What is PMI and I should I Pay It?

If you’re getting ready to buy a home, then you’ve likely heard of private mortgage insurance (PMI). You might also have a basic idea of what it is, but do you understand why lenders charge PMI or how it’s derived? Here is a review of some details about PMI, as well as some options for paying less monthly PMI or in certain cases, avoiding it entirely.

What is PMI?
PMI is a type of insurance paid  to mitigate a lender’s potential loss if you default on the mortgage loan. In other words, if you stop paying your mortgage, the lender will be would be able to recover their losses from the PMI company.

Why do I have to pay PMI?
Private mortgage insurance is required when you put less than 20 percent down when purchasing a home, or have less than 77 percent equity when refinancing your home.  Basically, the lender wants a safeguard in the event you stop paying your mortgage (a.k.a. defaulting on the loan) so they can re-sell the property to recoup their investment.

PMI Payment Choices
There are many choices available when paying PMI and each will vary based on your individual financial situation:

Borrower Paid Mortgage Insurance (Monthly Premium): This type of mortgage insurance is a monthly payment included as part of a monthly mortgage payment.   This is the most common type of mortgage insurance.

Borrower Paid Mortgage Insurance (Single Premium):  This option allows you to eliminate the monthly mortgage insurance payment by paying the full cost of the mortgage insurance at closing or including it in the total cost of the loan amount.

Lender Paid Mortgage Insurance (Single Premium): This type allows a one-time upfront fee that is paid by the lender and eliminates the monthly PMI obligation.  The lender typically covers the one-time upfront fee  by by slightly increasing the  interest rate over the duration of the loan.

Split 50/100 Mortgage Insurance: This option reduces your monthly PMI obligation by paying a percentage of the loan amount upfront – you can pay up to 1.25 percent.  The greater the upfront portion paid, the lower the monthly payment.

www.KesslerHomeLoans.com

What is PMI and I should I Pay It?

Conforming vs. Jumbo Mortgage Loans - FLORIDA HOME LOANS

Determining whether or not your loan is jumbo or conforming may seem confusing; which is why, we have crated this blog post as an educational resource.

It simply boils down to: the type of loan (FHA or Conventional), your county's limit and the type of property you are purchasing or currently own. For example, a non-FHA loan limit for a single family home, or condo, in Collier County, FL is $448,500 and in Monroe County, FL is $529,000 yet, all other counties in Florida the limit is $417,000. The reason for this difference is some, more affluent, counties have higher limits as a consequence of average home prices and land value being more costly.

Conforming or Jumbo. Which one are you?
You’ll need to first determine the type of financing (FHA or Fannie Mae/Freddie Mac. FHA and Fannie Mae/Freddie Mac have set different loan limits so you’ll need to use the proper resources when checking local loan limits.

FHA loan limits. Simply enter your state, county and hit send at the bottom of the screen. You’ll be given the loan limits for your county along with the loan limits for each property type within your county.

Fannie Mae/Freddie Mac loan limits. While this is Fannie Mae’s site, both Fannie Mae and Freddie Mac rarely move independently of one another.  The charts will offer the loan limits for each property type; however, does not provide detailed information regarding high-cost counties.

Conforming and Jumbo Loan Underwriting Differences
Conforming lending rules are more flexible than jumbo – from the required credit score to the down payment. With regard to jumbo lending, guidelines are more stringent, and with good reason, lenders are taking more risk. Additionally, you’ll find jumbo loans will require higher credit scores and larger down payments.

Conforming
Conforming Programs and Rates. Conforming loans offer more competitive rates and offers both ARMs and Fixed rate programs.

Conforming Credit. You will need to have a minimum credit score of 620.
Conforming Income. All types of income can be used when qualifying for a conforming loan. Speak with your mortgage professional should you have questions about your earned income.Conforming Assets. The lender will want to see two to three months savings (reserves). One month’s reserve is the equivalent to one full month’s mortgage payment (principle, interest, taxes and insurance).

Conforming Debt. The lenders use debt-to-income ratios to qualify you. Conforming guidelines (rules) are more flexible and you can be approved above the suggested debt-to-income ratio.  Just keep in mind, your gross income is used when determining whether or not you qualify so be sure you are comfortable with your monthly payment.
Conforming Property Appraisal. Only one appraisal is required.

Jumbo
Jumbo Programs and Rates. The rates for jumbo loans are less competitive than conforming loans. Additionally, adjustable rate mortgages are most commonly used in the jumbo arena. While fixed rates are offered, the rates are about half-percent higher than that of a conforming loan.

Jumbo Credit. The minimum credit score for a jumbo loan is 700.

Jumbo Income. Just as with conforming loans, All types of income can be used when qualifying for a conforming loan. Speak with your mortgage professional should you have questions about your earned income.
Jumbo Assets. In addition to the down payment and closing costs, a jumbo lender will want to see a minimum of twelve months reserves (remember, one month reserve = one mortgage payment).

Jumbo Debt. As with conforming loans, jumbo lenders use debt-to-income ratios for qualification purposes. Jumbo guidelines (rules) are not as flexible. For example, a conforming lender may approve your loan at forty-five percent; however, some jumbo lenders will limit you to forty percent.

Jumbo Property Appraisal. Depending on your loan amount, you may be required to pay for two appraisals.

When researching your financing options be sure and talk with your mortgage professional regarding all of your available options.

www.KesslerHomeLoans.com

Conforming vs. Jumbo Mortgage Loans - FLORIDA HOME LOANS

Cheaper To Buy Versus Rent in Many Metros

Trulia has released new data stating that owning a home may be a cheaper option in many metropolitan areas than renting. According to the report, homeowners who stay in their homes for seven years will save approximately 38% when compared to those who rent. Jed Kolko, Trulia’s chief economist said, “even in these metros buying remains cheaper, thanks to mortgage rates that are still very low by historical standards.” A few of the metros mentioned are Chicago, Los Angeles, Dallas, Philadelphia, Washington, and Houston. More here

More about me here:  www.MyMortgageGuyTOM.com 

Cheaper To Buy Versus Rent in Many Metros

No Cost Mortgage

No Cost Mortgage

• A no cost (or “no point, no fee”) mortgage is the most common way to refinance in today’s market.
• Here’s how it works. Every refinance transaction has real costs associated with it. These costs include title, escrow, credit report, notary, appraisal, etc. The question is: Who pays for these costs? The real answer is that the borrower always pays these costs, either directly at closing or through a slightly higher interest rate on their loan.
• Let’s see an example:$300,000 Loan Amount
  = All fees add up to $3,000
  Rates for that day:
  4.250% (1.00) credit
  4.125% (.500) credit
  4.000% 0.00 <—”par” rate
  3.875% 1.00 Discount points
  If the borrower chose the 4.000 par rate, then they would have to pay the $3,000 in closing fees. If they chose the 3.875 discounted rate, they would pay the $3,000 plus 1.00% of the loan amount in exchange for the below-market rate. If they didn’t want to pay points OR fees, then they would choose the 4.250% rate, which would give them a 1.000% credit of $3,000 to offset the $3,000 in fees.
  
  More about me here:  www.MyMortgageGuyTOM.com

No Cost Mortgage

Credit Report Error Sinks Short-Sellers Bids for a Mortgage

Credit Report Error Sinks Short-Sellers Bids for a Mortgage

For a short sale, a borrower is eligible for conventional loan financing 24 months post-short sale at 80 percent loan-to-value or lower. But for a foreclosure, a three-year window is required to get a mortgage again with as little as 3.5 percent down on a primary home with an FHA loan. Seven years must have passed for the homebuyer to qualify for a conventional loan post-foreclosure (or, four years with extenuating one-time economic hardship circumstances). So the addition of chapter 5, 8 or 9 flags the previous short sale on the credit report as a foreclosure, thereby making the loan ineligible for conventional financing in a shorter time frame. 

Read More Here

Source: AOL Real Estate

Credit Report Error Sinks Short-Sellers Bids for a Mortgage

HUD: New FHA loan limit takes effect Jan. 1

Beginning next year, homeowners with Federal Housing Administration loans will no longer be able to qualify for the $729,750 high-cost area loan limit.

Instead, the Department of Housing and Urban Development is implementing a rule passed a few years back that moves the agency's standard loan limit for high-cost areas down to $625,500 for all FHA loans.
The standard loan limit for areas where housing costs are low is expected to remain at $271,050, while the ceiling for FHA-insured reverse mortgages will stay at $625,500, HUD added.

The rule impacts all mortgage assignments issued on or after Jan. 1, 2014.
Approximately 650 counties will face lower loan limits when the standard takes effect, according to HUD.

HUD: New FHA loan limit takes effect Jan. 1

Big FHA changes this year in 2013!

Uncle Sam needs more money, so he’s hitting up FHA loans again. Here’s a break-down of the changes:

Big FHA changes this year in 2013!

Top 6 Most Popular Refinance Options

Top 6 Most Popular Refinance Options
 
HARP - For those people who are underwater (your loan amount is greater than the value on your home), the Home Affordable Refinance Program is an option that you can explore. It is a government instituted program to help those who are underwater on their homes to refinance.

FHA Streamline - Those who have currently been in an FHA  program and still have a high rate (above 4%), have found it beneficial to refinance under the same program into a lower interest rate, with one caveat; if your value on your home has gone up and/or the amount of your loan has been paid down considerably, it may be better for you to refinance into a Conventional loan.

VA Streamline - As with the FHA streamline, if your rate is above 4%, it could be beneficial to do a VA streamline program to get yourself a lower rate.

Lower Rate - If your rate is currently over 4%, then now would be the time to look into refinancing as we have been seeing a trend of rates rising.

Lower Term and Rate - You may be able to cut down your term and get a lower rate which could balance out to the same or even less of a payment than you are currently making.

Cash-Out - If you have equity in your home, you can get cash-out to reinvest into your home through upgrades, adding on rooms, etc., which will only make the value of your home go up even more as the values on homes are on the rise. It is estimated that values will go up by 7 to 12% by the end of the year and 36% over the course of the next 3-5 years.

If any of these are situations that you or someone you know has questions about, you can reach us at (941) 822-4696 or visit us on the web at www.KesslerHomeLoans.com . We would be happy to answer your questions and help in any way that we can. Have a great day!

Top 6 Most Popular Refinance Options

Getting Qualified for a Home Loan and being Self-Employed

It wasn’t too long ago that home loan officers could offer a so-called, “SISA” loan – which stood for, “Stated income, Stated assets.”  All a loan officer had to do was pull credit and make sure the borrower’s FICO score was decent, and they were off to the races!  As you can well imagine, those days are long gone.  Not only is SISA gone, but “No Doc” loans are gone too.  That is generally good news for responsible banking practices, but it can hurt self-employed borrowers with lots of legitimate write-offs.


Despite a radically different lending environment, it is still very possible for self-employed borrowers to qualify for a home loan.  Tax returns are still the gold-standard and necessary for underwriting, but that is something a highly qualified loan consultant can help you with.  If you’re a self-employed person applying for a loan, here are some things to keep in mind:

• If you are newly self-employed, you must have a two year history of self-employment before you can use that income to qualify.
• You will need to provide your last two years of Federal tax returns – business and personal.  Make sure you have K1′s available if you receive them.
• The chances are strong that you will also need to provide a YTD profit and loss statement along with bank statements to show that your business is stable.
• If your income has been declining, the underwriter will probably take a worst-case scenario calculation rather than an average of the past two years.
• Depreciation and depletion can usually be added back (because it is a non-cash expense), so if you are involved in a business with a lot of depreciating assets, this will help your qualifying numbers.
• If you have filed a tax extension we will need to see proof of the extension.
• If you have liabilities (such as a car payment) that are being paid by the business, if you have 12 months of cancelled checks to prove the business is paying, that liability can be removed so that you are not “double-dinged” for it.

There are many nuances to working through tax returns to help qualify self-employed borrowers, but it is totally doable for well-trained loan consultants.  If you have any questions, never hesitate to call us to talk it through or even get an analysis of your scenario.

Getting Qualified for a Home Loan and being Self-Employed

Buying a Home with only 3.5% down-payment

I run into a lot of folks who think they have to amass a huge down-payment in order to buy a home.  Nothing could be further from the truth.  With an FHA loan, you can put as little as 3.5% down – and with conventional you can put down as little as 5% if your credit is decent.  Take a look at how reasonable that number is relative to purchase price:

Purchase Price     3.5% Down

$150,000                  $5,250 down

$200,000                 $7,000 down

$250,000                  $8,750 down

$300,000                 $10,500 down

$350,000                 $12,250 down

$400,000                 $14,000 down

$450,000                 $15,750 down

$500,000                 $17,500 down

$550,000                 $19,250 down

$600,000                $21,000 down

$650,000                 $22,750 down

$700,000                 $24,500 down

$750,000                 $26,250 down

Think about that.  That gives you a lot of purchasing power!  You can even use gift funds towards the down-payment and non-occupying co-borrowers to qualify for the loan…  If you’ve been sitting on the sidelines because you don’t think you have enough saved up for a down-payment, think again.  There are many affordable options to consider.

Buying a Home with only 3.5% down-payment

Home Affordability Soars Again as 30 Year Rates Plunge Back Down to 3.99%

Home Affordability Soars Again
as 30 Year Rates Plunge

Back Down to 3.99%

There is good news for buyers and homeowners! Mortgage rates have plunged back down to 3.99% again on a conventional 30 year fixed mortgage rate, down from almost 5% from just over a month ago. The recent announcement by the Fed to NOT Taper their bond purchases, has resulted in mortgage rates dropping to a new 4 month low. So for any buyers who may have moved to the sidelines recently due to the spike in rates, they are getting a second chance to start looking again for that perfect home that was maybe unaffordable a month or two ago.

www.KesslerHomeLoans.com

Kessler Real Estate Financial Services - Meet the Team

Home Affordability Soars Again as 30 Year Rates Plunge Back Down to 3.99%

What is typically included in closing costs?

Recently I had someone ask me what they could expect in closing costs and they had a hard time understanding why certain costs were included and what the costs are exactly. This mostly explains what is itemized on the GFE or HUD-1. Whether you have to come out of pocket for any of these will depend on your specific situation, so keep that in mind while you are reading. In order to help others understand, here is a quick breakdown of what costs you may see on your Good Faith Estimate and Final HUD-1 Settlement Statement:

• Appraisal (up to $450) – This is paid to the appraisal company to confirm the fair market value of the home.
• Credit Report (up to $30) – A Tri-merge credit report is pulled to get your credit history and score.  You cannot supply your consumer pulled report and the scores pulled form the internet from any place other than myfico.com are not real scores nor are they accurate.
• Closing Fee or Escrow Fee (generally calculated a $2.00 per thousand of purchase price plus $250) – This is paid to the title company, escrow company or attorney for conducting the closing. The title company or escrow oversees the closing as an independent party in your home purchase. Some states require a real estate attorney be present at every closing.
• Title Company Title Search or Exam Fee (varies greatly) – This fee is paid to the title company for doing a thorough search of the property’s records. The title company researches the deed to your new home, ensuring that no one else has a claim to the property.
• Survey Fee (up to $400) – This fee goes to a survey company to verify all property lines and things like shared fences on the property.  This is not required in all states.
• Flood Determination or Life of Loan Coverage (up to $20) – This is paid to a third party to determine if the property is located in a flood zone. If the property is found to be located within a flood zone, you will need to buy flood insurance. The insurance, of course, is paid separately.
• Courier Fee (up to $30) – This covers the cost of transporting documents to complete the loan transaction as quickly as possible.
• Lender’s Policy Title Insurance (Calculated from the purchase price off a rate table. Varies by company) – This is insurance to assure the lender that you own the home and the lender’s mortgage is a valid lien. Similar to the title search, but sometimes a separate line item.
• Owner’s Policy Title Insurance (Calculated from the purchase price off a rate table. Varies by company) – This is an insurance policy protecting you in the event someone challenges your ownership of the home.
• Natural Hazards Disclosure Report - Required by law in the state of California for the seller to give the buyer.  Reports run between $90 to $150.  May be required by other states.
• Homeowners’ Insurance ($300 and up) – This covers possible damages to your home. Your first year’s insurance is often paid at closing.
• Buyer’s Attorney Fee (not required in all states – $400 and up).
• Lender’s Attorney Fee (not required in all states – $150 and up).
• Escrow Deposit for Property Taxes & Mortgage Insurance (varies widely) – Often you are asked to put down two months of property tax and mortgage insurance payments at closing.
• Transfer Taxes (varies widely by state & municipality) – This is the tax paid when the title passes from seller to buyer.
• Recording Fees (varies widely depending on municipality) – A fee charged by your local recording office, usually city or county, for the recording of public land records.
• Processing Fee (up to $1,000) – This goes to your lender. It reimburses the cost to process the information on your loan application.
• Underwriting Fee (up to $795) – This also goes to your lender, covering the cost of researching whether or not to approve you for the loan.
• Loan Discount Points (often zero to two percent of loan amount) – “Points” are prepaid interest. One point is one percent of your loan amount. This is a lump sum payment that lowers your monthly payment for the life of your loan.
• Pre-Paid Interest (varies depending on loan amount, interest rate and time of month you close on your loan) – This is money you pay at closing in order to get the interest paid up through the first of the month.
• Property Tax (usually 6 months of county property tax).
• Wood Destroying Pest Inspection and Allocation of Costs - If required by the lender or buyer, the inspection generally runs up to $125.00.  Repairs can get expensive if evidence of termites, dry rot or other wood damage is found.  example: Fumigation of a typical 1500 square foot house could run around $2,000.
• Home Owners Association Tranfer Fees - The Seller will pay for this transfer which will show that the dues are paid current, what the dues are, a copy of the association financial statements, minutes and notices.  The buyer should review these documents to determine if the Association has enough reserves in place to avert future special assessments, check to see if there are special assessments, legal action, or any other items that might be of concern.  Also included will be Association by-laws, rules and regulations and CCRs. The fee for the transfer varies per association ,but generally around $200-$300.

It is important to remember that you may qualify for a lender’s credit to make up for you having to come out of your pocket with any of these costs, but this is determined on a case-by-case basis. To get a free analysis of your specific situation, contact us for details.

What is typically included in closing costs?