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Should I Get a Loan with Mortgage Insurance?

by Karen Picarello

            When you buy a home, there is typically an amount of money paid as a “down payment.” This amount is part of the purchase price of the home that you pay immediately out-of-pocket instead of increasing the amount of a loan. You can pay as much as you want in a down payment including up to the purchase price of the home, but the typical amount paid is 20 percent. If you pay more, you won’t have to get as large of a loan, and you won’t spend as much in interest over the life of the loan.

            In many cases, private lenders will require a down payment in order for them to approve a loan. The bigger the down payment, the less risk to the bank because there is less money they’d have to recover if you defaulted on the loan. Those who foreclose on their loans cause lenders to try to recoup the loan amounts through foreclosure sales, and these homes often sell significantly under market value. Therefore, a higher down payment equals less risk to the bank.

            A first-time home buyer may not have the funds available to put down a significant down payment. In this case, a bank or lender may reduce their risk by requiring mortgage insurance. Mortgage insurance covers the lender for a portion of the principal balance on a loan in case the borrower cannot make payments.

FHA Loans

Federal Housing Administration (FHA) loans are a typical type of loan for first-time home buyers, and they may only make a person pay a down payment of 3.5%. They will also accept lower credit ratings. The Mortgage Insurance Premium (MIP) is a requirement for this loan type, it will be 1.75% of the loan amount. You pay this monthly for the life of the loan or up to 11 years if you put down a larger down payment.

Conventional Loans

Private mortgage insurance may be available for conventional loans when a person only has to put down 3% for a down payment. This can be cancelled after 20% of the home value has built up in equity.

USDA Loans

The U.S. Department of Agriculture offers loans with no down payment, but you have to pay an upfront fee of 1% of the loan amount and an annual fee of 0.35% of the balance of the loan. Similar to all other mortgage insurances, it reduces the risk to the lender.

Should You Get a Loan with Mortgage Insurance?

Sure. If it is the only way you are going to get a loan. The better option is to wait for better financial circumstances or save money for a down payment, but some realities don’t produce this as an option. It does not hurt your credit to have mortgage insurance, but it does hurt your pocketbook. Discuss your options with your lender and a financial adviser, and make sure you make the responsible decision.

Economic Worries May be Good for the Housing Market

by Karen Picarello

The economy is globally unstable, and with a lagging housing market, the Federal Reserve has decreased mortgage rates to the lowest amount in a year. New numbers are expected to be announced Wednesday, and experts are predicting that the Fed will not be raising rates any time soon. We won’t know until Wednesday, but it seems that economic worries are good for the housing market.

Wavering Stock Market = Incentives

The Federal Deserve increases and lowers interest rates in an attempt to keep all markets stable. Right now, the stock market is unstable due to global economic unrest. The trade war with China across one ocean and Brexit failures across the other ocean don’t have anyone feeling secure in volatile investments. They are seeking out secure investments like long-term bonds.

When the consumer is unsure like this, the Fed steps in and lowers interest rates to incentivize people to buy because they won’t lose as much money in interest. Last week, the rate went as low as 4.31 percent.

Insignificant Job Growth but Increased Wages

One of the other things on many economist minds is when Millennials are going to start buying homes. It’s not like there aren’t any who own homes currently, but they aren’t the major consumer demographic. They should be. Instead, Millennials are living with friends or family instead of taking on more debt. This is caused both by high rates of student loan but also by the inability to save enough for a healthy down payment.

Although job growth has been slower than expected, wages have gone up. This gives Millennials more disposable income and savings potential. It could be enough to make them feel confident in buying a home as a sound financial decision. They’ve seen the debt-ridden generations of the past and are reluctant to travel down the same path.

It’s a Guessing Game

Nobody knows what will happen to interest rates, but it makes sense that rates would stay the same or lessen. The economy is simply not safe enough to get people to buy houses unless they can’t resist low rates. Sales fell 1.2 percent from December to January, but there was an increase in new construction. As long as there are a no economic catastrophes, mortgage rates will probably only remain low for a short while. Hopefully, it will be enough to stimulate the economy. Until then, it could really help the housing market.

From Renting to Buying: The Home Plus Program

by Karen Picarello

If you are currently renting, the transition to buying a home can be financially impossible with closing costs and a down payment as a typical requirement. If you are a first-time home buyer with no military background, a federal FHA loan may be an appealing option. However, if you are buying in Arizona, the state has a Home Plus program that can help get a person over the financial hurdles of the home buying process.

Renting a home is a good short-term option for many people who are building credit or saving for a down payment, but it is not a good investment in the long term. That's why those who think finances are getting in the way of home ownership should look into assistance from federal and state programs. 

What is The Home Plus Program?

The Home Plus program is a state program created and given by the Arizona Industrial Development Authority, and it gives new home buyers a 30-year fixed loan for a home along with down payment assistance. The down payment assistance is given as a type of second mortgage, but don’t let that stress you. The loan is a three-year, no payment, no interest mortgage that is forgiven over the term of the lien. This loan can be used for a down payment or for closing costs.

What are the requirements?

There are some requirements for the Home Plus Program, and a minimum credit score is one of them. A range of down payment assistance percentages are available for home buyers with a minimum credit score of 640 to 680. If your credit is below this, you cannot qualify. However, these credit scores are not considered good, and you may be able to get your credit up to “average” quicker than you think.

Other requirements include a maximum income of $99,170, and the price of the home cannot be more than $396,680. A homebuyer education course must be completed by one borrower before closing, and the home must be a primary residence.

Basically, if you don’t own a home, and your financial situation seems to be prohibiting home ownership because of closing costs and a down payment, the Home Plus program may be the solution.

Let’s face it. Your rent payments are simply being thrown away into the abyss of monthly bills and payments made in order to have basic survival needs met like shelter and electricity. That money could be invested into property ownership, and financially, it is not impossible. Ask your mortgage broker or lender about the Home Plus program. It could be the help you need to get the homeownership process up and going.

Underwater on your Home?

by Karen Picarello


One of the scariest things for a homeowner to face is the possibility of being underwater on your home loan. This means you are on a situation where you owe more for the house than the house is currently worth. During the most recent housing crisis, this unfortunate situation became the reality for a large number of Americans. Thankfully, as the market has improved since then, the number of people in this situation has declined. However, there are still individuals who are struggling after finding themselves in this position. If this is you, here are a few options you have.

  1. The most obvious action to take is to stay, keep paying, and hope that the value of the house improves. If you can make it through the period where the house is worth less than the loan, you can avoid potential credit consequences, and also end  up not losing money on the home when you do sell it. There can be negatives here though. If the property does not go up in value, you may end up in a financially untenable position for an even longer period of time.
  2. Refinance. While classically it can be difficult to refinance if you have negative equity, there are some options. The federal government implemented HARP, or the Home Affordable Refinance Program during the recession, and there are still some people who qualify, despite the fact that it was initially intended to end fairly quickly. Depending on when you got your loan, refinancing may not be completely out of the question.
  3. The third option is a short sale. This refers to selling the house for less than you owe. While this can be an unpleasant reality to face, this can allow the homeowner to drastically reduce their debt, and move forward into a situation which is affordable for them. If you can move into a place where you will be more financially stable, and you need to solve your debt issues quickly, this can be your best option. Additionally, this might be the only thing which saves you from bankruptcy or foreclosure.
  4. Finally, you may be forced into one of these options. Bankruptcy or foreclosure are sometimes incredibly difficult things to get through, but are sometimes the only option. If you are at the point where this might happen, consulting legal help is often the best choice. It isn’t pleasant, but it can be the thing which gets you away from an untenable situation.

Displaying blog entries 1-4 of 4

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TeamPicarello
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Scottsdale AZ 85255
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