I am a bit late today…I know! I wish I could say it is because I have been so busy this weekend, but nah…it was family stuff this weekend. My husband had to leave this morning for his company’s yearly sales meeting….in sunny, warm California…yeah…I feel bad for him too! 🙂
It is rough when he is gone though….after 20 years together it is like missing my right hand. It is really hard on our kids though….our oldest daughter says everything feels ‘less safe’, our son is on spring break, and for our 2 year old….she doesn’t understand why daddy isn’t putting her to bed at night. Luckily he comes home on Wednesday and is taking Thursday (or wedding anniversary), and Friday off. He works salary, so yeah…long hours, crap pay, but Hey! he has health insurance, and with a family of 5, health insurance is a beautiful thing….especially since being self employed, I don’t have any without his!! 🙂
Real estate is a feast or famine business, and as busy as I have been the past couple of weeks, it has slowed down this week…and yes, more homes have come on the market as well…as they always do. It has been a busy week in terms of questions though….I am really not sure which ones to get to first, but this is an email to help you answer the questions you have about home buying….and to help you better understand the process. I am not going to lie….I am hoping that you will call me to help you buy a home…it is true, but I started this weekly email to help answer questions that I can’t get to in the classes, or for those topics that people would like more detailed explanations on. So, I am going to put off the inspection email yet again, but if you really were hoping to read about this topic on this weeks email, let me know and I will get you that information. I had a couple of questions this week about mortgage insurance….so that is where we are going at this week….
Insurance….it is one of those things that everyone thinks about! Whether you are a family of five and grateful for your husband’s health insurance, or a lender wanting to protect their assets….insurance is very important to everyone. So what is mortgage insurance, and why do you have to have it? Mortgage insurance is, very simply, a way for the lending institutions to protect themselves in case you default on your loan.
If someone defaults on their mortgage, whether through foreclosure or short sale, the mortgage insurance protects the lending institution in the loss. It is a lot like homeowners insurance….your home catches fire and burns down, you still have to pay the loan, and you have no home. With homeowners insurance you are paying on it….just in case something like this happens, and your home gets rebuilt so you aren’t just paying mortgage on an empty piece of land. With mortgage insurance it protects the lending institution in case of loss, but yes, you pay on it until you have enough equity built up to protect yourself, and the lending institution in case of loss. Most people, including me, have mortgage insurance when they buy their home. If you don’t want mortgage insurance you need to put down 20%, and really…how many of us have 20% to put down on a home? I know that I didn’t. Mortgage insurance gets a dirty reputation, but in reality it helps home buyers buy a home. One of the reasons why we have so many short sales on the market is because people are trying to get out of mortgage insurance. Remember the 80/20 loans? That was people trying to get out of mortgage insurance. Many lenders told them how smart it was to get a low interest 80% loan, and to get out of mortgage insurance they could get a 20% loan as well….at a much higher interest rate (sometimes around 10%-12%)…and many times with an adjustable rate mortgage too. So why would they want this 15-30 year 20% loan at such high interest rates? ….because they didn’t want to pay mortgage insurance. The really doesn’t make sense to me since you can have mortgage insurance taken off when your loan reaches 80% of the homes value…..which is a LOT quicker than 15-30 years. Many of these people have gone into foreclosure or short sold their homes because of these loans….because they did not want mortgage insurance. Maybe because I bought my home 11 years ago with mortgage insurance, I just don’t understand this. I still don’t have mortgage insurance on my home as I had that removed after 3 years in my home. Honestly, these 80/20 loans really did hurt everyone, and not just the buyers who fell for this….but everyone, and the economy as these loans weren’t insured and ended up costing not just the buyers, but all of us.
Mortgage insurance is not your enemy! For many first time home buyers mortgage insurance is your friend as it helps and allows you to buy your home without 20% down. An yes…you can have it taken off when your loan reaches 80% of the homes value. Now…this is something you do need to talk with your lender about as the rules differ depending upon whether you have PMI (Private mortgage insurance) or FHA mortgage insurance. With FHA mortgage insurance you can have to wait for 5 years before you can have the mortgage insurance removed…and with most PMI it is about 3 years. Honestly though, it takes about 3-5 years to have enough equity in your home to have the mortgage insurance removed. However, how long would it take you to save up a 20% downpayment? Talk to your lender about mortgage insurance! What kind do you have? Is there a time limit on how long you must keep it? What are the rules for its removal? Some lending institutions will take it off immediately when you have paid down your homes mortgage to 80% of what you paid for it. With some lending institutions you can provide a CMA (comparable market analysis) by a professional, licensed real estate agent to show that the market supports a higher value of your home which could take your mortgage amount owed to 80% of the homes value. Be sure to talk with your lender about your mortgage insurance….and remember…it isn’t your enemy. Mortgage insurance is a lot like home owners insurance, they both protect the lending institution and you as well. Mortgage insurance also allows many of yes a way to buy our first homes, but you don’t have to keep it on their forever….
So why can it be up to 3-5 years to have enough equity to remove your homeowners insurance? I have clients who purchase their home about 3 years ago who would like to sell soon as they see that their homes value have gone up. However, for these guys I am the bearer of bad news. They won’t be selling, but they can get their mortgage insurance removed. So why, if their homes value have gone up, won’t they be selling?
When someone sells their home it costs them 13% (or more) to sell their home. For instance, the sellers is selling their home for $200,000. You go on tax records (because I know you do! LOL) and see that they bought their home for $140,000. You need to know that this information is only what the amount of the original loan, and doesn’t actually show you how much the sellers really owe. There is no way to know for certain how much the seller actually owes on their home as that is private, personal information. So…let’s say that the sellers took out a second loan a couple of years prior for $30,000, and between the two they have paid down $5,000. In this instance the sellers would actually owe $165,000. They are selling the home to you for $200,000, minus the amount they pay to their agent (who then splits it however the sellers agent wants with your buyers agent…so your buyers agent is free to you) which in this case we are going to say 5%, and then there is the 5% that the government/county/city wants, and of course, your 3% for your closing costs….which totals about $26,000. So…$200,000 minus $26,000 equals $174,000….and their mortgages equal $165,000….which means the seller has a total equity of $9,000……whew!
So…that is a short description of mortgage insurance, and what it is, and what it does….and how it can actually be helping you. Please let me know if you have any questions! And again as always, if you are looking for a buyer’s agent, please give me a call or drop me an email…I would love to help you with your home buying adventure!
Please call, email, text, or even facebook me (at Tracie DeMars or Tracie DeMars Real Estate Q&A)
anytime with any questions, or if there is anything I can do to assist you with your home buying adventure! As a buyers agent, I am, as always, here to help!! 😀
Thank you again for your business and for your referrals!
If there is anything you would like to see on here…please let me know and I will make it a weekly note!
…as always…if you have already purchased a home, or no longer would like to receive these emails from me, please let me know and I will be happy to remove you from receiving any more.
Thank you again for attending the home buyer education classes, and I hope that you will continue to refer the classes out to your friends, family, and co-workers. We appreciate your referrals and word of mouth!
Next Week: Inspections….what you need to know…I promise to get this in next week!! Sorry….
Last Week: home buyer information and questions to ask
Remember that you can always go to Tracie DeMars Real Estate Q&A on Facebook for all of my weekly blogs if you missed any. I post them on there as well.
Have a great day, and I will talk to you soon,