Ask Cora Hey Cora, I have heard that a lender will require a 20% down payment or they will charge MIP (Mortgage Insurance Premium). What is that? Is there a way that I don’t have to pay that? Signed, NOT a Fan of Mortgage Insurance. Dear NOT a Fan, yes, there are loan programs that will charge mortgage insurance if you’re putting less than 20% down. So, FHA and Conventional will for sure. VA does not because it charges it in your VA funding fee – this fee is then financed into your loan amount, you are still paying it, but at a lesser rate per month. These rules change all the time, but currently, FHA loans do not allow you to EVER dump the mortgage insurance premiums each month (it’s included in your mortgage payment). Well, that’s an exaggeration, you can get rid of it WHEN YOU SELL YOUR HOUSE! Kind of a bummer. With a conventional loan, you can get rid of mortgage insurance once you have paid down the loan to 80% of the original value. Now, don’t get all excited! Just because home values have gone up and you now have 20% or more equity, you think you can get this removed? Nope it must be that you have reduced your loan amount by 20%, with extra payments. As you may recall, we have talked about Mortgage Insurance Premiums (MIP) before, but let’s just give a quick reminder: 1) What is mortgage insurance for? It’s for the mortgage company. Because the mortgage company is taking a bigger risk by allowing the homebuyer to put down less money, they attach an insurance policy to ‘pay the mortgage company off ’ if the homeowner defaults on their loan. So, you pay the policy each month in your mortgage payments, and it doesn’t benefit you at all! Well, I guess it does in that you don’t have to put more money down. 2) Who benefits from the policy? The mortgage company. As long as you make your payments every month, this policy will never be used. 3) What happens if the homeowner doesn’t make their payments, the mortgage company has to foreclose but there is an insurance policy in place, and the bank is made whole? Does it still go against the homeowners credit rating? Oh, yes, yes, yes it does! The homeowner does not benefit from this policy – they just pay for it. It benefits the lender, the bank, the mortgage company. Now, remember, like any insurance policy, there is a deductible. If the homeowner owes $200,000 on their loan when it is foreclosed on, and then the fees for foreclosure are added on – so let’s say now, $220,000 is the balance. The insurance will only pay off a percentage of that. The homeowner will have this cloud on their credit for at least 10 years. But I did learn something new just the other day. Are you ready? Because it’s Story Time! My favorite time! Okay, stay with me here. Bob and Bonnie Branderholler made an offer on a nice little farm! It was accepted with a closing date just 6 weeks away. They did not want to sell their current house, because they wanted to keep it for a rental and make mega bucks off it every month. But after a couple weeks of thinking about it, they decided that being landlords wasn’t for them and put the house up for sale. With the selling of their current home, they
Brought to you by would be able to put 20% down. They were very excited about the lower monthly payments and the fact that there would be no mortgage insurance at all! Well, the new house was going to close 2 weeks before the old one. How were they going to put that 20% down if their old house had not closed yet? Fret not my darling home buyers because there is a solution! That’s right, there are at least 3 things that can be done here. Thing 1 and the easiest, would be to ask the sellers of the house the Branderhollers are buying, if they can extend the contract out those two weeks. Just a simple extension. Unfortunately, the sellers, Sam and Sonja Strathmeyerson, aren’t able to extend the closing because they would miss their boat to South America. Thing 2 would be to ask the new buyers of Bob and Bonnie Branderholler’s old home to close early. Again, it’s a simple solution. But, Ned and Nellie Nidrickerstogen, the buyers of the Bob and Bonnie’s home, are not able to close early. Both parties have to agree to close early and Ned and Nellie’s cannot. Ah, but you’re not out of luck, ...thing 3! Thing 3, The Homeowners Protection Act! The mortgage insurance company must allow Bob and Bonnie to put the additional funds down into the loan to equal 20% and remove the MIP. So when Bob and Bonnie get their funds from the closing of their previous home, they can put additional funds to total 20% toward the loan, they can re-amortize the loan and lower your monthly payments too. Now it may take 4 to 6 weeks to get all the paperwork to the right people, but it’s doable and it can save a significant amount of money, no more mortgage insurance and a re-amortization of the loan. Why does everything take 4 to 6 weeks to accomplish? It’s like a paperwork cosmic time warp! There are other ways too of dropping the MIP. Let’s say that Harry and Honey Homeowner have owned their home for 5 years. Harry finds out that his great uncle Herbert has left him a pile of money! Enough money to make up the difference in that 20% and have enough money left over for a rabbit hutch and two bunnies! They have a conventional loan with a really nice 3.5% interest rate. They don’t want to lose that rate by refinancing, so this solves their problem. With a simple phone call to their mortgage lender, they were able to pay them the remaining amount to equal 20% down payment and remove the MIP, lower their monthly payments, have the loan re-amortized, and now the Homeowners are living happy with their bunnies and saving money. Unfortunately, if Harry and Honey had an FHA loan, at this time, this option would not be available, so no lower monthly mortgage and no happy bunnies. Now, don’t get me wrong, FHA is a good program, but they all have their rules. Just make sure you know the rules when you decide on a loan. Either Me or your loan officer can help you with this. If you want more information about the Homeowners Protection Act, send me an email, I’ll be happy to forward to you. CorasProperties@gmail. com. Now go out there and make it a perfect home buying day! And call me if you need help, I am here for ya!
Call Cora Today! Keller Williams Realty Alaska Group Of Wasilla 621 S Knik-Goose Bay Rd Wasilla, AK 99654
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