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Posted by Nelson Matos on 4/15/2018

You may have heard of private mortgage insurance, also known as PMI, but youíre probably not sure what exactly it is. If your down payment is less than 20% of the purchase price of the home, then youíll need to pay for this additional insurance in order to secure a loan for the home. This type of policy protects the lender if you end up in a foreclosure situation. This way, the lender is assured that they will not lose money. 


Private mortgage insurance is also required if you refinance your home when it has accrued to less than 20% equity. Again, this protects the lender from losing money if the loan is defaulted on. 


Fees


The fees involved with private mortgage insurance can range based on a few factors including the actual size of the down payment and your credit score. You can expect the cost of the insurance to be somewhere between 0.3% and 1.5% of the loan amount per year. The PMI premiums are tax deductible some years and other years they are not. It really all depends upon the state of the government and what they have enacted for the particular fiscal year. Private mortgage insurance premiums can be paid either monthly or with a large payment upfront, although most policies will require the borrower to pay on a monthly basis.    


This Insurance Can Be Canceled


The lender will automatically cancel your PMI once the loan drops down to 78% of the homeís value. For this reason, youíll want to keep track of your payments in order to see how far away you are from shedding this monthly fee. When your loan is paid down to 80% of the homeís original value, you have the right to ask your lender to discontinue to insurance premium payments.


What Is The Loan-To-Value Ratio?


This ratio is the amount of mortgage debt in the form a percentage based on how much the home is worth. Itís calculated by the following formula:


Amount owed on the mortgage/Appraised value


This is an important factor when it comes to matters of PMI insurance, as itís how the required loan payment percentages are calculated. If a home is worth $100,000 and $80,000 is still owed on the home, the loan-to-value ratio is 80 percent. This means the borrower can request the insurance be cancelled.      


FHA Loans Have Different Requirements


If you secure an FHA loan, they require the payment of PMI premiums for the entire life of the loan. You canít exactly cancel these insurance payments but you can refinance the loan in order get rid of the insurance. This means that you will no longer have an FHA loan.           


Private mortgage insurance can be a nuisance, however as a first-time homebuyer with little capital, the fees may be worth it when youíre able to secure your first home.




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Posted by Nelson Matos on 9/3/2017

Mortgage lenders are busy people. Despite the fact that they sit with you and go over your mortgage, they may not cover finite loan details, the types of details that could cause your mortgage payments to spike seemingly out of nowhere. These are the very details that could push your monthly mortgage payments out of your reach.

Avoid sneaky mortgage fees and penalties

To protect yourself from signing a mortgage with hidden financial dangers like unnecessary fees and penalties, ask questions. Also, meet with your realtor and ask him to tell you what to expect during the loan signing process. This will help to familiarize you with the different stages of the house price negotiation and final closing process.

Questions to ask your realtor should focus on details like closing costs, mortgage application fees, mortgage insurance and title fees. Another item that you want to get clarity on is the exact dollar amount or percentage of your home's value that you have to pay in property taxes. Find out about fines and penalties that are associated with late property tax payments in the jurisdiction that you buy a house in.

Answers that your realtor gives you during one-on-one meetings will help you to budget your way through the entire house buying process. Don't be intimidated by your realtor's breadth of real estate knowledge. Ask as many questions as you need.It's better to ask questions before you meet with a lender and sign a mortgage than after you've bought a house and start struggling to keep up with your mortgage payments.

More questions for realtors and lenders

In addition to meeting with your realtor to discuss common mortgage fees, ask the lender who you work with about lesser known fees and penalties associated with your particular loan. Find out the percentage of penalties for:

  • Submitting payments late (Also, find out if you have to pay higher late penalties if you are more than 10 days late paying your mortgage. Another thing that you want to get information on is how late penalties are calculated. For example, will you have to pay a straight $15 if you're late with your mortgage or will you have to pay 2% of the total cost of your monthly mortgage?)
  • Paying extra on your principal (There shouldn't be penalties for paying more on your principal, but it doesn't hurt to ask.)
  • Refinancing your mortgage (in the event that an unexpected event puts you in the position of needing to refinance your mortgage)
  • Drive by inspections (These inspections occur when a lender sends an inspector by to evaluate a house after you have purchased the house. Make sure that you don't get stuck with these additional inspection fees.)

A mortgage may get scary if you don't know what you're stepping into. Regardless of the lender you finance your house through, you'll likely have to pay for more than the price of the house. Make sure that the total amount of your mortgage doesn't find you paying more for a loan than the house is worth. You can do this by asking smart questions throughout the entire house shopping, loan negotiation and mortgage closing process.




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