Home Loan Focus

Archive for the ‘Private Mortgage Insurance’ Category

The last step in the 3 steps to improve our mortgage rate is to improve your loan-to-value ratio. A prospective borrowers loan-to-value ratio is figured by dividing the amount you want to borrow by the price of the home you wish to buy. For instance, if you want to buy a $200,000 dollar home and you want a mortgage of $180,000 dollars, your LTV would be 90%.

Most lenders prefer an LTV over 80%. If your LTV is under 80%, a lender will likely insist that you purchase private mortgage insurance for the loan. In order to improve an LTV ratio, a borrower can either increase their down payment or choose a less expensive home to purchase. Unfortunately, a large down payment is like a colon cleanse for your savings, but it will definitely be beneficial in the long-run.

Source: Credit.com

Private mortgage insurance or PMI is an insurance policy that protects your lender in the event of default. 99.9% of lenders will require that you obtain PMI if you have less than an 18-20% deposit. Unfortunately, the premiums are not always tax deductible like mortgage interest. 

There are many ways to get out from under PMI. The best way to do this is to pay down your mortgage is by making small additional payments monthly. You can save a great deal of money over time by getting your loan-to-value ratio under the 80% mark. In addition to paying down your loan gradually over time with additional payments, you can avoid the whole PMI situation by saving up some cash and putting down 20%. Think of that deposit as acne treatment cream for PMI.

Source: themoneyalert.com

The news has been full of stories about the rash of tornados that we have recently experienced in the United States.  We are pushing up on a record as we cross the 1,000 tornado line.

Well in the home loan market, many consumers feel like they have also been hit by a tornado and like the windy version that is even putting people out of homes or keeping them out of new ones.  That is especially true in Nashville Tennessee and neighboring Clarskville.

MGIC Investment Corp., one of six major mortgage insurance companies in the nation, will further clamp down on borrowers in the Nashville area in June after adding the entire metropolitan statistical area recently to its list of restricted markets.

The company’s growing blacklist, which now also includes parts of Utah, Connecticut and Kentucky, identifies markets where borrowers must have better credit scores and bigger down payments than normal to get the company’s insurance.

A second national mortgage insurance company toughened up on Clarksville recently.

Home loans are harder to obtain in Nashville area | www.tennessean.com | The Tennessean

What does that mean?  Well, it basically means that the insurance companies that insure against defaults are working to reduce their risks in geographical areas where they have statistically seen problems.  Its the equivalent of an insurance company charging more for someone looking to insure a home against flooding on the Eastern Shoreline or in South Florida.  They are also looking to decrease their pool of potential defaults by making the requirements to qualify for a loan at all more stringent. 

You can expect to see more of this issue in the news soon and you will also likely see some people calling this practice out as a new form of redlining, which is illegal.  That may or may not be a fair accusation in this case (probably not), but when hard hit areas include urban areas where disadvantage borrowers live, its not always easy to make a different set of rules for the people that live there even if the statistics do show a higher level of risk.  It may make logical sense for an actuary, but each of these decisions will be heavily scrutinized by lawyers up one side of the insurance company and down the other by legislators and trial lawyers looking for a cause.  Then PMI lenders will wish they got into the pharmaceutical industry to sell Orovo detox diet pills instead of working in mundane areas like research.  I predict that there will be a few actuaries that will calculate themselves right out of jobs without even knowing what happened.

For many people their home is their largest investment.  Second to that investment many people often times have life insurance.  These days most people that have life insurance have it in the form of Term insurance.  This means they pay a monthly, quarterly or yearly rate for life insurance.  If they pass away, a sum will be paid to their heirs.  However, there is no cash value to this policy.  If they stop paying the coverage stops and they are out all the money they paid in over the years.

There are several other forms of life insurance such as whole life insurance that essentially builds up a cash value to the policy.  These policies can be borrowed against.  As many Americans are facing foreclosure, some people are turning to life insurance like IRAs and 401ks as a source of money to pay their mortgage.  This can serve to protect their largest investment (their home) in the short run, but if there is no end in sight then it could be a bad move.  Depending on your state, your life insurance, even your retirement could be protected under bankruptcy laws (consider OJ protected his retirement from his former in-laws through Florida’s protective bankruptcy legislation).  However, if you borrow on your life insurance to pay your mortgage payments and still go bankrupt then you could end up with out a house and without life insurance too!

The same thing goes for IRA’s or 401ks.  It can also apply to people considering the possibility of tapping their savings or life insurance to come up with a down payment.  This is just as risky, but these people are presumably not so close to bankruptcy and buying into a market at current levels could make a good return on their money . . . IF the market has bottomed out!

You may have heard of the great favor that Congress did for everyone before the break last year.  They made a tax deduction that forgives taxpayers from having to pay income tax on debt that is washed away during a foreclosure. Not much of a relief to someone that loses their house, kind of like getting knocked down and then told that you won’t get a slap in the face too.

Well Congress and the President did do a little thing that will help some borrowers get financed and save money at the same time.  Private Mortgage Insurance can now be deducted from your taxes like mortgage interest.  The deduction will only be around until the end of 2010.

When the Sub Prime market was ramping up out of control most borrowers tried to pen creative ways to avoid PMI, but now many people that could get approved without it before, are finding that if they want financing at all, they have to consider this option.  So by making it tax deductible, the cost is offset by the governments tax revenues.

The legislation is retroactive to Jan. 1, 2007. As a result, homeowners who had mortgage debt canceled this year won’t have to pay tax on it. The tax relief is scheduled to expire at the end of 2009, reflecting lawmakers’ belief that the subprime crisis “is a temporary problem so you only needed a temporary solution,” Schwarz says.

President Bush last week signed the bill, which also extends a tax deduction for private mortgage insurance through 2010.

Hartford Business