Enrich your Financial Knowledge

What is private mortgage insurance?

Generally if you are making the down payment lower than 20 percent of the appraisal value or the sale price then you have to take PMI or private mortgage insurance. PMI will help you to take the mortgage loan with low down payment. And the reason of getting the loan is, you are protecting the lender by taking PMI. If you become defaulter on any loan amount then the lender will make it up from your insured amount.

PMI charges depend on the amount of the down payment. But according to the Mortgage Bankers Association of America it amount to .5 percent of the loan amount. Mortgage insurance premium is now tax deductible and it has been extended to 2010.

Example:
Lets say you have taken a loan of $200000 and you have made the down payment of rs $20000 which is 10% of the loan amount. So the annual mortgage interest will be .5% of the $1, 80,000 which is $900 and your monthly amount will be $75.

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1. Don’t Make a Major Purchase:
You have checked your credit score and you are seeing that your credit score is very good, that’s good news for you as it will help you to get a mortgage loan for your new home. And in this new home a new car will look very attractive. But do not think of purchasing a car before buying the house. Because bank may not grant you the mortgage loan for your house as you are already paying huge monthly installment for the car. So it will affect in your debt income ratio. Increase in your debt to income ratio will decrease the monthly income available for the mortgage payment.
If you purchase the car in cash then also it may cause problem as some banks considers cash reserves when approving mortgage loans. If it is necessary to make a big purchase then you should talk to your loan officer.

2. Don’t Give a Deposit Money Directly to a For Sale By Owner Seller:

The money which you are paying on the basis of faith should go the trust account. But some for sale by owner do not understand that the money is not for spending it before the closing of the house. I have heard many stories that the sellers spend the deposit money before the closing of the house and when the transaction did not take place for the valid reasons the buyers had to fight to get a refund.You should find an attorney or some other neutral party who will hold the deposit money until the closing of the house. And you should make sure that your contract dictates what happens to the deposit money if the transaction doesn’t close.

3. Don’t Change your Jobs unnecessarily:

Lenders generally like to see a consistent job history. They won’t mind if your change your job within the same field but it will be better if your stick to your job until the house is closed.

4. Don’t Let Your Emotions Take Over:

You should keep your head cool at the time of buying the house and after the home inspection. You should be realistic. You should know that no home is perfect mainly older homes.

Some times buyers have to take care of some repairs. If the sellers is not interested to make a small repair then do it yourself and do not kill the deal on a home for such reason which you love so much.

Don’t take decision emotionally. If you think that you can handle the repair financially then stick with the decision. Do not fall in love so much with the house you want to buy.

5. Don’t Forget to Switch Utilities:

This is a very simple thing but you will be very much surprised to know that many people forget to apply for the utility service at their new house. You should call the utility companies as soon as you have the contract paper in your hand. Check out how many days they will take to switch the service and then get back with them when you have a firm closing date.

6. Don’t Ignore Lender Requirements:

You should be careful about the requirements. For example, a certificate of eligibility is required to move forward on a VA loan. These things you must have to handle yourself. Provide the required papers and documents as early as possible when the lender will ask and answer his questions as quickly as possible. These are the things which depend moving into your new home.