Getting Around Private Mortgage Insurance Problems

If you apply for a loan, 20 percent is the magical number you must focus on. If you put the amount or more down on a loan, you do not have to pay private mortgage insurance.

Private mortgage insurance is the ultimate catch-22 when it comes to getting financing for a home purchase. Essentially, it is a tool used by mortgage lenders to protect themselves in case you default on the loan. The tool works by insuring the difference between your down payment and the 20 percent threshold.

The reason private mortgage insurance is a catch-22 is it is taken into account when calculating whether you can afford the loan. Even though it is a requirement by the lender, it may actually result in your failing to qualifying for a loan. Ah, welcome to the world of mortgage loans and high finance.

There are multiple ways to get around private mortgage insurance. Obviously, you could save up the 20 percent required, but that can be a large number given the astronomical cost of buying a home today. On a $500,000 home, we are talking about a down payment of $100,000. In short, it is not chump change. Ah, but there is a trick you are going to be happy to learn about.

In the finance industry, there is something known as the 80-10-10 loan and what a beauty it is. The 80 represents the 80 percent of the cost of the home that the lender will underwrite as the first mortgage. The first 10 in the equation equals the ten percent you will pay as a down payment for that home of your dreams. The second 10 represents a second mortgage equating to 10 percent of the purchase price. Who gives you this second? Often the same lender! This creative concept is why people both love and hate the finance industry.

So, who exactly is going to step up to the plate and help you with this type of loan? Well, the lender that underwrites the first mortgage is almost always going to be the party in question. As lenders go, savings and loans seem to be more comfortable with this approach than your average lender. That being said, practically any lender will do it if the circumstances meet their guidelines. They will, however, often require the second mortgage have a shorter term. The exact term depends on the lender, but a five to 15 year term is normal.

By: Dan Lewis

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Dan Lewis is with Great Western Mortgage - providing San Diego debt consolidation loans.

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Old Trends Returning-private Mortgage Insurance Back In Vogue

Through the turn of the millennium mortgage brokers have been advocating using a first trust deed and a second trust deed, combination to eliminate private mortgage insurance which is also known as PMI. PMI protects the bank from any deficiency at time of a foreclosure. The borrower receives no benefit or protection from having PMI. The consumer using the first and second trust deed combination in most situations would have lower payments and slightly greater tax benefits, until recently there was no tax benefit in having PMI on the mortgage.

A new product has now emerged to allow for 100% financed stated income loans to exist after many major banks have pulled their 80/20 100% financed stated income loans from the market. This pullback was a direct result of banks not being able to sell their 20% loans on the secondary market on Wall Street, because this group of high-risk loans started to falter in regards to their performance. To fill this void a new single loan up to 100% with PMI built into the pricing has arrived. This product allows the buyer to state their income versus providing paystub and W-2 forms. Banks now are looking for the insurance protection that PMI offers them in case of a foreclosure. This new trend will allow buyers to attain the needed financing that high cost areas require and allow the banks to be protected at the same time.

Another school of thought promoted more of a long term strategy. By opting for PMI, lower payments could possibly be achieved once two years of home ownership had passed and a 20% equity position was reached. At this point with an appraisal the bank would have to remove the PMI. The net result was then lower payments and one loan with a lower rate than the second loan would have had. The federal government just added an additional benefit for the use of PMI. If your household adjusted gross income is under $100,000 the PMI may now be deducted as an expense. As with any tax situation we always advise you to seek the expertise of an accountant or other tax professional. With the meltdown of the sub-prime market which used a first and second trust deed, combination as their main loan structure, traditional single loan programs with PMI are now very much in demand.

By: James Dedolph

Article Directory: http://www.articledashboard.com

Co-written by James Dedolph and Randy Nathan, creators of HomeSniffer.com where you can find Homes for Sale in San Diego and LoanSniffer.net where you can find the best rate and terms for Homes Loans in San Diego . Both of these sites are a good resource for information about San Diego Real Estate .

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New Law Makes Mortgage Insurance Tax Deductible

Private mortgage insurance has always been an easy and predictable way for informed buyers to finance the purchase of their home. Now, it’s also tax deductible, making it an even better choice in many cases.

Mortgage insurance allows borrowers with a less than 20 percent down payment to purchase a home by providing lender coverage against borrower default.

Savings for Families

For many first-time homebuyers, the biggest hurdle is saving up for the down payment. In today’s high-priced real estate markets, 20 percent can amount to a significant chunk of change. But don’t give up. With private mortgage insurance, even if you’ve got a down payment of just 3 percent or less, you can still buy a home.

This new tax break passed by Congress gives you one more reason to consider purchasing or refinancing your home with private mortgage insurance. Steve Smith, chief executive officer of The PMI Group, Inc. and president of the Mortgage Insurance Companies of America, explains: “Making the cost of mortgage insurance tax deductible helps those who need it most-low-to-moderate-income Americans, primarily first-time homebuyers, who are simply unable to save enough for a 20 percent down payment. This deduction will save homebuyers with insured loans hundreds of dollars.”

If you or your family earns $100,000 or less and purchases a home during 2007 with private mortgage insurance, Mortgage Insurance Companies of America, an industry trade group, estimates that this new law may save you $200 to $400 annually. Consult with your own tax advisor concerning the applicability of this new deduction in your particular circumstances under the Internal Revenue Code and the laws of any other taxing jurisdiction.

Families earning up to $109,000 can take advantage of a partial deduction. Your home will probably be the largest investment of your lifetime and every extra bit of money helps.

Good Reasons to Choose

Private Mortgage Insurance

By making private mortgage insurance tax deductible, the new federal law allows more people to become homeowners. “There are lots of loan choices,” explained John Taylor, president and chief executive officer of the National Community Reinvestment Coalition. “Mortgage insurance is straightforward. It is a reliable and prudent way for you to get the loan best suited to your needs. And you can cancel it as soon as your equity builds to 20 percent.”

What’s Right for You?

Over the years, many homebuyers have chosen private mortgage insurance because it’s simple, safe and smart. Now it’s also tax deductible. As you’re considering your home-financing alternatives, consider private mortgage insurance. It may be a product that’s right for you.

By: Stacey Moore

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What is LIBOR and why would we want to use a LIBOR?  How does LIBOR tie into interest only mortgages. I myself until recently had no idea what a LIBOR was or is, or if I wanted to use one. 

            LIBOR is the London Inter Bank Offered Rate.  In a more useful definition, it is the interest rate offered by a specific group of London Banks for U.S. deposits with a stated maturity date.  It compares to the CD rate that your local bank would offer to you.   The important connection to make here is the role the LIBOR plays in interest only mortgages.     As more and more of our mortgage loan market turns to this type of loan product, we will begin to hear more about LIBOR and the many uses and influences in our day to day life.

            The LIBOR has traditionally been a tool for the commercial lender and affected more of the commercial market than the private sector.  As the private market moves into a bigger risk sector than ever before, the LIBOR will loom as a larger figure in the ratio used to determine the interest to risk factor that your local banker, mortgage company, or finance company will assume.  The interest only mortgage option is a bit riskier than the traditional mortgage products, in that it requires little or no down payment, and over the course of the mortgage, the interest is the only initial monies collected.    That means at the end of the term, say 5 years for most, the buyer still owes the same amount of principal.    Risky business, this interest only loan.    Commercial loans, primarily an investment tool, have raditionally been considered the bigger risk, since these loans weren’t providing housing for the borrower. 
But today, the private borrower is investing no more than a commercial borrower; in fact many times, even less.  These new age borrowers aren’t really that committed to these homes, either.    Most are using the interest only option as an investment tool, or a way to buy bigger than traditionally possible, or as a way to fund a professional lifestyle with a starting salary and an expected temporary stay.  Either option means a bigger risk for the lender; LIBOR helps to set risk percentages and provide stable financing options for the lender.    

         The commercial interest only LIBOR mortgages are for commercial borrowers. These borrowers are investing in residential unit complexes.    In other words, they’re borrowing to buy apartment complexes, not individual homes; nonetheless, they too are being offered the interest only options and the interest rate for these commercial interest mortgages is set by the LIBOR rate plus a certain percentage above.    It is for these commercial investors that the interest only loan options should be used.  The borrowers are business people, with business plans, and enough knowledge about the workings of commercial and mortgage loans, to understand a good investment versus an impossible dream.  The commercial mortgage industry is a huge market, and since most of the monies borrowed exceed the $100,000.00 limit, LIBOR rates are used for determining the commercial loan rates.  I still am not an advocate of the interest only mortgages; but for some situations they are the best option.  In a business setting, when many factors have been thoroughly discussed and the interest only option has proven itself to be the best choice, I think it should be used

So, as you begin your trek into the mortgage market, be prepared to hear more and more about the interest only loan options, and more and more about the role LIBOR plays in this expanding market.

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