As you begin the process to find and purchase a new home you will quickly learn the road to homeownership is laid with acronyms. Two of the most mysterious you will certainly hear are PMI and LTV.
PMI stands for Private Mortgage Insurance. It is insurance that a borrower must purchase, in certain scenarios, that protects the lender’s obligation on a mortgage if a borrower defaults.
LTV stands for Loan To Value. It is a way to compare the amount of your mortgage loan and the value of your home.
Your LTV changes over time, and once it reaches 80 percent or lower, the PMI is no longer a requirement.
Say you have $10,000 saved to buy a house, and the house you want to buy is $180,000.
That means if you qualify for a mortgage, the lender is paying $170,000, which is 94% of the obligation to the seller. The Loan To Value (LTV) is 94% ($170,000 divided by $180,000).
In most cases, the lender will require the borrower to purchase PMI to protect the money they are providing to purchase the home if the LTV is above 80%. So in the example above, the borrower would have to pay the mortgage costs (principal and interest) as well as a ...
As housing inventories remain constrained in many markets, some buyers may face increased competition and more bidding wars heading into the spring-selling season. Bidding for a new home can get pretty fierce in today's market. Here are three potential solutions to avoid getting outbid on your new home:
- Turn in your loan paperwork BEFORE you place an offer. In many cases, you are bidding against cash buyers who don't need to wait for financing approvals. Look at it this way: if you were the seller, would you prefer to do business with a buyer who needs to wait for financing approvals, or a cash buyer who can close the deal quickly? With that in mind, it's important to be proactive and provide your mortgage lender with things like your source of down payment funds, your asset documentation, your credit report and your income documentation. This way, you'll be in a better position to close the deal quickly and compete with those cash buyers.
- Pay cash, but do it right. Keep in mind that you only have 90 days after closing to place a mortgage on a property that you bought with cash if you want to secure your tax deduction. (For more info, see my article entitled, 90 Day Rule for Cash Buyers.) In order to get that loan approval after closing, you'll need to document the source of funds that you used for your cash purchase. Talk to me for more details so that you can avoid problems down the road.
MYTH: You need to put 20% down to purchase home.
FACT: There are many options out there, you can qualify for a mortgage and get your new home without a 20% down payment
“There’s a lot of misconception out there about down payments,” says Steve Grossman, at NJ Lenders. “First-time homebuyers typically fall victim to this myth the most often. The fact is that there are a lot of loan programs that permit a borrower to get a mortgage without having a 20 percent down payment.” Steve continued to describe how knowing the available options can aid a buyer in the early steps of their home search process.
Let’s begin by defining what a down payment is and how it is viewed by lenders. Most lenders will want to see that you have something saved towards purchasing your home. The idea is that if you put your own money into the purchase, you have an incentive to make the mortgage payments because you want to protect your initial investment in the home. This is called a down payment, and it’s almost always calculated as a percent of the home purchase price. You make the down payment, and the lender provides the rest of the money to purchase the home.
Many lenders will offer borrowers a mortgage if they have at least 3-5% of the home purchase price. “There are four other key factors ...
Refinancing is a pretty simple concept. It means you pay off your existing mortgage and replace that loan with a different one. Many borrowers reach life-stages where changing the terms of their mortgage makes sense. For example, many older homeowners look to shorten the term of their mortgage to eliminate payments after retirement, while younger homeowners may wish to switch from an adjustable rate mortgage (ARM) to a fixed rate to ensure consistency as they settle into a new lifestyle. Families who outgrow their current homes may choose to tap their home’s equity in order to renovate or add on to their current home. Couples who divorce need to revise the mortgage terms to remove the former spouse from the obligation. Sometimes, when children are preparing to enter college, parents may choose to tap their home’s equity to help finance new educational expenses.
There are pro’s and con’s to refinancing. The key is to remember that refinancing can cost between 3-6% of the loan’s principal and it requires the same paperwork (see Refinance Checklist), fees and evaluation of the property value (appraisal) that an original mortgage does. It’s important to ask yourself some questions before considering a refinance:
1 – How long to I/we plan to live in this house?
2 – Do I need ...
Choosing a loan officer, like choosing a Realtor, is one of the most important decisions you can make when financing a home purchase. Your loan officer will be working very closely with you and sorting through a great deal of personal information, so you want to find someone who is responsive, well-versed in loan product options and trustworthy. Here are a few tips to find the right loan officer for you:
- Find someone who is interested in what is best for you. They should be collaborative and willing to listen and work with you to understand your needs and financial situation. Make sure it’s a good personality fit. Ask for references. Compare responses.
- Make sure the loan officer is established with a reputable company that has been recognized for excellence. NJ Lenders Corp. has many many loan officers that have achieved "5 Star Professional" and "Top 200 Mortgage Originator" status. The company is also consistently ranked as a top mortgage company year after year by various publications. For over 24 years NJ Lenders Corp has been a trusted mortgage lender serving customers. The company strives to make every client a "Customer For Life"
- Interest rate should not be ...