.
When purchasing a home, it is important to understand how these restrictions will affect your lifestyle. At the very minimum, get answers to these questions:
1) How much are the monthly assessments, and when are they due?
2) What do the assessments cover?
3) What responsibilities does the homeowner have?
4) What is the annual budget?
5) Does the association have a sufficient reserve fund?
6) Is the community age restricted? Many retirement communities only allow homeowners that are 55 & over, or 62 & over.
7) Are the homeowners unhappy with the elected board?
8) Are there any special assessments pending or under consideration that are not yet approved?
9) How many and what types of vehicles are allowed, and where can you park them? Many associations only allow boats in a closed garage, and do not allow commercial vehicles.
10) Are pets allowed? What kinds, how many, & are there size or weight limits?
11) What are the rules with respect to rentals, decorations, flags, antennas, satellite dishes, fences, patios, and home businesses?
Be sure to review a copy of the community restrictions before you buy, and consult with an attorney if you do not understand them. A little trouble in advance can save you a huge headache later.
~Dan Hoffman
Florida Real Estate - Tampa Clearwater Homes
Florida Real Estate - Beautiful Tampa Bay Homes
3.27.2004
Credit Score Tips by Dan Hoffman
People often ask me how they can improve their credit score to qualify for a better mortgage or a better interest rate. The problem is that simply exercising good financial planning may actually lower your credit score instead of helping. Here are some actions to avoid, according to Money Management International (MMI), a credit and debt counseling nonprofit organization:
* Closing old accounts that you no longer use. Make sure you keep at least 3 accounts open, and that you keep one or two accounts that you have had for years. Closing all old accounts can shorten your credit history, which lowers your score.
* Avoiding all debt. No credit history at all is almost as bad as a poor credit history. Lenders want to see that you have a good history of managing your debt and repaying debts on time.
* Co-signing for a loan. This may help your friend or relative, but it won't help you. When you co-sign for a loan, any late payment, judgement, or default on that loan will show up on your credit history, which will lower your credit score.
* Assuming there's a grace period. A payment that's just one day late, if it's recorded, can affect your score.
* Rate shopping. Too many loan inquiries can count against you.
~Dan Hoffman Email me here.
Florida Real Estate - Tampa Clearwater Homes
Florida Real Estate - Beautiful Tampa Bay Homes
Tampa Home Values
People often ask me how they can improve their credit score to qualify for a better mortgage or a better interest rate. The problem is that simply exercising good financial planning may actually lower your credit score instead of helping. Here are some actions to avoid, according to Money Management International (MMI), a credit and debt counseling nonprofit organization:
* Closing old accounts that you no longer use. Make sure you keep at least 3 accounts open, and that you keep one or two accounts that you have had for years. Closing all old accounts can shorten your credit history, which lowers your score.
* Avoiding all debt. No credit history at all is almost as bad as a poor credit history. Lenders want to see that you have a good history of managing your debt and repaying debts on time.
* Co-signing for a loan. This may help your friend or relative, but it won't help you. When you co-sign for a loan, any late payment, judgement, or default on that loan will show up on your credit history, which will lower your credit score.
* Assuming there's a grace period. A payment that's just one day late, if it's recorded, can affect your score.
* Rate shopping. Too many loan inquiries can count against you.
~Dan Hoffman Email me here.
Florida Real Estate - Tampa Clearwater Homes
Florida Real Estate - Beautiful Tampa Bay Homes
Tampa Home Values
