In a study released by TD Bank, 65% of buyers with mortgages that required mortgage insurance said the higher monthly payment was more than they originally expected.
Private mortgage insurance is required on loans that exceed 80% of the home’s value. For conventional loans, the premiums range from 0.5% to 1% annually. The PMI could add close to $100.00 a month to the payments on a $200,000 mortgage and over $200.00 a month on a FHA mortgage.
FHA has two components to its mortgage insurance which includes an up-front charge on closing of the loan and an annual charge. The up-front premium is 1.75% of the mortgage which can be paid in cash at closing or added to the mortgage amount. The annual premium ranges from 0.45% to 1.35% depending on the loan-to-value and term of the mortgage.
Most lenders are required to automatically cancel coverage when a 78% loan-to-value is reached which on a 30 year loan with normal amortization could be eight to eleven years depending on original loan amount and interest rate. If the value of the home has increased as documented by an appraisal so that the current mortgage is below 80% loan-to-value, the lender can be petitioned to eliminate the PMI.
Beginning in April, 2013, FHA requires the mortgage insurance to be paid for the entire term of the mortgage. Prior to this rule change, it was required to remain in effect for a minimum of five years but could be cancelled when the mortgage is reduced to 78% of the original purchase price.
A homeowner can greatly reduce their cost of housing by avoiding mortgage insurance with a minimum 20% down payment. If a higher loan-to-value mortgage is required to purchase the home, the objective should be to pay down the mortgage amount to relieve the need for the mortgage insurance. Generally, loans with lower loan-to-value mortgages also have lower interest rates.
It is generally considered a seller’s market when the conditions favor the seller. This condition exists when demand is high and supply is low without any significant adverse economic conditions taking place.
Demand is determined by ready, willing and able buyers. Low interest rates with indications that they will begin to rise fuels part of this demand. Rising prices also creates a sense of urgency to avoid higher housing costs.
Inventory is currently below what is considered balanced in most areas. In some areas and price ranges, homes are selling very quickly, with multiple offers and sometimes at above the listing price. When too many buyers are chasing too few properties, things get competitive and the seller is the beneficiary.
Even when buyers and sellers come to an agreement on price and terms, a challenge can occur if the appraisal doesn’t meet the sales price. Either the purchaser has to come up with the additional cash or the purchase price has to be renegotiated.
A typical seller wants the most money possible for their home in the shortest time frame with the fewest inconveniences. A Seller’s Market provides the most likely environment for this to happen.
Planning a summer trip is usually focused on what you’ll do, see and experience. Enjoy it even more by spending a little time before you leave to make sure your home is safe while you’re gone.
Consider these suggestions along with your other normal efforts:
- Tell your neighbors you’ll be out of town and to be aware of any unusual activity.
- Notify your alarm company .
- Discontinue your postal delivery.
- Use timers on interior lights to make it appear you’re home as usual.
- Don’t make it easy for burglars by leaving messages on voice mail or posting on social networks.
- Post on social networks about your vacation after you’ve returned.
- Remove the hidden spare keys and give one to a trusted neighbor or friend.
- Lock everything, double-check and set the alarm.
- Take pictures of your belongings in case you need them.
- Disconnect TVs and other equipment in case of unexpected power surges.
- Adjust your thermostat.
- Arrange for lawn care.
- Consider disconnecting the garage door opener.
- Put irreplaceable valuables in a safety deposit box.
It’s nice to go out of town on a well-deserved trip and it’s always nice to get back home…especially when it is just the way you left it.
Most taxpayers know that they will pay a 10% penalty if they withdraw funds from their IRA before they turn 59.5 years old. There is an exception for first-time home buyers that allows a penalty-free withdrawal of up to $10,000 per person if they haven’t owned a home in the previous two years.
This would allow a married couple who each have an IRA to withdraw a lifetime maximum of $10,000 each, penalty-free for a home purchase.
In many cases, the money would be used for a down payment or closing costs. However, some buyers might consider this source to increase their down payment so they could qualify for a loan without mortgage insurance.
If the taxpayer qualifies for the penalty-free withdrawal, there may still be taxes due. Contributions to traditional IRAs are made with before-tax dollars and the tax is paid when the funds are withdrawn. Since Roth IRAs are made with after-tax dollars, there is no tax due when the funds are withdrawn.
Another interesting fact about this provision is that the taxpayer making the withdrawal can help a qualified relative which includes children, grandchildren, parents and grandparents.
Homebuyers who are considering using IRA funds for a home purchase should get expert advice from their tax professional concerning their individual situation.