Do I need private mortgage insurance?

Every lender wants security—some form of collateral that can be claimed, and if necessary, liquidated—in the event that the borrower doesn't pay.

Properties tend to be secured by "equity." That's the margin between the loan balance and the value of the underlying property. Consider a $60,000 loan secured by a $100,000 home. There is plenty of equity ($40,000 of it), so the lender has plenty of security. If the monthly payments don't come in, the lender can claim the home in a foreclosure.

When the equity is not so substantial, however, the lender has a problem. Even if the home is taken in foreclosure, its value may not match the money that's owed on the mortgage. And the lender must factor in the added costs of hiring lawyers, owning the home for a while, and then maybe paying a broker's commission to resell it.

Enter the solution: Private Mortgage Insurance, or PMI. Traditionally, when a loan balance exceeds 80 percent of the home's value, the owner has been required to insure his ability to pay. If he didn't pay, the insurer would step in and pay if off for him.

PMI has long been required of homebuyers with less than 20 percent to put down. The rates are determined by a formula like this: Multiply the loan balance by .005. So an $80,000 balance would require annual PMI of $400, which is divided into monthly payments of $33.

Most homebuyers need PMI because 20 percent of the sale price on a home is a big chunk of money. But when the principle balance drops below 80 percent of the home value (perhaps after a few years of payments) lenders are required to notify homeowners and drop the PMI requirement.

With the looser lending standards of the past decade, the lending industry devised ways for borrowers to dodge the PMI requirement. A borrower lacking a 20 percent payment was allowed to take out a "second" loan to make up the difference.

Someone with only a 10 percent down payment, for example, could accept one loan for 80 percent of the purchase price and a second one for 10 percent. The "second" has a higher interest rate because the lender is at greater risk and if the home is foreclosed, his lien is in a junior position to the first lender. And voila! No more PMI. Another advantage to the buyer was that interest paid on the second loan was tax deductible—unlike PMI.

However, financing tricks like that are mostly a thing of the past. At this point, very few lenders have much cash to put into second-position loans on purchases that are already highly leveraged. Another option in the past was to pay more interest on your first-position note. Some lenders were willing to waive the PMI requirement in exchange for interest rates .75 percent to 1 percent higher. Nice terms if you can find them. But if you do, check your calendar—you may be stuck in a 10-year time warp.

What Do You Buy When Nothing is Perfect?

How do you decide what to buy - whether to buy - when nothing's perfect?

Today's "dream home" emphasis on buying real estate makes it tough for buyers whose wish list and budget do not match. If you have designer tastes and a fixer-upper budget, should you buy now, or wait until you can afford more?

That question is simple to ask. Buyers should always ask and answer this question before they start the dream home search. The problem is that this simple question has a very complex answer which is all about you. I've been answering it by raising relevant issues and topics in the 600 plus articles written for this column, "Decisions & Communities," and I can always see more considerations…and more articles to write.

The real answer: Only you know what to buy and if you should buy.

To prepare yourself and your partner to answer this question with foresight - not wish you had in hind sight - there are strategies to consider:

When prices are going up, strategize.The urgency to jump into the market before real estate is financially out of reach, must be weighed against the reality that prices often reverse themselves at some stage. Decisions regarding this financial concern should include considerations like the following:

• The "what goes up, must come down" pattern is no longer true for all neighbourhoods, particularly choice urban and recreational locations.
• Factor in the cost of where you'll live while you wait, and how you'll stay ahead of inflation. Calculate how to realistically save more money toward the purchase.
• Create a Plan B in case prices do not come down when you want them to.

Set a budget that expands real estate choices.Making sure you "tick off" all the items on your wish list, but don't end up "house rich, cash poor" can be a challenge. Get tough, to get ahead: Before you view any houses or condominiums, put your financial ducks in a row, so nothing will get in the way of negotiating a deal when you find "it":

• Get your credit in order. You can check your credit rating with the main credit companies for free. Correct errors, and there will be errors, since no one cares about the accuracy of this record but you. You know about paying off credit cards and any debt you can to achieve top borrowing power, so do it.
• Search out a mortgage broker experienced at maximizing borrowing power while minimizing borrowing costs. Time spent here will save you thousands over the years ahead.
• Make sure you know why you "must have" the "must haves." Often fads and trends influence this list. Concentrate on buying what's going to be in and what can be inexpensively up-dated to follow new trends, rather than paying for renovations that are already fading from fashion. Pare the "must have" list down to "absolutely must haves" - a very short list which will probably include a specific location. With fewer limiting criteria, you'll have more possibilities to choose from. Then, create a "value" list of features and benefits that will add value through expanded use, income potential, cost reduction, or other factors of relevance to you. Keep track of these details when viewing, so comparisons can be accurate.
• Create a budget to cover all the costs of buying and expenses of ownership in the first year. A real estate professional will know how to crunch these numbers so you're clear on how much cash you'll need on closing to cover legal fees, adjusted costs like property taxes, and expenses heating, and utilities for the upcoming year. Provide your buying agent with a list of ownership costs you want to know for each property, so you can determine value and, eventually, use these figures to decide on an offer price.

Adapt to buyIf you walk into a house or condominium unit and feel you're home, put in an offer. If you don't have this immediate "dream home" reaction, you may still discover this is an ideal property for your needs, and a great investment.

• By totalling up "value" features and benefits, you will find real estate to love, and transform into a dream. Make enough profit on this real estate, and you can afford a true dream home on your next buy.
• Buy the best location you can afford. Ideally, the least house on the best street within your budget for the greatest appreciation in value over the shortest time. The same is true for condos, a lesser unit in the best condo, in the best location you can afford.
• Place the greatest weight on features and benefits that cannot be changed like location, including sun orientation, and things that are expensive to change like square footage. Look for bad decor and sloppy housekeeping since these can reduce the number of interested buyers and keep the price down. Be aware of superficial "staging" and its stripped down approach that makes rooms look larger and everythinglook newer.
• Buy the neighbourhood first. Decide on who you're going to live with and where you'll spend your time shopping. School and workplace issues are important. Find out what redevelopment is planned for the area. Many lovely neighbourhood shopping areas are threatened by "big box" development.

Discovering your dream home can be expensive. If you get emotionally attached to the real estate before you own it, you can lose your negotiating toughness and spend more than necessary. This can also lead to drastic overspending reactions if there are multiple offers.
Pay as little as possible, but remember that there are other cost factors to build into the offer including closing date, what is included in the price, and what the owner will pay for (survey, repairs, taxes, etc.). Make sure you have a thorough home inspection to reveal even deliberately-hidden problems with wiring, plumbing, and other expensive to repair elements.
Concentrate on the dream of home ownership, rather than the cosmetic "staged" appeal of a particular house or condominium, and you won't have your dream turn into an expensive nightmare.

Keller Williams Realty Ranked Highest in Customer Satisfaction Among Home Buyer and Seller Segments by J.D. Power and Associates

Provided By Keller Williams Realty


— According to the J.D. Power and Associates 2012 Home Buyer/Seller Satisfaction Study released yesterday, Keller Williams Realty, Inc. ranks highest in customer satisfaction in both the homebuyer and home seller segments. Keller Williams Realty, Inc. achieved the highest scores in all measured factors across both segments, receiving the highest JDPower.com Power Circle Rating among its competitors overall.

“We are so proud to have our associates be recognized once again for leading the industry with the
influence and reputations they have in their local communities. They continually demonstrate not only
their level of talent, but their commitment to serving our communities with the utmost integrity and
highest level of service,” Mark Willis, CEO of Keller Williams Realty, Inc., stated. “Congratulations to
all Keller Williams Realty associates. They have certainly earned this prestigious distinction.”

The fifth annual J.D. Power and Associates study measures customer satisfaction with the largest
national real estate companies within the home buyer and seller segments. Scores are determined by
examining three factors of the home-buying experience: agent/salesperson; office; and variety of
additional services. For the home-selling segment, agent/salesperson; marketing; office; and variety
of additional services are examined.

J.D. Power and Associates stated, “[The uncertain economic times] present a challenge for the real
estate companies to really work closely with the customers and really hold their hand through the
entire process to make them feel more comfortable in the decisions. Keller Williams has set itself apart by performing high in all the areas that are most important to customers specifically with the agent, the offices, and the services that they provide.” “Our agents go above and beyond to help their clients at one of the most personal times in their lives– when they are buying or selling a home. We are incredibly honored and humbled that our associates have been recognized yet again for their incredible levels of service,” says Mary Tennant, President of Keller Williams Realty, Inc.

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Disclaimer: Keller Williams received the highest numerical score among full service real estate firms for home
buyers and home sellers in the proprietary J.D. Power and Associates 2012 Home Buyer/Seller Study
SM.  Study based on 2,994 total evaluations measuring five firms and measures opinions of individuals who bought or sold a home between March 2011 and April 2012.  Proprietary study results are based on experiences and perceptions of consumers surveyed March-May 2012. Your experiences may vary. Visit jdpower.com

About Keller Williams Realty, Inc.:

Founded in 1983, Keller Williams Realty, Inc. is the second-largest real estate franchise operation in the United States, with 675 offices and almost 77,000 associates across the globe. The company, which began franchising in 1990, has an agent-centric culture that emphasizes access to leading-edge education and promotes an economic model that rewards associates as stakeholders and partners. The company also provides specialized agents in luxury homes and commercial real estate properties. For more information, or to search for homes for sale, visit Keller Williams Realty online at (www.kw.com). Information about Keller Williams Realty’s international expansion can be found at (www.kwworldwide.com).

Short Sale Fraud All Too Common

Provided By Realty Times

Let’s Talk Real Estate Q&A

Question: Mr. Aldana, I was recently approached by a friend who is losing his home and asked me to buy his home as a short sale, and then within a few months, change the ownership back to him so he can keep his home and I can be free to buy another home. Apparently, a real estate agent has been counseling him and telling him this is done all the time. Is this possible?

Answer: This sounds like fraud. Proceed at your own risk. Most short sale transactions include "arm's length" contractual clauses that forbid you from having any stake in the sale other than the sale itself. The clauses forbid the seller from re-buying the home, recovering title to the home or selling the home to a relative or business associate home to a relative or business associate or having other agreements with the buyer, again, except to sell the home to the buyer.

A short sale occurs when a seller owes more for a property than its value and negotiates with the lender to forgive the difference provided a buyer is a available. In some states a short sale can generate tax, credit and other financial consequences. Anyone considering a short sale should consult with a qualified certified public accountant or a real estate attorney.

All short sale agreements must be disclosed to the lender and the lender will not agree to any terms that don't comply with the arm's length clauses which all parties must sign and swear under penalty of perjury that they will not violate the terms of the agreement.

Lenders and banking regulators are aware of growing incidents of short sale fraud and not only must the parties sign the contract which forbids back room deals, but lenders audit the transaction. An audit will pull the title documents and if they reveal fraud, say if the property is sold back to the seller, the lender can call the loan and force you to pay it in full immediately.

Also, while it's easy to transfer the title from one person to another, it's not so easy to transfer the responsibility for paying the mortgage. Even if you transfer the title, unless you have the lender's approval you will remain responsible for paying the mortgage even if you don't have rights to the property. That could make it difficult for you to buy another home or acquire other credit. Your credit will suffer if you friend fails to pay the mortgage on time.

Imagine having perfect credit and then being at the mercy of someone else and hoping that they are never late on the mortgage for the next 30 years while you have no rights to the property.

My advice? Tell your friend to find an honest real estate agent. Yes, this kind of under the table deal between sellers and agents happen everyday, but that doesn't make it right and it could cost all parties involved a stay in county jail.

Surprising factors affect home insurance rates

Provided By Yahoo! 

Your home will obviously play a role in the price of your homeowners insurance. Stone front or vinyl siding? Hardwood floors or carpet? Your insurance agent will want to know all the details about what the company is insuring. More than that, though, expect your insurance agent to ask questions about personal factors that will play a role in your final insurance rate.

Pets

Your home insurance rates may increase if you own pets. Some insurance companies may also require proof of pet breed, especially if you own a dog breed deemed "aggressive" or an exotic animal. Some agents and companies may even ask for pictures of your pets in order to finalize your rate.

Risky fun

If you have children, you may also have a swing set or a backyard trampoline. What fun! Your insurance agent won't think so. These fun activities can be dangerous, so your insurance agent will see red and you'll send them more green.

Credit rating

Your credit score will impact your homeowners insurance, so don't be surprised if poor credit means a higher insurance premium. Insurance agents assume that if you haven't been able to manage your money in the past, you're a higher risk in the present. Do take the time to establish a good credit history now -- you'll need it when you purchase your home and get insured.

Lifestyle

Expect an insurance agent to ask some questions about your lifestyle when you nail down your rate. What might top the list? If you're a smoker, you may have a higher rate because of an increased risk of fire and damage to the home.

Age and homeownership history

If you're young and have just purchased your first home, your insurance rate may be higher than people who are long-time homeowners or older and well established in the community. Similarly some insurance agencies will offer a reduced rate to retired individuals.

Location

Where you live and local weather conditions will impact your homeowners insurance rates. A nearby fault line, proximity to a hurricane-prone coast line, or a flat prairie region where tornadoes often strike will all affect your insurance rates. If you can't control where you live, do listen to the Insurance Information Institute and take necessary precautions that will help keep your rate as low as possible (new windows, storm doors, etc.). Not sure what changes you can make to your home to reduce your rate? Ask your agent!

Current Mortgage Rates Bring on Mortgage Refinance Activity

Provided By Realty Times

While it would seem that everyone would be moving to make a home purchase, current mortgage rates are bringing on more mortgage refinance activity than new loans. According to the Mortgage Bankers Association's Market Composite Index for the week ending July 20th, the Purchase Index showed that purchase applications dropped by 3% on an adjusted basis while the Refinance Index hit the highest level in over three years by increasing 2% on a seasonally adjusted basis.The mortgage refinance share of all loan applications was 81%. In line with this, the National Association of Realtors reported that Pending Home Sales fell 1.4% in June. While this is being attributed to low inventory, it very well could be caused by consumer sentiment which declined to 72.3 this month, the lowest level of the year, according to the Thomson Reuters/University of Michigan report. With so much financial trouble in Europe and a sluggish economy here in the U.S., consumers are staying put and refinancing to lower mortgage rates instead.

FreeRateUpdate.com's survey of wholesale and direct lenders shows that mortgage rates continued to remain steady this past week with 30 year fixed mortgage rates at 3.375%, 15 year fixed mortgage rates at 2.750% and 5/1 adjustable mortgage rates at 2.125%, all available with 0.7 to 1% origination fee provided borrowers have good credit and qualifications. With these rates, existing homeowners are lowing their monthly mortgage payments or terms of the loan to save money with some consumers refinancing several times. SinceHARP has been expanded, more underwater homeowners have been able to refinance, thus preventing default or foreclosure.

HARP, which is for mortgages sold to Fannie Mae or Freddie Mac prior to June 1, 2009, has been a life line for a large amount of homeowners. By taking advantage of the HARP program, these borrowers are able to gain equity back faster putting them in a better position to sell later on. Since HARP can be difficult to obtain in some circumstances, it is recommended to inquire online where a multitude of lenders are available and can be matched up to a borrower's information.

FHA mortgage rates have remained steady for quite some time along with other mortgage rates. Current FHA 30 year fixed mortgage rates are at 3.125%, FHA 15 year fixed mortgage rates are at 2.625% and FHA 5/1 adjustable mortgage rates are at 2.625%. Right now, FHA is seeing more activity for its refinance mortgages than for purchases since the expansion of the FHA streamline refinance. For FHA mortgages endorsed prior to June 1, 2009, FHA has reduced the upfront mortgage insurance premium to .01% and the annual mortgage insurance premium to .55%. By refinancing, there is an extreme amount of savings that FHA borrowers can obtain and with no cash out, there is no need for an appraisal or other documentation.

The normal upfront mortgage insurance premium and other FHA fees causes FHA closing costs (APR) to be higher than conforming mortgages whether for purchases or refinances. Now with this special reduction, borrowers are not hesitant to refinance as long as they can find a lender who will approve them. Many lenders are only accepting their current customers for this program causing much frustration for FHA homeowners. There are indeed lenders who will help any eligible borrower, but mostly likely, these lenders can only be found through an online resource.

Jumbo mortgage rates have been surprisingly stable for a number of weeks. After last week's stock market rally, jumbo 30 year mortgage rates increased by .125% and are now at 4.250%. Remaining the same, jumbo 15 year mortgage rates are at 3.125% and jumbo 5/1 adjustable mortgage rate are at 2.250%. These low jumbo mortgage rates are available with 0.7 to 1% origination fee for borrowers who have excellent credit. The jumbo mortgage market is slowly improving, with more lenders getting involved to take part in this risky, but profitable end of the business. High end borrowers normally have stable qualifications which lenders find attractive. As more jumbo mortgage offerings become available, borrowers should thoroughly search their options as they are faced with more competition and better mortgage terms.

MBS prices (mortgage backed securities), which move mortgage rates in the opposite directions, took a turn at the end of the last week which put mortgage rates at risk of rising. Stocks rallied for two days and rose quite a bit while MBS prices fell. Investors were looking at the statements from the President of the European Central Bank and his commitment to preserve the European Union. This week everything is turning around again as investors now await to see action from the ECB and possible additional stimulus from the Fed's. The Commerce Department reported that second quarter GDP increased at a 1.5% annual rates which was better than expected, but lower than the first quarter. June Durable Orders increased 1.6% from May which was also better than anticipated by analysts. Weekly jobless claims fell to 353,000 which was lower than expectations. While jobless claims is an important indicator, job creation is more important and affects markets in a stronger way.