California Fire Victims Getting Support from State and Federal Agencies to Rebuild

At the end of 2017, there were serious wildfires in northern and southern California that affected Los Angeles and Ventura counties in the south. Hundreds of homes were damaged or destroyed and thousands of people are still in need of help. Some of these people had their homes burned to the ground.

The fires are thought to be because of Santa Ana winds that can reach hurricane levels, and also the mountain ranges in southern California. These can trap cold coastal air and create conditions that are ripe for wildfires on the Los Angeles area. As of December 2017, at least 120,000 acres of land was burned and 200,000 had to leave their homes.

Some areas are getting support from the government to rebuild, but not in every case. With the cost of wildfires in the state growing, some areas want to pay home owners to not rebuild their homes. Or, they want to use more economic pressure to encourage people to not rebuild in fire-prone areas. The state saw in 2017 the most destructive year of fires in decades. More than 15,000 structures across the state were destroyed or damaged, and 45 people died. Some researchers with the California state government think there could be more of this to come as the climate continues to warm.

Some environmentalists in the state argue that mayors and legislators in cities across the state that were affected by the fires should consider buying up land before it is built on. If a fire comes through, the land should be bought up, so it cannot be built on again.

The question of whether or not to rebuild is a challenging one for the state. People like to build in areas that are close to nature with lovely views and some degree of remoteness from the big city. Some of the neighborhoods in California that burned down in 2017 had fires before and were relatively undeveloped. Homes that are rebuilt in those areas could be at risk again for fire; experts say fire cycles are shortening now in California from decades to just years. But thousands of property owners are dealing with losing their home and possessions, and it is difficult for them to be asked to give up their land and not rebuild there.

Any new state policies that could increase the cost of building in areas prone to fire could raise the cost tremendously for many middle-class people to buy their home. Many of them will be priced out of the market.

In the Santa Monica Mountains, there have been 500 new housing units that could be built near Los Angeles that is in a high fire hazard area. These are homes in the $1.5 million range so are not low income. Some in the state government say the developer of the homes should have a way to mandate buyers will have to pay for more fire protection that will be needed.

Resources Available to Help Fire Victims in California

For homeowners in California who are indeed going to rebuild, there are some resources available from these state and federal government organizations:

  • Governor’s Office of Emergency Services – maintains information about status of fires and the cleanup process
  • California Department of Forestry and Fire Protection – this provides fire summaries for any active fires on the state
  • Employment Development Department – Employers that are affected by a fire can get a 60-day extension from the EDD to file a payroll report or to deposit payroll taxes without any interest or penalty
  • Federal Disaster Unemployment Assistance Benefits – workers or those self-employed who have lost jobs or had hours cut in Lake, Napa, Nevada, Orange, Sonoma, Yuba and Butte counties, you can receive these federal benefits by applying through EDD
  • Disaster Loan Assistance – The SBA at the federal level offers long term, low interest disaster loans to businesses, renters and homeowners to repair or replace damaged property
  • California Department of Tax and Fee Administration – tax relief is being offered to those affected by fire. You can request relief from interest and penalties
  • Office of the State Treasurer – Rolling out programs that will help communities affected by the fires get more access to financial resources
  • USDA Rural Development – This federal agency has several programs available to help rural communities that have been affected by disasters.
  • California Department of Motor Vehicles – Offering help to people who have lost their DMV documents as a result of fire


The bottom line is that there is a lot of rebuilding going on in northern and southern California and plenty of help is available from state and federal partners. However, it remains to be seen if rebuilding will be encouraged in the fire prone areas that the state designates especially high risk.



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Who Governs My HOA?

Having Problems with a Home Owners Association?  They do what they want when they want and when I complain it goes on deaf ears…

In the 1960s, there were only 500 HOAs in the US. But they have gotten much more numerous since then. According to the Community Associations Institute, there are 62 million US residents who live in 309,000 HOAs as of 2010. That is an enormous increase in only 50 years. What is the reason?

The primary role of a homeowner’s association is to be an organization of property owners that administers all of the rules and covenants of the home subdivision. If you live in a community with an HOA, the rules will affect and limit what you can do to your property.

This is good news for many people; HOA covenants and bylaws generally preserve the value of your property by ensuring that no one does anything distasteful to a property, such as paint it a strange color or park too many commercial vehicles on the road. The sad news is that you may not always be able to do whatever you want to your property. Some HOAs can be difficult to deal with, so if you are having issues with yours, you should keep a few things in mind outlined below. These tips can be useful in some cases to deal with problems with HOAs and other neighbors.

Understand Rules and Bylaws of HOA’s

You should know your HOA’s bylaws and follow them to the best of your ability. It also is a smart move to read covenants, rules and deeds to find things that are arbitrary, such as keeping a vehicle in the driveway. You might be surprised, but it is not unheard of to have some HOAs turn their sights onto certain types of vehicles parked in a driveway, such as large pickup trucks. Other common covenants have rules about fences and the shade or color of your home.

Expect the Best

HOA’s are very common today, so there is sometimes controversy about how they work with homeowners and protect them from problems. But a 1999 poll by the Community Associations Institute found that 75% of people who lived with an HOA were satisfied. However, in 2007, 48% of people in HOAs in Los Angeles stated that their HOA was a headache.

To see how happy, you are with your HOA, you might take a look around your neighborhood. Are lawns trimmed and neat? Are there few cars parked on the street? Are the neighborhood facilities in good repair? Would the general appearance of the neighborhood attract buyers? The HOA is generally doing a respectable job if the community is suited to your wants and needs and you are treated fairly by the board.

Talk to Other HOA Members

A major advantage of living in a community with an HOA is that you can become friends with other neighbors. You might not know all of them, but they are paying the dues you are and have to adhere to the same rules.

Getting to know your neighbors can be beneficial if the HOA starts to assess fees and handing out violations. By checking with your neighbors, you can learn if you are the only one being targeted. In 2010, a community in Florida got together and fought the HOA because it appeared to be using aggressive tactics to collect HOA dues. The residents became aware of what others were going through and a legal investigation was launched.

It also helps to know other neighbors because sometimes it will be an individual in the neighborhood that brings attention to an alleged violation. If you were to hang your clothes to dry in a $1 million dollar home subdivision, you could face fines if someone turns you in. But if you are friends with your neighbors, they may talk to you before reporting you.

Get Involved with Your HOA

It always helps to avoid problems with an HOA by being involved in it yourself. Many HOAs require there to be an annual meeting each year to elect a board of directors. This is usually open to paying members. Some states will place limits on what can be discussed at the general meeting, while others will allow residents to talk about whatever they want.

Either way, it is beneficial to attend meetings and to hear what is happening in the community. If the fees are going to be raised, it helps to know as soon as possible. But the biggest reason to be a part of the HOA meeting process is to have a say about the board of directors. If the board is showing any neglect or abuse of the neighborhood, you may want to get a new board.

Pay Fines, Other Options

If you are fined for an HOA violation, you can just pay it and be done with it. This could be the best move. But you also can ask for a variance which is an exception to the covenant or deed by which the HOA functions. The HOA may not want to bother with fighting you and the variance could be granted. But the HOA may have a hearing to which other homeowners may be invited to discuss if the variance should be granted.

The last option is to take legal action. You could win an HOA lawsuit, but it is not unusual for homeowners to go to court over a few hundred dollars in fines, and come back owing that PLUS legal fees in the thousands of dollars.

Do not just not pay the fines, or you could be foreclosed upon.



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Do Bond Programs for Down Payment Assistance Really Exist in Your Area?

The housing market is hot in 2018. Interest rates are creeping up. Signs are the economy is going well, so it is likely that interest rates will rise in the next year. It is understandable that many people who are renting want to get in on owning a home before rates get too high. But what if you do not have the down payment to get a loan?

Today there are down payment assistance grants available in some cities and counties. There also are interest free 2nd-mortgages and other special loan options that can help you with a down payment.

Down payment assistance is available with many state housing finance agencies and local housing authorities. The money is often available because many Americans think it is too hard to get or they do not qualify. It is assumed that down payment help is only for the very poor, but this is not always true. These bond down payment assistance programs are typically for working people with an average or above average income but lack the funds for a down payment.

Down payment assistance may be offered as a grant that need not be repaid. Buyers may be able to earn up to 140% of the median income in the area and still get a grant. For example, in Orange County CA, you can earn up to $100,000 per year and get a grant of up to 5% of the purchase price.

The program in Orange County is not just for people buying for the first time; it is a grant and does not need to be repaid. You do need a 640-credit score, and it even can be obtained with a refinance. Also, your debt to income ratio cannot be higher than 50%. Different assistance programs will have different criteria, but this one in California is typical.

Another example is the My First Texas Home program that offers home loans with low payments and down payment and closing cost help. This can be up to 5% of the loan and is very helpful for first time buyers. Buyers also can increase the benefits of home ownership with this program by doing this loan with a Texas Mortgage Credit Certificate. This will give you a dollar for dollar reduction on your federal taxes. This can save you hundreds per year on your federal tax bill.

Another option in Texas is the down payment assistance program that is available through the Travis County Housing Finance Corporation. It will help you to get a home with an FHA, VA, or USDA loan in Travis County and Austin. A grant of 4-5% is available that does not need to be paid back to help with the down payment and closing costs.

Another option is a down payment assistance loan that may be a second mortgage, or a silent mortgage that only is paid when the home is sold, or the first mortgage is fully paid. On average, buyers can get from $5000 to $20,000 in help, depending upon their location and finances. But in high cost areas, it is possible to get a loan for up to $100,000 with very favorable repayment terms.

Some of these programs are made to work with FHA loans, but others may allow you to get a conventional loan. You also could have to get a loan from a specific lender in your area to qualify. But not all lenders like to work with these programs because they are not as profitable. If you are looking at a down payment grant or loan, talk to your lender to see if they will work with you.

There also are some lenders that may offer down payment assistance programs to help the first-time home buyer. First time buyers may struggle with the down payment because they do not bring any equity to the deal from the sale of another property.

Lenders say it is a common myth that there are no mortgage programs for people that do not have a 20% down payment. There are many options for people with much less to put down.

For example, many lenders that are approved by FHA to issue loans can give many people a loan with only 3.5% down. It is true that you still need to come up with some money, but you may find a down payment assistance program in your county that can help you with that. Another possibility is to get a gift from a friend or relative, which is permissible under FHA rules. If the person is giving it as a gift and does not expect repayment, you can get a home with essentially 100% financing.

If you need help with your down payment, check around in your city and county first, because there are plenty of programs available.






What to Concern Yourself When Buying a House with PMI

How long do I pay? How much do I pay? Can I even get rid of it?  When you buy a home with less than 20% down, you must pay for mortgage insurance (PMI). If you are not sure what mortgage insurance is all about, this article will help to make it clear.

Overview of Private Mortgage Insurance (PMI) 

To qualify for a mortgage loan that is backed by Fannie Mae or Freddie Mac, you must get PMI with less than 20% down. The PMI is paid monthly by the borrower. It protects the lender against a financial loss if you default. When people put down less than 20% on a home, it is statistically more likely they will default. PMI ensures the lender will get most of their money back if you stop paying.

PMI is required until you have 20% equity in the home. At that point, PMI can be cancelled by requesting it from your lender. But it must be cancelled by law once you have 22% equity.

PMI Costs

PMI usually costs you about .5% of the amount of the loan. Thus, if you buy a home for $300,000 and put down 10%, you will pay PMI on $270,000 per year, which amounts of $1350 per year, or $112 per month. This is a considerable additional monthly cost, in addition to loan principal, interest, insurance and taxes.

However, it is not necessarily a bad thing to pay PMI. If you are able to put down 5% on a home rather than 20%, this is a savings of tens of thousands of dollars. Some would say a small price to pay for that is to pay PMI each month. And once you have 20% equity, PMI can be cancelled. The only exception there is if you are not making mortgage payments on time. In that case, you will need to continue paying PMI until you have at least a year of timely payments.


Some home buyers get a loan that is backed by the Federal Housing Administration. These loans also require you to have mortgage insurance, but it is called MIP. Mortgage insurance on FHA loans works the same as PMI with conventional loans, but it is a bit more expensive each month. There also is an upfront mortgage insurance fee of 1.75% of the loan amount that can be wrapped into the loan.

A critical issue to know with FHA mortgage insurance is you cannot cancel it in most cases, as of 2018. The US government made MIP mandatory on all FHA-insured loans with less than 10% down in 2013. If you put down 10% or more, you can cancel it after 11 years.

So, once you have reached 20% equity, you are paying for mortgage insurance that you would not be paying for with a conventional loan. If you plan to stay in the home for years more, it is worth considering a refinance into a conventional loan. You will pay for closing costs, but you will be saving that monthly mortgage insurance payment every month for years.

Considerations on PMI

For most people, if you cannot put down 20% without causing major financial woes, it often makes sense to pay PMI. You are going to save yourself a lot of upfront money. Plus, you can stop paying rent years sooner by paying PMI. In many markets that are in strong demand, you will often pay much more in rent than the mortgage payment for the same home. Viewed in this light, paying PMI with your own home could be a wash or even a savings. Also, many people like the idea of owning their own home, even if they pay PMI.

Mortgage insurance premiums also usually help you during tax season. If you are paying PMI, your PMI payments are usually tax deductible. This can save you at least a few hundred dollars on your taxes. Don’t forget to verify your eligibility for a home loan with no PMI.

Final Thoughts

If you do buy a home with PMI, remember you can cancel it after you have gotten to 20% equity. You will need to send a written request to the lender to ask that it be removed. The lender will review your payment history and respond within a few weeks. If you have been paying on time for a year, they should remove PMI.

However, US law now requires the lender on a conventional loan to remove PMI automatically when you have 22% equity in the home, if you have been making your payments on time. This was done because some lenders were delaying the removal of PMI, probably to increase their financial cover if you were to default. But this is now illegal to do, so you should be able to get rid of PMI once you have at least 20% equity.

When to Petition Your Mortgage Servicer to Cancel Unnecessary PMI Payments

You have to make it happen, because they won’t.  Federal law requires many mortgage providers to remove PMI under some circumstances. Some lenders may also allow for PMI to be removed, according to their own standards. Standards for getting PMI removed from a mortgage have been established under the Homeowners Protection-Act. The law provides two major ways for you to get rid of PMI:

  • Request that PMI be cancelled
  • Automatic PMI cancellation

When you have a conventional loan, you have the right to ask your mortgage servicing company to cancel mortgage insurance when you have reached the point on your mortgage schedule where the balance falls to 80% of the home’s original value. The date should be provided to you when you first get the mortgage on a PMI disclosure form. If you are unable to locate the form, you can ask your mortgage servicer for a copy.

You can request PMI be cancelled at an earlier date if you made higher payments that have reduced your mortgage balance to 80% of the original value.

This also could occur if the home has appreciated significantly in value since you have bought it. If you want to cancel PMI because of home appreciation, you may need a new appraisal to show the lender that you have reached 20% equity in the home.

There are other criteria you must meet if you want to cancel PMI. First, you must ask the lender in writing. Second, you must have a solid payment history and be current. If you have not made payments on time in the past 12 months, it is unlikely the lender will allow you to cancel PMI. Also, the lender may require you to prove you do not have a second mortgage on the property. Last, the lender may ask you show a current appraisal that shows the value of the home has not dropped.

Even if you do not ever ask the lender to cancel PMI, it still must terminate mortgage insurance on the date that your loan balance falls to 78% of the home’s original value. For mortgage insurance to be cancelled on this date, you must be current on mortgage payments. PMI will not otherwise be cancelled until payments are up to date.

There is another way you can get rid of PMI. If you are current on mortgage payments, the lender must end PMI the month after you are 50% through the loan’s amortization schedule. For a 30-year mortgage, this would be at the 15-year point. This standard is more likely for people with an interest only period on the loan, a forbearance or a balloon payment. In this case, you still must be current on monthly payments.

Keep in mind that your loan servicer may have other PMI cancellation policies that could include provisions beyond what is in federal law. But the guidelines may not restrict the rights that federal law gives you. For instance, the act does not have requirements for how long the loan has to have been in effect before you can request cancellation of mortgage insurance.

What About FHA?

FHA financing is another matter. These loans are secured by the Federal Housing Administration. FHA mortgages written after June 2013 cannot generally have mortgage insurance cancelled. The federal government changed the rules in 2013 to shore up the reserve fund for FHA, so most FHA loan holders must pay mortgage insurance for their entire loan term.

One exception is a loan where at least 10% was put down for a down payment; these loans can have mortgage insurance cancelled after 11 years. If you have an FHA loan and have 20% equity, you may not be able to cancel mortgage insurance. The best option in this situation is to refinance into a conventional mortgage. This should be possible if you have a credit score in the 640 range.

Takeaways on PMI Cancellation

The bottom line on cancelling PMI is that the rules have been laid out very specifically in federal law so that mortgage companies cannot force you to pay PMI longer than necessary. The lender can legally decline to deny your request when you are at 20% equity. But, if you have made payments on time, the mortgage provider MUST under federal law automatically cancel PMI when you have reached 78% loan to value. Ask your mortgage company if they have any no-PMI mortgages that are priced competitively.

But before that, you will probably need to contact the mortgage provider in writing for them to consider removing PMI at 80% loan to value.

Of course, you can avoid PMI entirely if you put down at least 20% on your home. But this is challenging for many Americans, especially first-time buyers who lack equity.



Reasons to Avoid FHA When Refinancing Your Mortgage

If you have past credit trouble and a lower down payment, you may consider an mortgage insured by the FHA. The Federal Housing Administration is popular as they have low down payments, reasonable interest rates, and very flexible qualification criteria. However, no loan is perfect, and FHA mortgage have some disadvantages both with new loans and for refinance.

Nobody wants to pay mortgage insurance every month, but new requirements for FHA, mandate borrowers being required to permanently pay mortgage insurance unless they refinance out of a FHA insured mortgage.

Below are some of the down sides of an FHA mortgage for new purchases and refinancing.

Mortgage Insurance Is Expensive

This is probably the biggest negative of the FHA loan. Borrowers who use this home loan for a refinance will usually have to pay for mortgage insurance. Mortgage insurance protects the lender if you default on the loan. Mortgage insurance for FHA programs are more expensive than that for conventional loans. There are two types of mortgage insurance you must pay:

  1. Up front mortgage insurance premium that is 1.75% of the loan amount.
  2. Annual premium that you pay each month as part of the loan; typical amount is .85% of the loan amount.

These premiums may be added to the loan, so you have lower out of pocket costs. But your monthly payment will be higher, and this adds up over the years.

You also must pay for mortgage insurance with a conventional loan, but that premium goes away after you reach 20% equity. That brings us to another reason to not refinance into an FHA loan.

Mortgage Insurance for Life of Loan

One of the biggest downsides of the FHA loan program currently is that it generally requires mortgage insurance for the life of the loan. You could be paying for mortgage insurance when you have 90% equity in the home! The reason for this is FHA found that its emergency funds were getting lower than federal law allows, so permanent mortgage insurance was passed in 2013. If your loan was written after June 2013 and you put down than less than 10%, you will have to pay for mortgage insurance for the entire loan. This might be a good deal for the FHA emergency fund, but it is a rotten deal for the homeowner.

This policy is why many FHA lien holders refinance OUT of an FHA loan and into a conventional mortgage when they have 20% equity. If you refinance into an FHA mortgage, just know that you could be paying for mortgage insurance for a long time.

Some Property Restrictions

FHA is overseen by HUD. HUD has strict rules about the type of home you can buy. You will not be able to buy a vacation home with an FHA program, or refinance a vacation home. There also is a strict appraisal process where the HUD approved appraiser visits the home to ensure it meets all requirements.

HUD also has exact requirements for condos. Unfortunately, many condos cannot be approved by FHA at all. If you want to refinance your condo loan through FHA, you need to have a condo project that is on HUD’s approved list.

Sellers Sometimes Dislike FHA

If you are buying a new home and want to use FHA for financing, you may find yourself at the back of the line in terms of offers. Some sellers do not like FHA mortgages because they have the impression that the agency is hard to deal with. Some real estate agents may steer sellers away from FHA offers because the appraisal process is thought to be more difficult. This is not really the case, but the perception is out there.

Years ago, sellers also had to pay some of the buyer’s closing costs. This is no longer true. Buyers with an FHA lien can cover their own closing costs.

No Reward for Good Credit

FHA loans have low rates. The problem is that everyone gets the same interest rate even if you have excellent credit. Over the life of the loan, you could be paying more than you should. Also, is it fair for someone with a 620-credit score to have the same rate as a person with a 740 score?

Lower Loan Ceiling

FHA has limits on the loans it will insure based upon the area of the country. Some of these limits may be more restrictive than you like. In a more expensive area, you may find that you cannot get the home that you want because it is more than the FHA maximum for your area.

The bottom line on FHA financing for buying and refinancing is that they work for some people who have lower incomes and credit scores. But people with higher scores and incomes may be better of with a conventional loan. Also, remember the requirement for mortgage insurance with FHA loans. Paying that for the life of the loan is an expensive proposition.



Should I Ever Get a Mortgage with PMI?

2018 is still looks like a good time to buy a home with less than a 20% down payment. More than ever in the last several years, mortgage lenders are offering low down payment loans, with loan approval rates markedly higher than 2010.

For buyers who have less than 20% to put down, though, you need to think about private mortgage insurance or PMI. In most cases, PMI is required on all conventional loans with less than 20% down. PMI is a required insurance policy for conventional loans that insures the mortgage lender against loss if you default.

PMI differs from the mortgage insurance needed on other loans, such as FHA mortgages. Mortgage insurance on FHA loans can be costly as the premiums are higher than Fannie Mae and Freddie Mac. There also is a separate mortgage insurance program for USDA home financing.

Many Americans hate the idea of paying PMI. But is PMI good or bad? It is neither, really. Mortgage insurance IS an extra monthly cost, but it helps millions of people qualify for a loan years before they otherwise could. Only a small percentage of Americans can afford to put 20% down on a home, and it is even smaller for first time home-buyers. Let’s consider both sides, the home loan that requires mortgage insurance and the no PMI mortgage.

Should you ever get PMI with a mortgage? There are cases where it does make sense to choose a home loan with mortgage insurance.

When PMI Is Required

PMI is needed when the buyer puts less than 20% down on a conventional loan. Conventional loans are backed by Freddie Mac or Fannie Mae and are available through major home lenders such as Wells Fargo, Bank of America and JPMorgan Chase, etc.

To understand why PMI is needed on a loan with less than 20% down, it helps to review the mortgage default situation. The homeowner is not making payments on the home, and at least three payments were missed. This is creating a big loss for the lender. But state laws often delay when the homeowner can be evicted. It might be one or two years before the home can be reclaimed. During this period, the home could have damage, such as neglect, fire or flood. It probably is showing the effect of poor maintenance.

When the home is sold in a foreclosure auction, it probably means the lender has a big loss on its hands. On average, lenders lose about 20% of the value of the property during the default and foreclosure. So that is why it is a requirement to put down 20% to avoid PMI. Anything less than 20% down is a risk to the lender. PMI protects them against that loss.

Types of Private Mortgage Insurance (PMI)

There are three major options for paying for PMI. The first is the single premium option that means you are paying a lump sum when you close the loan. This will cover the cost of PMI for the entirety of the mortgage.

The second option is lender paid mortgage insurance or LPMI. This does not require you to make monthly insurance payments but your rate will be increased by the lender to cover the risk.

The third option is monthly premium PMI which is how most of us pay for it. The annual cost of your PMI policy is split into 12 payments and collected monthly.

All of these options have advantages. If you plan to stay in your current loan for a long time and expect home prices to stay flat or go up moderately, you may want to opt for the single premium plan. But if you want to move or refinance in a few years, you may want LPMI. This means you are only paying the slightly higher rate for a limited period.

For most buyers, monthly PMI is probably the best bet. Payments are monthly and will cancel once you reach 20% equity through payments and/or appreciation.

Cancelling PMI

A lot of buyers think PMI is stupid and a waste of money. But it lets you buy the home with much less than 20% down. Do you have other things you could do with that money? Most people do. You could use some of that money to pay for repairs on the home, keep an emergency fund or put into investments. Access to PMI lets more people buy homes, and in particular, lowers entry barriers for the first-time homebuyer who has no equity.

PMI does add to your monthly payment, but that is ok for most people. They can afford PMI payments; what they cannot often afford is a 20% down payment.

Plus, once you have paid down the balance to 78% of the home’s original purchase price, you can have the PMI cancelled automatically by law. You also can ask the lender to cancel it once you reach 20% equity, but they may wait until 22% equity.

To qualify for PMI cancellation, you have to have made your payments on time. Otherwise, the lender may balk at cancelling PMI.

Overall, getting a mortgage with PMI makes sense for people who would struggle or find impossible putting 20% down on a home, especially first-time buyers.







Do You Have to Pay PMI in 2018?

Do you even know?  Find out how and why you can save your family tens of thousands of dollars for FREE

Private mortgage insurance (PMI) is used to help people to buy a home with less than a 20% down payment. Despite the fact that PMI allows millions of people to buy a home sooner than later, many consumers want to get rid of PMI if they can. This article details what PMI is and how you can secure a mortgage with no PMI in many cases.

If you want to get rid of your PMI payment each month, you have a few basic options worth mentioning up front:

  • Make a 20% down payment! Yes, we know this option is rather obvious, but we thought we would mention it. If you can put together the cash, it is a good idea to put down 20% or even more. You will get the very best interest rates and will have a lower monthly payment to boot.
  • If you are in the military or are a retired veteran, you can often qualify for a VA loan which never charges you mortgage insurance.

But if you cannot do either of these options, there are still some other choices. First, you may be able to get lender paid mortgage insurance or LPMI. This is similar to PMI but the lender pays the insurance for you. To pay for your mortgage insurance, most lenders will require you to have a mortgage rate hike of .75%. This may work for you, but you need to check with your lender to see if they offer it. Also, LPMI cannot be cancelled like regular PMI, so you will pay that higher rate for the life of the loan. Whether that works for you depends upon your financial goals.

Another option is to use piggyback financing. This type of structure requires a 10% down payment in most cases. In this loan, the buyer brings a down payment of 10% to the closing table. Instead of getting a 90% mortgage, the buyer takes two mortgages, one on top of the other. The most common scenario is an 80% first 10% second and a 10% down payment. This also may be called an 80/10/10. If you are buying a condo, a 75/15/10 piggyback loan is the most common.

How to Eliminate PMI After I Buy?

If you already have your home and are paying PMI, you probably want to get rid of it. Generally, your PMI cannot be cancelled until your loan balance drops to 80% or less of your home’s appraised value, or 80% of the home’s current value.

There are some restrictions for cancelling PMI though. You could be asked to show that you have paid your mortgage on time for at least one or two years. Lenders are always required to give you an update every year about your options to cancel PMI.

One of these updates must include a notice of the Homeowners Protection Act of 1998. This requires mortgage lenders to terminate PMI when you reach 78% LTV. This is based upon the purchase price OR the appraised value from the date of purchase/refinance, whichever is less.

You must be current on your mortgage when you get to 78% LTV to have PMI taken off. If you are not current, PMI will be eliminated on the first day of the first month that you are current.

The Homeowners Protection Act of 1998 also mandates that homeowners may ask to cancel PMI once they reach 80% LTV, based upon the original value of the home. But you do need to contact the lender in writing to do this; they will not contact you before you reach 78% LTV. So, it is wise to keep close track of when you reach 78% LTV to cancel PMI as soon as you can.

What PMI Costs

PMI costs vary depending upon your lender, credit score, down payment and other factors. Generally, the less money you put down, the more PMI will cost. This is because you are a higher risk to the lender. Generally PMI can cost anywhere from .30% to 1.15% of your loan balance per year. The rate will be influenced also by how long the loan is.

PMI costs are usually paid each month with 12 equal payments. However, your PMI costs can change from year to year.

Mortgage Insurance for FHA Loans

If you have an FHA mortgage, you also are probably paying for mortgage insurance, called a mortgage insurance premium or MIP. If your home is worth less than $625,500 and you put down less than 5%, you will pay approximately .80% of your loan balance each year in mortgage insurance premiums. You also have to pay an upfront mortgage insurance premium when you take out the loan; it can be wrapped into the mortgage.

Importantly, MIP cannot always be cancelled. If your loan was issued after June 2013 and you put down less than 10%, you cannot cancel MIP. Your only option is to refinance into a conventional mortgage once you have 20% equity in the property. If you put down 10% or more, you can cancel MIP after 11 years.

Why Is FHA Mortgage Insurance Forever?

FHA mortgage insurance, known as MIP (Mortgage Insurance Protection) is an insurance policy that protects the lender if you default on the mortgage. MIP allows the lender to issue mortgage loans that require small down payments and at very low interest rates. MIP reduces risk to the lender, and this allows the lender to issue mortgage to people who might not otherwise qualify for a loan.

The FHA mortgage holder pays for the MIP up front and as part of their monthly mortgage payment. After mid-2013, most FHA mortgage loans are required to pay MIP for as long as they hold their mortgage with FHA. By making people pay for mortgage insurance premium even after they have 20% equity, the Federal Housing Administration has been able to bolster its reserves to ensure it has enough money available in case people were to default en mass. But there are ways that you still can get rid of mortgage insurance. Below is more information about FHA mortgage insurance premium and how you may be able to cancel MIP. Ask about no PMI loan opportunities.

How Long Does MIP Last with FHA Mortgage Programs?

Loans from FHA are in two categories: those that have case numbers before June 3, 2013, and those that have case numbers after that date. Being able to cancel MIP or not depends upon the date the loan was issued and other factors. For FHA loans that were issued on or after June 3, 2013:

  • 20-30 year loan with less than 10% down: MIP is life of the loan
  • 20-30 year loan with more than 10% down: MIP can be cancelled after 11 years
  • 15 years or less loan with less than 10% down: MIP is life of the loan
  • 15 years or less with more than 10% down: MIP can be cancelled after 11 years

For loans that were issued before June 3, 2013:

  • 20-30 year loan with less than 10% down: 78% LTV, MIP can be cancelled
  • 20-30 year loan with 10-22% down: 78% LTV, MIP can be cancelled
  • 15 year loan with less than 10% down: MIP may be cancelled after five years
  • 15-year loan with 10-22% down: With 78% LTV, MIP can be cancelled

Most FHA lien holders have loans that were opened after June 2013, had less than 10% down and were for 30 years. In these cases, you cannot cancel MIP. But that is not the end of it. Once you have gotten to 80% or so LTV, that is, you have at least 20% equity, you can refinance out of an FHA loan into a conventional loan with no mortgage insurance.

The price of homes has gone up considerably in the last three years. A home that you put down only 3.5% or so in 2014 could have enough equity to allow you to refinance with no PMI.

Why People Choose FHA Loans and MIP

A major advantage of conventional mortgages is mortgage insurance is cancelled automatically when you reach 78% loan to value. As we have made clear above, this is not usually the case with FHA mortgage insurance. So why do so many people choose an FHA loan with MIP?

FHA loans are easier to qualify for. It is possible to have a 3.5% down payment with only a 580 FICO score. If you get a conventional loan, you may have to have at least a 640 FICO score and put more money down. It also is possible to get an FHA loan with only a 500 FICO score. FHA loans are popular with people who had serious financial problems in the past, such as a bankruptcy or foreclosure. But as long as you are on a stable financial footing in the last one or two years, you should be able in many cases to get an FHA loan. The FHA loan is one of the most popular loan products in America today for people with below average credit scores.

Also, FHA MIP is significantly cheaper than conventional PMI for people who have credit scores below 700. For example, FHA MIP costs $71 per $100,000 borrowed regardless of your credit score. But with a 680 FICO, conventional PMI costs $44 more per $100,000 financed. Thus, mortgage insurance is a better deal for people with lower credit scores on an FHA loan.

Refinancing Out of an FHA Program

Still, if you have 20% equity in the property, there is no reason you should pay MIP forever with an FHA mortgage. It is strongly recommended when you have 20% equity to refinance to a conventional mortgage. You should find a lender who specializes in these types of refinances.

Paying for MIP with an FHA loan is not a cheap thing, but it is often a good deal until you have 20% equity in the property. After you have that much equity, you are strongly advised to have your credit score at a point where you can refinance into a conventional loan. There is no reason to pay for MIP for the entire life of the loan.