Tri-Valley Home Buyers Archives - Page 6 of 6

5 Ways to Get the Best Deal on a House

July 20, 2016 by temineth Leave a Comment

We always want the best deal; and even better when we can find a great deal on a great house that we really love. If you’re ready to get into the real estate search game, know all you can about the business, the market and prepare yourself for getting a great deal. Here are 5 ways to get the very best real estate deal.

#1. Know the market.

The knowledge really is power and if you’re planning on getting the best deal, this is not something that you decide on a Tuesday afternoon and then put in an offer Wednesday morning. You need to do the research in order to get the best deal. Take some time; maybe even a month or two to really find out where you want to live, get a good list of communities, subdivisions or neighborhoods that you’d like to choose and then the research over the last six months for that area. How is the market doing? Are homes increasing in value rapidly or gradually? Are homes dropping in value? What about the crime rate for a particular area? Are there good schools in the area, something to consider for resell value? Home selling quickly? If homes in a particular area are selling fast you may need to come up with an escalation clause or deal with multiple bids for the same property. If there are 300 homes in a subdivision yet only two or three are listed at a particular time, chances are that’s a very popular neighborhood and you might end up paying more than the asking price in order to get the home. If there are dozens of homes in a smaller neighborhood, people may be moving for a particular reason. Is there new construction going to be happening in the area? Talk to the neighbors about why they’re moving. And of course, talk to your buyers agent about a particular neighborhood, why you want to live there and if they have any concerns or advice they can share about the subdivision, community or area in general.

#2. Set yourself up as an attractive the buyer.

After you’ve done the research on a particular neighborhood and you have a good idea of the area you want to live in and the price range, set yourself up for homebuying success. This means doing the financial homework necessary in order to purchase a home. If your financing the property, talk to a lender about the type of loan that works best for your situation. Get a preapproval letter and set aside some funds either for a down payment and/or earnest money deposit. The larger the earnest money deposit the more serious sellers take you. They may be more inclined to accept your offer then another similar offer that has a lower earnest money deposit.

Another way you can be an attractive buyer is to minimize your contingencies. If you need to sell a particular property, have tough financing contingencies or too many conditions that need to be completed before you finalize the purchase, sellers just see you as a hassle and may decline your offer altogether. Of course we always recommend a home inspection but in a slower market you might consider a home inspection prior to making an offer. This could waive the inspection after the offer is accepted, speeding up the process and making you more attractive to the seller.

#3. Consider a foreclosure or short sale.

Foreclosures and short sales are still out there and they can be great deals. There are keys to look for though in a foreclosure or short sale property:

Find the least attractive property in the best neighborhood. By doing so you can instantly gain equity once the home is fixed up, because it matches the rest of the homes in the area.
Keep your eye out for mispriced listings. Overpriced properties will generally get very little interest and attention and could sit on the market for a long time. These are great properties to go for because they might be more inclined to accept a lower offer.
Buy a foreclosure at the year or quarter end. This works especially well with cash buyers. If you make an offer at the end of a month, quarter or year, many banks will accept that offer in order to get the deal closed and off the books.
Look for the diamond in the rough. Many real estate agents make it too many homes from banks and not have enough time to really research the property and showcase the best features. Check out these properties a little bit closer and if they meet your criteria for size and the neighborhood, check out in person and you might find great features that the real estate agent failed to mention.

#4. Negotiate with everyone involved.

You can negotiate pricing from just about every party involved in the real estate transaction. This could include your real estate agent, appraiser, lender, inspector, escrow and title company. You might be surprised at how much you can save simply by negotiating everybody’s fees in an amicable and reasonable way.

#5. Know When to Pull the Trigger.

Knowing when to pull the trigger is something that you and your buyers agent should discuss. Once you’ve done everything prior to this point, knowing when NOT to wait is crucial. By determining all the factors above, understanding the area and the market, you should be able to pull the trigger on an offer at the right time.

ALSO – know when to walk away. This is just as important as knowing when to go for it. Your agent will be able to talk you through the plan and when not to get your emotions too involved. Sometimes, buyers can get so wrapped up in the process, they overpay when it’s all said and done. Don’t let the idea of “winning” become the focus over getting the right house at the right time.

Ready to get started? Ready for step one? Let’s talk!

10 Important Things to Do Before Buying a House

July 12, 2016 by temineth Leave a Comment

In today’s real estate world more and more homebuyers are being informed and educating themselves on the process, the transaction and the details. This is great and it helps buyers understand and feel more comfortable with their purchase. Before looking and buying a home there are some things that you should do so that you are prepared, well-informed and assured you are ready to buy. Here are 10 things all potential homeowners should do before buying a house.

#1. Know your own finances.

Before applying for a home loan, looking at homes or touring open houses, understand your credit history, score and your own finances. You certainly don’t want to be surprised when a lender discovers that you have a low credit score and that loan you took out 10 years ago never got paid off. Make sure there are no surprises and if you find any errors on your credit history correct them or write a letter of explanation before applying for a home loan.

#2. Shop for the right lender.

There are lots of lenders out there and you should be shopping them just as much is you would shop for a house. The rates, points, fees and costs can all vary from lender to lender so let them know your shopping them so that you get the best deal.

#3. Understand homebuying expenses.

There are a lot of zero down home loans or low-cost home loans out there making it fairly easy for first-time homebuyers to purchase a property however, there are expenses that you need to know about such as out-of-pocket earnest money costs, appraisal fees and home inspection costs. It’s important to have several thousand dollars for these items but talk to your lender and your real estate agent about how much exactly you’ll need in order to buy a house.

#4. Get your own buyers agent.

Find a buyers agent that has this profession as a full-time business. It’s fairly easy to get your real estate license so many people real estate and have a full-time day job however, they may not understand the changes, rules and regulations of purchasing property so it’s best to go with an experienced and seasoned real estate agent so you have someone on your side throughout the process.

#5. Don’t max out your budget.

Just because you can’t afford a $500,000 house, doesn’t necessarily mean you need to max out that budget. Looking for a home around $450,000 will give you a little bit of breathing room and allow you to save money for those home repairs that will now need to deal with in the future.

#6. Don’t let your emotions rule you.

I’ve dealt with many people that fall in love with the house and want it at all costs even though after the home inspection the property is in dire need of repairs and could even be hazardous. Try not to let your emotions get the better of you and try not to completely fall in love with the house until you know it’s going to be yours.

#7. Ask about the homeowners association.

HOA, or homeowners associations are very common in the bay area and Tri-Valley area so you want to double check on how much you’ll be paying monthly for the homeowners association. Single-family homes, residential neighborhoods and condo associations can all have an HOA, so make sure you agree with it before signing on the dotted line.

#8. Consider plans for the future.

For first-time homebuyers it can be difficult to think long-term but the home you by now probably will not be your only home. Consider resale value, location, school districts, and what it would take to sell the property in the future if need be.

#9. Try to look past cosmetics.

Some of the best homes with the greatest deals out there may have peeling, outdated wallpaper, older appliances and wood paneling. But, you can get a great deal and if you look past the cosmetics and see the house for what it really is, you may be getting a diamond in the rough.

#10. Don’t sabotage your finances.

Once you’ve applied for a home loan do not make any large purchases or take out another loan. This can greatly affect your interest rate and even your ability to get the loan at all. Consider putting all of your finances on hold and freeze them until the transaction is complete.

For more information or to get started on any of these steps contact my office today.

Hidden Costs for Home Buyers

July 5, 2016 by temineth Leave a Comment

Buying a house, they said. It will be so easy, they said. Until all of a sudden, you have these hidden costs and fees popping up all over the place. I don’t want you surprised at all with any of the costs or fees involved in buying or selling a house but you do need to know that buying a house does require some money.

There are many billboards, signs and advertisements out there touting the you can buy a house with zero down and no money. Do you really want to be a homeowner if you have no money in the bank? That’s a serious question that deserves some serious consideration.

Now, I’m not saying that you need hundreds of thousands of dollars or even tens of thousands of dollars in order to be a homeowner but there are certain costs and fees associated with buying a house that all homeowners, especially first-time homeowners can tend to be surprised about. I want you aware of everything and doing your homework, including reading this blog post, will put you in a better position financially.

Here are some hidden costs to buying a home.

Out-of-pocket home inspection costs.

This is one of the expenses that will not be included in your closing costs. Unless your real estate agent or financial lender has done some creative consolidating, chances are you’ll need to pay for your home inspection out-of-pocket. This means you’ll need to write a check or give a credit card to the home inspector while they are there before or right after the home inspection. Home inspections tend to run anywhere from $350-$800. On average is about $400. If you can’t afford a home inspection out-of-pocket, you probably should not be buying a house. The home inspection is a vital part of the home buying process and not understanding everything you can about the home from a professional’s point of view could lead to some costly mistakes in the future. Make sure you have this money set aside for the home inspection.

10 Point List to Know if You’re Ready to Buy a House

The appraisal fee.

When borrowing money your lender will want to make sure that the home you are purchasing is worth the amount you are borrowing, which is why they’ll need to order an appraisal that you’ll need to pay for. The lender will typically hire an independent certified appraiser to assess the property value of the home. It will document varies features that make the home valuable and they can typically run between $250 and $600. This upfront fee will be charged directly to the borrower by the lender and may or may not be included in the closing costs.

Escrow fees.

Some lenders will require that an escrow account be set up in conjunction with a mortgage loan agreement. This will house money to pay ongoing property related expenses on the homeowners behalf including homeowners insurance, private mortgage insurance and property taxes. There also may be an additional deposit required at closing for this account. Be sure to check with your lender or your real estate agent about these additional fees.

Potential survey costs.

Not all homes will require a survey but it may be required so everyone knows exactly where your property’s boundaries are. This could be several hundred dollars but again, not required however, you will be paid directly to the surveyor.

5 Secrets Every House Hunter Should Know

Earnest money deposit.

When you first make an offer on a home you’ll need to write a check or money order for an earnest money deposit. This holds the property as the first right of refusal to buy the home. This could be anywhere from 1% to 5% of the purchase price of the home so this is a good chunk of money that could be several thousand dollars. This will go toward your down payment at closing. This money will not be deposited until mutual agreement is secured on the purchase and sale contract.

Closing costs.

When you finalize the sale on your new property closing costs will include a variety of courier fees, escrow and title company fees, appraisals, lending fees, points etc. and may or may not include some of the previous points as well. This could be anywhere from $5000-$20,000 based on the price of the home. This can be rolled into the cost of the home if the property can bear the value however, talk to your lender about this so that you’re not stuck with a $10,000 bill that you didn’t know about.

Buying a home should be fun but understanding all of the details about the transaction and the lending practices will help you be better prepared for the entire process. For more information or to get started or to answer any questions you might have about homebuying in the Tri-Valley area contact my office today.

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Buy First, Sell First? Which Comes First?

June 28, 2016 by temineth Leave a Comment

Oh that tricky question; what should you do first? List the home? Make an offer on another one? Is it okay to buy and sell simultaneously? What’s the risk and what happens is one falls through?

This can be a stressful situation but it’s not uncommon. Many homeowners buy and sell at the same time. It can be a bit easier if you’re doing the swap in the same town. Out of town or even out of state can be very stressful but not if you plan ahead and be strategic about the move.

Here are some simple tips anyone can do when buying and selling at the same time.

Talk to your agent about what is the best move.

Simply talking to your agent about the marketing, the desirability of the neighborhood and how fast your home might sell can help you plan for this transition. If the market is hot, you might consider finding a home first and locking that in before listing. If the market is slow, consider listing first and finding a home later. Your agent will tell you honestly which direction to try first.

Should you go contingent?

Contingent is when you put in an offer on a house with a condition that you can’t finalize the payment until after your home sells. There may be some stipulations to this as well, such as, the home must already be listed, accepted offer, etc..

Contingent offers are also pretty tricky. Many homeowners in a hot market will not accept a contingent offer because they know about your offer is probably right around the corner. They are much less desirable and many listing agents will tell their sellers to decline a contingency offer.

This doesn’t mean that sellers won’t consider a contingent offer but it might be very risky and you may lose out on the home you really want. Each situation is unique and even micromarkets in particular communities and neighborhoods can vary from place to place, so it’s extremely important to be in top communication with your real estate agent about the best move for each house.

What about a bridge loan?

A bridge loan or even a home equity line of credit, can offer a loan extension from one house to another. A bridge loan, allows you to tap the equity in your current home with short-term financing in order to buy your new home before your old house sells. You’re basically financing to homes at the same time but just temporarily. Once your current home sells you can pay off the temporary bridge loan and move into your new home.

The downside is that very few lenders offer these types of homes. They’re more likely to recommend a HELOC, home equity line of credit, in order to make the down payment. Remember though, with a HELOC you will be paying two mortgages.

I typically recommend that my homeowners put their home up for sale first and then once they’ve negotiated an accepted offer, they can get serious about finding and purchasing a new home. This can be a tricky situation however, especially if you’ve found the home you love before you’ve even listed your current home. This is why I recommend not looking at homes until you’re ready.

Again, it all comes down to timing and understanding the individual markets that you’re buying in and selling in. Talk to your real estate agent before making any serious moves so that you can plan ahead, strategize the right plan of action and be prepared for a roller coaster ride over the next couple of months.

The right agent can certainly make all the difference in the world. Contact me today and let’s get started finding out what would be the best option for your situation and your location.

10 Point List to Know if You’re Ready to Buy a House

June 8, 2016 by temineth Leave a Comment

Think you’re ready to buy? It’s exciting and a little scary when you think about buying, purchasing and owning a home of your own, especially if you’ve never done it before. But you also want to know you’re ready. If you’re not, owning a home can be stressful. It’s a big responsibility but a worthy one if you’re ready.

Here’s our 10 point checklist to find out if you’re ready to buy a home.

#1. You’re comfortable making a monthly housing payment.

If you’ve already been paying rent or some other housing payment each month then you are prepared for the monthly mortgage payment but you’ll be expected to pay to the bank each month. Depending on where you live, sometimes rent can be just as much or even sometimes more than a mortgage payment. If you’ve gotten into the habit of making an on-time payment each month, you should be ready for monthly mortgage payment.

#2. You have a little bit of money in the bank.

If you’re living paycheck to paycheck barely making ends meet each month, the house may not be the best option. Renting means that you have very little responsibility in repairing or replacing items that break from natural wear and tear. When you own a home, you are the only one that will pay for this repair or replacement. You need a little bit of extra money in order to take care of any emergencies that might arise.

#3. You have some savings.

This is more than simply having money left over each month after your paycheck; this is money saved up for either a down payment and/or closing costs. When you purchase a home you’ll need an earnest money deposit, which is usually 1% to 3% of the purchase price of the home. This could be several thousands of dollars. If you do not have money for a down payment or earnest money deposit, chances are your mortgage will be extremely high and sellers may not accept your offer.

#4. You have good credit.

I didn’t say perfect credit because you don’t need perfect credit to apply for a home loan and get approved but you do need to meet a certain requirement for credit score and credit history in order to qualify. Talk to your lender about what these qualifications are and get a copy of your credit history.

#5. You’re planning on staying a while.

If you like to move every six months to two years, buying a permanent house may not be the best option. Buying a house is a long-term commitment so unless you’re planning on staying at least 3 to 5 years, you might stick to renting for now.

#6. You’re ready for more responsibility.

Whether you purchase a single-family house or condominium your responsibilities will increase. You are now responsible for appliances should they break, mowing the lawn or keeping up with the landscaping and maintaining the structure in general.

#7. You’re ready for tax breaks.

As a homeowner you can receive certain tax credits and deductions on your mortgage interest and property taxes each year.

#8. You understand the market and know that it’s a good time to buy.

If all the other factors come into play but the market is just terrible, it may not be time to buy and this is no fault of yours. Talk to your real estate agent about the best time to buy in your neighborhood and in your market. There are typically more homes on the market during the spring and summer but you might be able to get a better deal in the fall or winter. Talk to your agent about the type of market we’re in and if it’s a good time to buy.

#9. You understand the hidden expenses of owning a home.

There are many additional costs of homeownership that new homebuyers tend to overlook. You will need to pay homeowners insurance, taxes and possibly private mortgage insurance or PMI, which is added onto your monthly mortgage payment in the cases of a low down payment or zero down payment loan. You may also pay homeowners association fees monthly, quarterly or annually if you buy a condominium or a home in an association.

#10. You don’t have a lot of debt.

If you simply have school debt or a car loan, that may be OK but if you have numerous credit card debts, maxed cards, loans and too much debt in general, it will be difficult to get a loan and extremely difficult to add one more payment to your monthly bills. Pay down some debt first before applying for a loan.

I know this is a lot of information and it’s a good checklist but it is extensive. However, verifying all of these items will make homebuying much easier and it will make that monthly payment that much easier to afford and manage each month.

If you feel you’re ready for homebuying please contact me now to get started looking at homes today. Still have some questions on whether or not you qualify? Click here now for free consultation about homebuying, the market and answers to all your real estate questions.

5 Secrets Every House Hunter Should Know

June 1, 2016 by temineth Leave a Comment

To really get the most out of your house hunting experience you may have done little bit of research, scoured the market and read real estate articles ad nauseam. You might think you’re an expert at this point but no one is an expert better than a professional that buys and sells real estate on a day-to-day basis. Gaining insights and secret tips from real estate agents and brokers could be the key to saving money and finding the home you really are going to love for years to come. Here’s our five secrets of every house hunter should know before jumping in the market.

#1. Think strategically.

Our bay area market is hot and there are new developments popping up all the time but it may not be fast enough. Buyers, especially first-time homebuyers need to think strategically in order to land a house in a hot market. It can be so frustrating looking at multiple houses only to be bid out time and time again. However, there’s always a way to gain an advantage over the competition. One way is for your agent to pull tax records of sellers to get information to use on a personal letter to the seller. This personal letter could be the ideal way that you get the home. Also, ask your real estate agent to share your needs on social media and with other agents for insight on homes that may be have yet to hit the market.

#2. Research and scope out the neighborhood.

Before making an offer on a particular home, check out the neighbors and the neighborhood around that home. Perhaps they’re having a garage sale in your desired neighborhood and you can ask the homeowner questions as your shopping. You can also sometimes find neighbors out watering the lawn and you can simply asked them about the neighborhood, the marketand what they like or dislike about a particular area.

#3. Use pricing psychology.

Pricing a house is very similar to pricing just about anything. $5.99 seems like a better deal than $6, even though we know that it’s basically the same. Pricing a house works very similar. If the property is listed at $625,000 and you know that the property has already received several offers, you may be tempted to go over the highest asking price with a flat number such as $650,000. However, raising it with an odd number such as $648,000, or $647,000 etc., may be the unique bidding number that will get yours noticed over the others.

#4. Be a great buyer.

Don’t be a lowball buyer that insults the seller at every turn. Sellers are more attracted to buyers that they like and that may share some interests. The personal letter can offer an insight into your personality and character and if you’ve already seen the inside of the home you might make notice of some of the things that stood out to you such as their baseball collection, unique design taste or complement them on or remodel they’ve recently completed.

#5. Keep an open mind.

Try not to let outside stigmas alter your perception of the home. Many people feel that a home where a senior citizen may have lived and even perhaps have passed away in is a reason to discard the property but chances are the the person that lived here took very good care of the property even though they may still have pink Formica, vinyl floors and original wallpaper. Keeping an open mind could give you a better chance at success and keep competitors away.

These five tips can make it a lot easier to find and purchase the home of your dreams. For more information please contact me today and let’s get started looking at a variety of homes in your desired area.

Best Places for Young Families in Northern California

May 12, 2016 by Dale Corpus Leave a Comment

Northern California has a reputation for pricey living, but young families are still finding affordable homes and good public schools in the suburbs of Sacramento and Fresno, as well as areas east of San Francisco.

Half of the 10 best places for young families in Northern California are clustered in suburbs of the state capital, NerdWallet found. Three other communities in our top 10 are in the eastern part of the Bay Area, where the tech industry is booming, and two are farther south, in the Fresno area.

NerdWallet’s analysis

By statistically comparing such factors as home prices, education, income growth and a crime risk score, NerdWallet identified the best places to start your search for the Northern California community that’s right for you and your family. We crunched the data for 202 places in Northern California — cities, towns and census-designated places with at least 10,000 residents. Not every place got top marks in all the categories we looked at, and housing affordability is an issue in some places.

Key takeaways

Family-friendly places came in pairs: Three sets of spots on the top 10 list are neighboring places — Rocklin and Roseville; El Dorado Hills and Folsom; and Dublin and San Ramon.

Second “bests”: Half of the cities on this year’s top 10 list also appeared on NerdWallet’s lists of the Best Cities for Young Families in Northern California 2014 or the Best Cities for Young Families in California 2014.

Best places for young families in Northern California

1. El Dorado Hills

El Dorado Hills, just east of Sacramento, earned a crime risk score of “most safe,” the highest possible mark. Homes aren’t cheap here — the median home value is $472,000, compared with the Northern California median of $304,650 — but median family income here is high, too, at $129,292. El Dorado Hills students are served by Buckeye Union School District, Rescue Union School District and El Dorado Union High School District. Top community attractions include El Dorado Hills Town Center and the area’s more than 200 acres of parks and open space.

2. Folsom

Folsom’s claim to fame may be its prison, but this suburban Sacramento city has a lot to offer families as well. Median family income in Folsom is high at $116,527, and it’s a community with plenty of young families — 30% of families include at least one child under the age of 18. Folsom earns a “safe” crime score, and poverty rates are low. Folsom Cordova Unified School District serves students in the area. The city offers a wealth of opportunities for outdoor recreation, and family attractions nearby include the historic district’s Sutter Street, the Folsom Railway Museum, Folsom’s Pioneer Village and the Harris Center for the Arts.

3. San Ramon

Living in San Ramon isn’t cheap; the San Francisco suburb’s median home value of $722,700 is the highest in our top 10. But families in the Contra Costa County city also earn a high median income of $151,494. San Ramon’s crime risk score is “most safe,” the highest possible, and 43% of families include at least one child under 18, the most in our top 10. Students here attend the award-winning San Ramon Valley Unified School District. Top attractions in San Ramon include the San Ramon Performing Arts Center, the San Ramon Art & Wind Festival as well as the city’s many trails and parks. San Ramon recently began a $4.45 million expansion and renovation of its main library, which will reopen in early 2017.

4. Dublin

Dublin, in Alameda County, is located on the BART train line, allowing for a car-free commute to San Francisco, and its crime risk score of “most safe” is the highest possible. Median family income grew 54.88% in Dublin from 1999 to 2014, the second-highest amount in our top 10. The Dublin Unified School District is expanding: A new kindergarten complex at James Dougherty Elementary School is scheduled to be completed in fall 2017, and a new K-8 school in the Jordan Ranch development is scheduled to open in fall 2018. Each year Dublin hosts Splatter, a popular food, art and wine festival for the whole family. The city is home to a wide range of parks and open space areas, including the 654-acre Dublin Hills Regional Park.

5. Kingsburg

Kingsburg, in Fresno County, has the lowest median home value in our top 10, at $219,700. Median income grew a whopping 57.15% on average from 1999 to 2014, the highest such jump in our top 10. Kingsburg is a “less safe” city according to its crime score, which is just under the state median. Elementary schools in Kingsburg operate on a charter system, which also includes one junior high school and Central Valley Home School. Kingsburg High School operates its own school district. Kingsburg pays homage to its heritage with its Swedish Village and annual events including the Kingsburg Swedish Festival and Julgransfest Christmas Tree Lighting.

Methodology

We analyzed 202 places in Northern California with populations of 10,000 or more. Northern California was defined as all counties in California, excluding the 10 southernmost counties of Imperial, Kern, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Luis Obispo, Santa Barbara and Ventura. Certain places were excluded because of missing data. Our methodology focused on four factors:

Home affordability. Home affordability, 30% of the total score, was calculated by averaging index scores for median home value and median selected monthly owner costs. The lower the costs, the higher the score. Data came from the American Community Survey, a division of the U.S. Census.

Growth and prosperity. Growth and prosperity are 20% of the total score. The two metrics were growth in family income from 1999 to 2014, and median family income in 2014. Data are from the American Community Survey.

Family friendliness. To measure whether an area is a good place for families, which is 20% of our total score, we looked at the percentage of married couples with at least one child under age 18, the average crime score as provided by NeighborhoodScout, and the percentage of families in poverty with at least one child under age 5.

Educational quality. Using data from SchoolDigger.com, every place was given a percentile score relative to other places in the state. Education is 30% of the total score.

Anna Helhoski is a staff writer at NerdWallet, a personal finance website.

This article originally appeared on NerdWallet.

Dale Corpus

925-380-1657

Dale@KeytotheBay.com

What is California Mortgage Insurance?

March 7, 2016 by temineth Leave a Comment

Mortgage insurance, also referred to as PMI, or private mortgage insurance is typically only found on loans where the borrower did not make a minimum 20% down payment. This can be a big hurdle, especially for first-time homebuyers, to come up with a large down payment of at least $10,000 or more depending on the price of the home. A 20% down payment on a $500,000 home is $100,000, something very few first-time homebuyers are able to save. This is where mortgage insurance comes into play. Lenders will allow a borrower to make a down payment of less than 20% on certain types of loans including an FHA loan or VA loan and because of the lower down payment there needs to be some sort of mortgage insurance for the lender themselves. This is known as a private mortgage insurance or lenders mortgage insurance.

Lenders want to make sure that if a borrower defaults on the loan and the lender has a risk of losing money, mortgage insurance will protect the lender by providing the money payable to the lender only to recoup any losses. Lenders tend to think that buyers who are unable to put 20% down might be more inclined to default on their loan. While this is true or not, lenders would still need to recoup the cost if the borrower defaults.

Mortgage insurance typically does not protect the borrower but it can still benefit the borrower. It allows the borrower to make a payment of less than 20%, which means that many borrowers would be able to be homeowners far sooner than have they saved the 20%. And even though it benefits the lender primarily, it is the borrower’s responsibility to pay the premium.

Mortgage insurance rates are based on the mortgage amount, loan terms, the down payment size, the borrower’s credit score and history. On average, the mortgage insurance rates are about $50 per month per $100,000 borrowed. Premiums can be paid up front or incorporated into the loan. Some insurance providers may offer discounts to borrowers with more modest incomes or higher downpayments but these are things to check with your lender about.

One good thing about the mortgage insurance is that it won’t last for the entire life of the loan. It is only required until the loans principal balance reaches 80% of the value of the home. Ironically the same amount should the borrower had put 20% down to begin with.

In 1998 the US Homeowners Protection Act required lenders to cancel the borrower paid mortgage insurance when the loan reached 78% of the appraised value or a sale price, whichever is less. This would mean that a borrower typically needs 22% equity in their home to have it automatically canceled. However, borrowers can call and request cancellation after a year or two of paying it or if the home can be appraised or valued at 80% of the loan.

Private mortgage insurance is also tax-deductible and is usually the least expensive option for low down payment borrowers. However, the Congress extends the tax break on a yearly basis so be sure to check with your lender on if this is still the case each year.

Private mortgage insurance can definitely benefit borrowers and that they don’t have to have the full 20% in order to buy a home but, you have to remember to cancel it when you can so that you don’t have to keep paying it when you don’t have to.

For more information on the different types of loans, lenders or options contact my office today.