When it comes to buying a home, whether it is your first time or your fifth, it is always important to know all the facts. With the large number of mortgage programs available that allow buyers to purchase a home with a down payment below 20%, you can never have Too Much Information (TMI) about Private Mortgage Insurance (PMI).
What is Private Mortgage Insurance (PMI)?
Freddie Mac defines PMI as:
“An insurance policy that protects the lender if you are unable to pay your mortgage. It’s a monthly fee, rolled into your mortgage payment, that is required for all conforming, conventional loans that have down payments less than 20%.
Once you’ve built equity of 20% in your home, you can cancel your PMI and remove that expense from your mortgage payment.”
As the borrower, you pay the monthly premiums for the insurance policy, and the lender is the beneficiary. Freddie Mac goes on to explain that:
“The cost of PMI varies based on your loan-to-value ratio – the amount you owe on your mortgage compared to its value – and credit score, but you can expect to pay between $30 and $70 per month for every $100,000 borrowed.”
According to the National Association of Realtors, the average down payment for all buyers last year was 10%. For first-time buyers, that number dropped to 6%, while repeat buyers put down 14% (no doubt aided by the sale of their home). This just goes to show that for a large number of buyers last year, PMI did not stop them from buying their dream homes.
Here’s an example of the cost of a mortgage on a $200,000 home with a 5% down payment & PMI, compared to a 20% down payment without PMI:
The larger the down payment you can make, the lower your monthly housing cost will be, but Freddie Mac urges you to remember:
“It’s no doubt an added cost, but it’s enabling you to buy now and begin building equity versus waiting 5 to 10 years to build enough savings for a 20% down payment.”
If you have questions about if you should buy now or wait until you’ve saved a larger down payment, meet with a professional in your area who can explain your market’s conditions and help you make the best decision for you and your family.
Just two weeks ago, we posted an article discussing where mortgage interest rates may be heading over the next twelve months. We quoted projections from Fannie Mae, Freddie Mac, the Mortgage Bankers’ Association and the National Association of Realtors. Each predicted that rates would begin to rise slowly and steadily throughout 2016.
However, shaky economic news and a volatile stock market have actually caused rates to drop six out of the last seven weeks, and have remained at 3.65% for the past two weeks.
Rates have again fallen to historic lows yet many experts still expect them to increase in 2016. The only thing we know for sure is that, according to Freddie Mac, current rates are the best they have been since April 2015.
If you are thinking of buying your first home or moving up to your ultimate dream home, now is a great time to get a sensational rate on your mortgage. For more information, please contact The Olear Team today!
You may be wondering if you should wait to enter the housing market. Here are four great reasons to consider buying a home today instead of waiting.
1. Prices Will Continue to Rise
CoreLogic’s latest Home Price Index reports that home prices have appreciated by 6.3% over the last 12 months. The same report predicts that prices will continue to increase at a rate of 5.4% over the next year. The Home Price Expectation Survey polls a distinguished panel of over 100 economists, investment strategists and housing market analysts. Their most recent report projects home values to appreciate by more than 3.2% a year for the next five years.
The bottom in home prices has come and gone. Home values will continue to appreciate for years. Waiting no longer makes sense.
2. Mortgage Interest Rates Are Projected to Increase
Freddie Mac’s Primary Mortgage Market Survey shows that interest rates for a 30-year mortgage have remained below 4%. Most experts predict that they will begin to rise over the next 12 months. The Mortgage Bankers Association, Freddie Mac and the National Association of Realtors are in unison projecting that rates will be up almost three-quarters of a percentage point by this time next year.
An increase in rates will impact your monthly mortgage payment. Your housing expense will be more a year from now if a mortgage is necessary to purchase your next home.
3. Either Way You Are Paying a Mortgage
As a paper from the Joint Center for Housing Studies at Harvard University explains:
“Households must consume housing whether they own or rent. Not even accounting for more favorable tax treatment of owning, homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord plus a rate of return. That’s yet another reason owning often does end up making more financial sense than renting.”
4. It’s Time to Move On with Your Life
The “cost” of a home is determined by two major components: the price of the home and the current mortgage rate. It appears that both are on the rise.
But what if they weren’t? Would you wait?
Look at the actual reason you are buying and decide whether it is worth waiting. Whether you want to have a great place for your children to grow up, you want your family to be safer or you just want to have control over renovations, maybe it is time to buy.
If the right thing for you and your family is to purchase a home this year, buying sooner rather than later could lead to substantial savings.
If you are ready and willing to buy, find out if you are able to. Meet with a local real estate professional who can help you find your dream home. For more information, please contact The Olear Team today!
CoreLogic’s latest Equity Report revealed that 256,000 properties regained equity in the third quarter of 2015. This is great news for the country, as 92% of all mortgaged properties are now in a positive equity situation.
Price Appreciation = Good News For Homeowners
Frank Nothaft, CoreLogic’s chief economist, explains:
“Home price growth continued to lift borrower equity positions and increase the number of borrowers with sufficient equity to participate in the mortgage market. In the last three years, borrowers with at least 20 percent equity have increased by 11 million, a substantial uptick that is driving rapid growth in home equity originations.”
Anand Nallathambi, president and CEO of CoreLogic, believes this is a great sign for the market in 2016 as well, as he had this to say:
“Homeowner equity is the largest source of wealth for many Americans. The rise in home prices, expected to be at least 5% in 2016, will continue to build wealth and confidence across America. As this process continues, it will provide support for the housing market and the broader economy throughout [the] year.”
This is great news for homeowners! But, do they realize that their equity position has changed?
A study by Fannie Mae suggests that many homeowners are not aware that they have regained equity in their home as their investment has increased in value. For example, their study showed that 23% of Americans still believe their home is in a negative equity position when, in actuality, CoreLogic’s report shows that only 8% of homes are in that position (down from 9% in Q2).
The study also revealed that only 37% of Americans believe that they have “significant equity” (greater than 20%), when in actuality, 74% do!
This means that 37% of Americans with a mortgage fail to realize the opportune situation they are in. With a sizeable equity position, many homeowners could easily move into a housing situation that better meets their current needs (moving to a larger home or downsizing).
Fannie Mae spoke out on this issue in their report:
“Homeowners who underestimate their homes’ values not only underestimate their home equity, they also likely underestimate 1) how large a down payment they could make with their home equity, 2) their chances of qualifying for mortgages, and, therefore, 3) their opportunities for selling their current homes and for buying different homes.”
If you are one of the many Americans who are unsure how much equity you have built in your home, don’t let that be the reason you fail to move on to your dream home in 2016! Meet with a local real estate professional today, who can help you evaluate your situation and assist you along the way!
For more information, please contact The Olear Team today!
TransUnion recently released the results of a new study titled “The Bubble, the Burst and Now – What Happened to the Consumer?” The study revealed that 1.5 million homeowners that were negatively impacted by the housing crisis could re-enter the housing market in the next three years.
TransUnion defined “negatively impacted” as…
“…those who were 60+ days past due on a mortgage loan, lost their mortgage through foreclosure, short sale or other non-satisfactory closure, or had a mortgage loan modification between the Bubble and Burst.”
Other interesting findings in the study:
- During the mortgage bubble in 2006, 78 million consumers, or 43% of credit-active consumers in the U.S., had a mortgage
- More than 8% of these consumers were “impacted”
- 5 Million consumers will again be eligible for a mortgage in the next four years
Here are the numbers of consumers who will meet mortgage guidelines over the next four years:
If you are a family that experienced the impact of the last housing crisis, now may be the right time to again buy your own home. For more information, please contact The Olear Team today!