PMI – What is it and How Does it Work? 

By now you’ve likely heard complaints or frustrations over PMI (Private Mortgage Insurance) and do whatever you can to avoid it.

What if it’s not as bad as you think, though?

Private Mortgage Insurance has its positive sides, including the fact that it allows you to get competitive financing without a 20% down payment.

Here’s everything you need to know about PMI. 

What is PMI?

Private Mortgage Insurance is insurance coverage you buy for the lender. It’s the lender’s guarantee for allowing you to put down as little as 3% – 5% on a home.

Typically, lenders require a 20% down payment for conventional financing, but many borrowers don’t have that much to put down. With PMI, you can make a much lower down payment, but cover the cost of insurance to protect the lender if you default. 

How Does PMI Work?

PMI is insurance for the lender only, but you pay the premiums. It’s your cost because you aren’t making a large down payment.

Lenders take a chance when borrowers don’t have a lot of their own money invested in the home. It would be a lot easier for you to walk away from a home if you have 3% invested versus 20%, right?

You pay the PMI premiums, but the insurance is only used if you default on the loan. In other words, if you get so far behind that the lender starts foreclosure proceedings, they’d make a claim on the insurance.

The Good News about PMI 

Here’s the good news.

PMI doesn’t last forever.

You only have to pay the premiums until you owe less than 80% of the home’s value. This can happen in a couple of ways.

• Make your regular payments and wait until you pay as much as necessary to get your principal balance below 80% of the original home value.

• Make regular payments but pay for a new appraisal when you know homes in your area appreciated. This may allow you to cancel PMI early.

• You can also make larger mortgage payments than is required to pay the principal down faster.

You can request to cancel PMI whenever you get the balance lower than 80% of the home’s value, but lenders use the original value unless you pay for a new appraisal.

As long as you have a timely payment history and there aren’t any other issues with your account, they may approve your request to cancel it.

If not, by law lenders must cancel PMI automatically when you owe 78% of the home’s original value. 

Final Thoughts

PMI doesn’t add a lot to your mortgage payment, and it makes it a lot easier to buy a home without a large down payment.

If you have good credit and a low debt-to-income ratio, you might qualify for conventional financing with PMI. You’ll pay the insurance temporarily while you enjoy your new dream home.

If you need help finding the perfect home or understanding how PMI would affect your payment, contact me today!

The Best Mortgage Loans for First Time Homebuyers

Buying your first home can be exciting and overwhelming at the same time. You’re fulfilling the American dream but at the same time, taking on the largest debt of your lifetime. 

Fortunately, there are many great mortgage loans for first time homebuyers. Here are our top choices.

FHA Loans

FHA loans used to be known as a ‘first time homebuyer’s loan.’ While today anyone can use the program, it is a great program for anyone that hasn’t owned a home before because of its flexible guidelines and low down payment requirements.

FHA loans require mortgage insurance for the life of the loan at a rate of 0.85% of the loan amount. Your insurance payment decreases each year as you pay your balance down, but you pay it for the life of the loan.

How to Qualify

• Minimum 580 credit score
• Maximum 43% – 50% debt-to-income ratio
• At least 3.5% of the purchase price as a down payment
• Stable income and employment for the last 2 years
• No recent bankruptcies
• Proof you’ll occupy the property as your primary residence

Conventional Loans

Conventional loans are reserved for borrowers with good credit, but it doesn’t have to be perfect. We’ve seen borrowers get approved with a credit score of 660 which isn’t in the ‘good credit’ range.

Conventional loans are different from FHA loans because you can cancel your Private Mortgage Insurance once you owe less than 80% of the home’s value. This means your mortgage payment will decrease once you eliminate PMI.

How to Qualify

• Minimum 660 credit score
• Maximum 36% – 43% debt-to-income ratio
• At least 3% down payment (5% if you owned a home before)
• Stable income and employment for the last 2 years
• No recent bankruptcies

VA Loans

VA loans are for veterans that served or are serving our country. This flexible mortgage program doesn’t require a down payment and has the most flexible guidelines for veterans.

The program is only for owner-occupied properties and is a great option for veterans right out of the military looking to buy their first house.

How to Qualify

• Minimum 620 credit score (this varies by lender since the VA doesn’t have a minimum credit score requirement)
• Maximum 43% – 50% debt-to-income ratio
• No down payment required
• Adequate disposable income according to your location and family size according to VA guidelines
• Stable income and employment or proof of future employment if you just got out of the military
• Proof you’ll occupy the property as your primary residence
• Certificate of Eligibility to prove you are eligible for a VA loan

Final Thoughts

If you’re a first time homebuyer, you have many mortgage options available to you. Compare your options and get quotes from at least 3 lenders. Each lender has different requirements and charges different rates and fees.

I’m happy to help you figure out which loan is right for you as well as help you find the house that’s perfect for your needs. Together we’ll make your dream of homeownership come true.

Do Real Estate Agents Lie about Other Offers?

In the competitive real estate industry today, it’s common to wonder if real estate agents lie about other offers. It may sometimes feel surreal when you hear ‘there’s a lot of interest’ in every house you look at – so are real estate agents telling the truth or stretching it to interest you?

Why Real Estate Agents Won’t Lie

Real estate agents have a lot to lose if they’re caught lying. Here are the most common reasons they won’t lie

The Moral Code of Real Estate Agents

First, know that real estate agents have an ethical code they should follow. Is it super regulated? Probably not as much as it should be since it’s hard to follow up on every real estate agent in the country.

But, reputable real estate agents won’t lie. They abide by their required ethical conduct and want what’s best for their clients.

Real Estate is all about Reputation

If a real estate agent is known as a liar in the industry or even one person calls their bluff, it could ruin their reputation. Real estate agents rely on word-of-mouth. They don’t want people telling others in the area bad things about them.

Lying just to get more offers isn’t an ethical move and anyone who’s found out doing it will likely ruin their reputation.

How to Spot a Lie

However, there are plenty of agents that will lie, but luckily there are ways to find out.

• Read through the lingo – If a sales agent tells you there’s a lot of interest in a home or he/she has many offers, ask for more information. If they don’t say we have an offer for $x or we already have an offer for the listing price, they are bluffing just to get you to act fast.
• Ask questions – You are allowed to ask the agent questions about the offer, like ‘when did you receive it?’ or ‘does it have contingencies?’ Ask as many questions as you want about it to see if he/she is lying.
• Give a lowball offer – If you don’t think there are other offers and you want the house, make a lowball offer, but one you think the seller will accept. If there aren’t any other offers, the seller may work with you or even counter offer. If there are offers, yours will be declined and you can move on.

Final Thoughts

The key to finding out if a real estate agent is lying about other offers is to work with a reputable real estate agent yourself. As the buyer, you need someone on your side that has your back.

Sure there are unscrupulous real estate agents out there that will lie just to get a home sold or to try to increase commissions. Don’t fall for it. Having a reputable agent on your side means you have a professional who can see through the lies.

If you’re ready to buy a home and want a reputable agent with you, contact me today!

Which Home Renovations Generate the Highest ROI?

Did you know that not all home renovations affect your home’s value? In other words, your ROI could be next to nothing on some renovations. Even if you do see a return on your investment, it’s sometimes less than half of what you paid.

Was it worth it?

Fortunately, many home renovations provide an exceptional return on your investment. Knowing what they are and how much of a return you’ll get can help you decide. 

Why Home Renovations Affect Your Home Value

Before we get into the list of renovations you should consider, let’s look at why home renovations affect your value.

When you improve your home, you improve its features or its quality, both of which affect the home’s value. Buyers are more likely to pay more for a home that’s recently renovated than one that needs repairs and/or is outdated. But which home renovations should you do?

The Top Home Renovations to Consider

Focus on the areas of your home that need major improvement, especially if safety or stability is an issue. Other than that, consider these renovations to improve your home’s value.

Garage Door

You may not think of the garage door when renovating your home, but it can provide almost a 95% ROI. With an average expense of $3,500, you can improve your home’s value by almost $3,300 with this change. Think of it as improving your home’s curb appeal.

Minor Kitchen Remodel

The kitchen is the heart of the home. Renovating it doesn’t have to mean tearing down walls and reinventing your kitchen. Painting the cabinets, switching out appliances, and updating the faucets or light fixtures may provide an ROI of 77% or more.

New Windows

Windows are another great way to improve your home’s curb appeal, but they also affect the home’s energy efficiency. They can be a hefty investment, but you’ll typically recoup almost 75% of your investment. As a bonus, you’ll likely reduce your energy usage in the home which may further increase the return on your investment.

New Siding or Paint

New siding or a fresh coat of paint are other exterior projects that can increase your home’s value. This is especially true if your siding is damaged and faded, or your paint is cracked and pealing. Replacing and repainting with something fresh is the way to go.

Most siding and paint investments provide a 75% ROI, plus it increases the curb appeal of your home if you choose a color that’s trending right now.

Final Thoughts

Before you make any home renovations, talk to a professional (like me) to see how much of an ROI you’ll receive from the renovations.

Some homeowners renovate their home just to make the home look how they want or to give it features they want. But, you should always have your ROI in mind so you get the most out of your investment. You probably won’t be in your home forever, so why not get the most out of it by improving its value with the renovations you choose?

My Tips for a Higher Home Appraisal

The home appraisal determines how much you’ll get for your home. You could ask for any price you want, but if your buyers need financing, it all depends on the appraised value. While you can’t control the market value (how much other homes sell for), you can maximize your home’s value with these helpful tips.

Increase your Home’s Curb Appeal

Your home’s curb appeal is the first thing appraisers see. It develops their opinion of your home and may increase your home’s value.

To increase your home’s curb appeal, do typical maintenance tasks including cutting the lawn, planting, and caring for flowers/bushes, and clean the windows. You may also need to do some maintenance such as fixing damaged siding or missing shingles. Most homes can use a fresh coat of exterior paint too.

Deep Clean and Declutter your Home

Even though cleaning a home doesn’t affect its value directly, it helps appraisers have a better view of your home and its worth. Get rid of anything that’s in the way and take the time to clean even the nooks and crannies that get overlooked during your normal cleaning.

Make Necessary Repairs

If there is anything obviously wrong with your home, fix it. This includes things like:

• Patching holes in drywall
• Fixing hand railings
• Replacing/repair damaged flooring
• Fixing leaking faucets
• Repairing damaged walls or ceilings from water damage

Look beyond eye level and make sure all areas of your home look well maintained and kept up.

Provide a List of all Upgrades

You never know which upgrades will affect your home’s value, so provide the appraiser with an all-inclusive list of all upgrades you’ve made.

Include small things like a new dishwasher or minor bathroom upgrades to the large renovations, such as adding a room, remodeling the kitchen, or replacing all floors. Provide the appraiser with receipts or contracts to prove the work.

Update your Kitchen or Bathrooms

If your kitchen or bathrooms are outdated, focus your efforts there. You don’t have to do major renovations. Even small changes can affect your home’s value.

Replace old wallpaper, update old faucets, install new lighting, or add a fresh coat of paint. In the kitchen, consider painting your cabinets, updating the lighting, and changing the hardware on your cabinets.

Provide Comparable Sales

If you know of homes that sold recently for a higher price in the area, share the information with the appraiser. If they don’t have the most updated information or you know of a home that sold rather recently that may not be on the appraiser’s radar, share the information to get the most for your home.

Final Thoughts

Your appraisal is based on the recent sales prices of homes in the area but that doesn’t mean you can’t increase it with some effort.

The cleaner, more updated, and accessible your home is, the better picture the appraiser can get of your home. Provide the appraiser with as much detail as you can about the home, the changes you’ve made, or anything you know about the area too.

How to Prepare to Buy Your First Home

First Time Homebuyer Tips

Buying your first home is exciting and overwhelming all at once. Before you get in over your head, use these simple tips to best prepare you for one of the largest investments you’ll make in your lifetime.

Save for a Down Payment

The earlier you can save for a down payment the better. While you don’t need 20% down to buy a home, the more money you invest, the easier it is to get financing. Plus, you’ll keep your mortgage payment down which not only helps you qualify for a loan but helps keep your payment affordable for the next 15 to 30 years.

Check your Credit

Your credit score is one of the most important factors in your application. It’s what lenders look at first and if it’s not high enough, they won’t approve your loan.

Everyone gets free access to their credit report weekly at www.annualcreditreport.com. Check all three credit reports and see what you need to fix. Look for:

• Late payments
• Credit utilization over 30% of your credit limit
• Collections
• Errors

Fix any issues you can and maximize your credit score. If you want to see your actual score, check with your credit card companies or bank – they may offer free access to your score too.

Get Pre-Approved (not Pre-Qualified)

Before you shop for a home, get pre-approved. Even if you think you have ‘great’ credit and good income, find out what a lender thinks first. We recommend getting quotes from at least 3 lenders so you can compare your options side-by-side.

You may find you get approved for more or less than you thought you could afford. A pre-approval letter also helps get your foot in the door with sellers. Many sellers won’t show their homes or entertain offers from buyers without a pre-approval.

Stick to your Budget

It’s tempting to go ‘slightly’ over your budget especially when you see it only makes a difference of a few dollars in your mortgage payment, but it’s a bad idea. Don’t get caught up in a bidding war or get so emotionally attached to a home that you outbid yourself. Stick to your budget and know that the right home will come along.

Exhaust all First Time Homebuyer Assistance Programs

As a first time homebuyer, you have many options for assistance. Talk with your lender and me to find out what programs are available to you. From low and no down payment loan programs to down payment grants, there are programs for borrowers of all walks of life.

Bottom Line

First time homebuyers have plenty of opportunities to secure a home. Even if you don’t have a 20% down payment or perfect credit, there are options available for you. The key is to maximize your qualifying factors as early as possible so you increase your chances of securing your dream home.

I’m always available for questions or help – together we can help you prepare for and buy your first home, making it a stress-free and fun process!

How to Calculate your Debt-to-Income Ratio

If you’re in the market to buy a house, your mortgage lender will look at a couple of main factors to determine if you qualify. Most people know they check your credit score and credit history, but they aren’t aware of the debt-to-income ratio and how it works.

What is a Debt-to-Income Ratio?

Your DTI is a comparison of your monthly debts to your gross monthly income (income before taxes). The higher the percentage is, the higher your risk of default becomes. Lenders like borrowers with a DTI of 43% or less. This leaves plenty of money for living expenses and savings, reducing the risk of default.

What’s Included in your Debt-to-Income Ratio?

The only information you need to calculate your DTI is your total debts and total income.

Debts to Include in your DTI

The debts you include are those on your credit report. A few examples include:

• Car payments
• Minimum credit card payments
• Personal loan payments
• Student loans

The DTI also includes the new mortgage you’re applying for which includes the principal, interest, real estate taxes, and homeowner’s insurance. It also includes any HOA dues and mortgage insurance, if applicable.

Income to Include in your DTI

You can include any income the lender will use for qualifying purposes. Obviously, this includes your full-time income. But if you have any other sources of income that have a two-year history and will continue for the foreseeable future, you may include them too.

Common examples include alimony or child support you receive or side gigs you run with income you can prove.

Calculating your DTI

With these two totals, you can calculate your own debt-to-income ratio using this calculation:

Total debts/Total income = Debt-to-income ratio

Here’s an example.

Jan makes $7,000 a month before taxes. Her debts include the following:

• Minimum credit card payments $150
• Car payment $300
• Student loan payment $250
• New mortgage payment $1,750

Jan’s debt-to-income ratio is:

$2,450/$7,000 = 35%

How to Lower your Debt-to-Income Ratio

If your debt-to-income ratio is higher than a lender might like, here are a few ways to lower it:

• Pay your credit cards down or off – If you have credit card debt, try to pay it off. If you can’t, at least pay them down so your minimum payment drops, and you lower your DTI.

• Pay down other debts – If you have other consumer debts you can pay down to have less than 6 payments, lenders may exclude them from your DTI

• Increase your income – If your income is too low, take on a part-time job or start a side gig. You’ll need to show receipt of income for a while, so the sooner you start it the better.

Final Thoughts

Your debt-to-income ratio is just as important as your credit score. Take the time to figure out your DTI and where you stand before thinking about buying a house. You can prepare both your credit score and debt ratio early on to increase your chances of loan approval.

What Happens if the Property I’m Buying Doesn’t Appraise?

You found your dream house and maybe bid a little more than you intended to pay. You figure it will all work out since your mortgage pre-approval was for more than you bid. But then the appraisal happens and you hear the dreaded words ‘the house didn’t appraise.’

Now what?

What Does it Mean for a Property ‘Not to Appraise’?

First, let’s look at what it means when a house doesn’t appraise. Don’t sellers market their homes for the right price?

In a perfect world, yes they do, but not all sellers work with experienced real estate agents or appraisers. They may price the home on what they feel it’s worth, but the market data may say otherwise.

A home’s true market value relies on the appraiser’s evaluation of the subject home and any comparable sales in the area. An appraiser’s fair market value is an independent evaluation of the property that most lenders take at face value.

What Options do you Have if a Property Doesn’t Appraise?

So what happens if the appraiser says the home is worth less than you offered? It’s a difficult situation, but you have options.

• Renegotiate the sales price with the seller – Many sellers will renegotiate the sales price knowing that unless they find a cash buyer, they won’t get the higher price since lenders won’t lend more than the home is worth.

• Pay the difference in cash – If you have the cash handy, you can make up the difference between the sales price and appraised value. This means you’ll pay more for the house than it’s worth, but sometimes if it’s a long-term investment, it’s worth it.

• Walk away from the sale – If you don’t have the cash to make up the difference and the seller won’t renegotiate, you may want to consider finding another property that’s worth as much as you offered.

Should you Buy a Hosue that Doesn’t Appraise?

The bigger question here is – should you buy a house that doesn’t appraise? While it’s a personal decision, you should weigh all the factors.

Ask yourself:

• How long will you keep the home? Paying more for a home you’ll only own for a short time will likely end up with a loss.
• Do you plan to fix the home up to increase its value?
• Do you have the cash to invest in a home that you’re paying an inflated price for?
• Will your lender approve it?

Final Thoughts

When a house doesn’t appraise it can feel frustrating, but there are ways to work around it. If you’re wondering how you’d handle the situation or you want a trustworthy real estate agent by your side helping you make these difficult decisions, contact me.

I’ve been in the industry for many years and have helped families through similar situations. While it’s not fun to find out a home didn’t appraise, you have options and I’m here to help you through them.