Eliminating PMI (private mortgage insurance)

According to my friend Jay Vorhees at JVM Lending, there are three options for eliminating the private mortgage insurance (PMI) obligation associated with a conventional loan plan. We go over his three options below, with a little input from yours truly:

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Option #1: Refinancing

If your property appreciates to the point where we can garner a new appraisal to support a value high enough to reduce your loan-to-value (LTV) ratio to 80 percent or less, you can refinance into a new loan with no PMI. This assumes, of course, that rates remain favorable. Keep in mind that most appraisers will correlate to the purchase price for the first six months, making it wise to wait at least this long to start the refinance process.

Option #2: Paying down

You can eliminate PMI by paying your loan down if you notify your servicer with your request, have a good payment history, and are willing to prove to the servicer that your property has not depreciated with an appraisal in some cases. This can help you pay down your loan to an amount equal to 80 percent of the original purchase price.

Option #3: Proving home

If your loan is owned or backed by Fannie Mae or Freddie Mac, you can eliminate PMI by notifying your servicer with your request, as long as your loan has seasoned for two years with a good payment history. You’d also have to provide a current appraisal with high enough value to support a 75 percent LTV. If your loan is more than five years old, your LTV can be 80 percent. If you prove your home has appreciated to the point where the LTV is at 75 percent or less, you can eliminate PMI this way.

As rates increase, the option of refinancing becomes less feasible. There are currently loans called 80/10/10 or 80/15/5 where you take a HELOC (home equity line of credit). The buyer puts down 10 or 15 percent and the HELOC covers the balance and there is no PMI. The only issue is the HELOC has higher rates that tend to move with the market. They work well if one gets abonus or is expecting a pay increase and the HELOC can be paid off quickly. Always speak to your lender about the various options. I know from experience if you work with JVM, you are in good hands!

Tips for preparing to buy a home

It takes a lot of preparation to buy a home. I know, I know, thank you Captain Obvious, right? But if you’re going to be searching for a home in 2017, I want you to be ready for what is headed your way!

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From our friends at Bank of the West, here is a list of great tips for preparing yourself to buy a home. See my summary below:

1. Fix Your Credit

Your credit is one of the first things a lender will look at when approving you for a mortgage loan. You can get a free credit report once every 12 months from each of the three credit bureaus: Equifax, Experian and TransUnion at annualcreditreport.com. Make sure to check for mistakes and file a dispute with the business in question, as well as the credit agency, if you find any inaccuracies. They must investigate within 30-45 days.

2. Maintain Your Credit Score

Your FICO score is the most common number used by mortgage lenders to rate your creditworthiness. You can get your credit report with a FICO score for free, or for a small fee. Anything above a 740 FICO score will help you secure better interest rates. If your score is lower, you may still qualify for a mortgage, just with a higher interest rate attached. Your first instinct may be to find ways to boost that credit score. Here are two things NOT to do:

– Don’t close lines of credit – it may indicate credit risk and actually hurt your score

– Don’t open new lines of credit – the uncertainty of your spending habits with a new card might indicate risk and cause your score to tick up

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3. Get a Big Down Payment

You’ll get a better interest rate on a mortgage if you have a larger down payment because lenders will think you’re less likely to default on your loan. Aim for a down payment of at least 20 percent of the selling price. This will also protect you from paying private mortgage insurance (PMI), which protects lenders if you default on a loan.

4. Get Pre-Approved

Meet with a mortgage specialist before you start shopping. They can help you determine an accurate budget and decide what kind of home you can realistically afford. Get a pre-approval letter and add it to a good credit report, income verification and a maximum allowable loan, and home sellers will take you most seriously among the suitors.

5. Keep Track of Your Money

You’ll have lots of documents, bank statements, etc. during the pre-approval and underwriting processes. These will be examined closely to verify income and expenses. If your records show unusual activity, you’ll be asked to explain it and you’ll have to jump that hurdle before continuing the approval process.

If you need a recommendation for outstanding mortgage brokers.  I have a few that I highly regard.