Category Archives: Mortgage, Loan & Finance

Primer on Private Mortgage Insurance

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I just had a quick review on private mortgage insurance (PMI), due to a real situation with a client.  Most Realtors have to know a little something about mortgages, but with the ever-changing rules, laws and climate of the financial industry, it’s hard to stay on top of it all.   My client was quoted a certain rate on their PMI before getting into a contract to buy a home, and by the end the price had gone up almost $100/mo. from the original quote. While to some 100 bucks is chump change, to this client it almost broke the bank and killed the deal.   The client saw it more as $1200 extra a year and $6000 extra over 5 years. Here are some tidbit and a few new things I learned.

Most people know that PMI is required for FHA loans.  However, it’s any loan that is over 80% of the loan to value.  Or another way to put it, if a borrower does not put down 20% or more of the purchase price, PMI is required by the lender.  Many would see it like a punishment for not having enough money to put down.  This type of mortgage insurance is not for the borrower, rather it’s insurance for the mortgage company or note holder.  They are protecting themselves against the borrower defaulting on their loan.  The theory being, if a borrower puts more money down (in this case 20%) they are less likely to default or not pay their mortgage payment.  Or conversely, when there is less “skin in the game,” there is more reason to bail or default when times get tough.   A borrower can be relieved of this dreaded insurance by paying down their mortgage so that they have 20% equity, or their loan is 80% of the home value.  I’ve heard that mortgage companies are required to cancel the PMI once it hits 78%, but the savvy borrow might keep a closer eye on things and get it cancelled sooner.   The other way to get rid of PMI is if the market is favorable – over time values can increase to a point where the home is reappraised and the market has worked it’s magic… no more PMI!

Mortgage insurance is actually run by private companies, hence, private mortgage insurance (PMI).  It’s not run by the bank/lender or mortgage broker.  There are three main companies here in Sacramento, CA.  They post their rates, kind of like title companies, so there’s not much negotiating.  I learned though that the rate varies (goes up and down slightly) based on one’s credit score and amount of down payment.  FHA loans require 3.5% down payment – it may be worth it to see what the difference is if you can afford to put down 5% (1.5% more).  It could lower your cost in the long run.

Any other lenders and real estate buffs have more to add – feel free to comment.

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Keith Klassen, Real Estate Broker

Klasssen & Associates / 916.595.7900

Do Governmental Housing Programs Work?

This is in reference specifically to the programs as of late that have tried to keep people in their homes through loan modification. This is a question I and many others have been asking and trying to figure out for some time now.

While I attempt to be eternally optimistic, numbers usually don’t lie (if they are presented honestly – ha ha).  Seriously though, I am an avid reader of anything Mish writes and he nailed it on the head here –

Statistical Nonsense On “Help”

For the 40% that end up defaulting anyway, how much money, time and mental energy did they waste in these programs? Assuming the other 60% keep their houses I have to ask “Who was it that was really helped? The bank or the home owner?”

I suggest in most instances if anyone was “helped” it was the lender. It is no favor to make someone a debt slave forever in these programs. Finally, one must look at other costs.

For example, how many people stopped paying their mortgages just to get “help”? Also note that the sooner housing prices bottom, the better off everyone will be. These programs harm price disclosure, help to keep prices elevated, and thus curtail genuine demand.

From these perspectives, HAMP and the entire gamut of “help” programs has done anything but help. Speaking of government help programs, please consider the Mission Statement of Fannie Mae.

We are a shareholder-owned company with a public mission. We exist to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market.

A quick check now shows the link I had with that mission statement has been redirected to About Fannie Mae

The link now states “Fannie Mae is a government-sponsored enterprise (GSE) chartered by Congress with a mission to provide liquidity, stability and affordability to the U.S. housing and mortgage markets.”

Fannie Mae clearly failed its mission to provide stability and affordability to housing. The truth is no government program ever provides stability or affordability. HAMP won’t either, and the truth should be easy to see.

You can find the full article here

Enjoy,

Keith Klassen – Real Estate Broker

916.669.9030


Short Sale Tips in Sacramento Real Estate

http://www.sacbee.com/realestatenews/story/1933693.html?mi_rss=Real%2520Estate

The Best Time to Buy/Invest in Sacramento Real Estate

1) Right now Sacramento consumer confidence is on the rise.

2) The interest rate is extremely low (about 5%, maybe lower).  And everyone predicts that it will not stay this low, and in fact may skyrocket (according to Obama, as we continue to borrow from other countries).  As the interest rates go up, even if the prices go down, this will take many potential buyers out of the market.

3) One report shows that the housing affordability index is the best it has been in 40 years.

Call me or write if you want to see the numbers OR discuss your scenario.

Home Loan Market Loosing Up? Sacramento and Beyond

Mortgage rates and house prices are down – which sounds great for buyers and refinancers. But a series of mortgage industry underwriting and appraisal changes taking effect this month is throwing hurdles in the way of borrowers and loan officers.

Read onthis article is from the SF Chronicle on 4/19/09