Author: loantucson

What Is Home Loan Insurance?

TLDR: Home loan insurance (or mortgage insurance) is protection for your lender. In the event that you fail to pay one of your mortgage payments. Mortgage insurance does not benefit you. But, you pay for it based on the amount of money you put on your loan as a down payment. You can find out an estimate of how much you’ll pay for home loan insurance. All you need to do is look at your credit history and other factors.

When most people think about insurance, it’s to protect a piece of property or valuable item that they own. There is another form of insurance available which you may not know about. That insurance is mortgage insurance. Mortgage insurance does not provide any direct protection for you or your property. Mortgage insurance protects the lender from homeowners who may default on their payments.

While home loan insurance doesn’t benefit you, you will likely be the one who pays for it. We are going to help you gain a better understanding of exactly what mortgage insurance is. We’re going to give you a detailed explanation of exactly what it is and how it works.

Continue reading below so that you can learn more about what mortgage insurance is and how it impacts you.

Exactly what is home loan insurance?

Home loan insurance is also commonly referred to as mortgage insurance. Home loan insurance pays your lender a percentage of the principal amount in the case that you fail to make one of your payments on time. There are two main types of mortgage insurance that exists and the type of home loan that you take out will determine the category of insurance that your lender takes out against your mortgage terms.

Here are the two main types of home loan insurance:

  • MIP- MIP stands for the portage insurance premium and this is the type of mortgage insurance taken out on homes that use FHA government-backed loans. FHA loans require an upfront mortgage premium to be taken out once the loan is approved in addition to an annual premium.
  • PMI- for private mortgages, PMI insurance is usually required if your down payment is less than 20%. This insurance type if calculated into your monthly mortgage payments

These are the two main types of mortgage insurance that you’ll encounter when applying for a home loan. If you’re unsure about the type of mortgage insurance that you’re paying for, take the time to look over the details of your mortgage terms to find out. Neither of these mortgage insurances provides more benefits than the other, they are designed to benefit your lender so the only “benefit” you can expect is paying less than other homeowners.

Factors such as your credit score, your mortgage loan amount, and more will factor into how much you pay for mortgage insurance.

How Home Loan Insurance Benefits You and the Lender

As stated before, home loan insurance does not provide any direct benefits to you as a homeowner. Instead, the mortgage insurance directly protects your lender who will be responsible for paying the principal of your loan in the event that you fail to pay. In a sense, mortgage insurance cushions the blow that your lender takes in the event of a failure to pay so they can save money and protect their collateral.

The more of a risk you are for the lender, the more you’ll pay for mortgage insurance. That’s why you need to take the time and look over all of the loan options available to you before signing a particular agreement.

Here are some of the key factors that will determine how much you pay for home loan insurance:

  • Credit score
  • Whether you have an adjustable or fixed interest rate
  • The premium plan that you choose
  • Risk factors
  • Loan-to-value ratio or your down payment
  • Whether you have a refundable premium or not
  • Loan term or length
  • Percent of mortgage insurance coverage required by your lender

You can use all of these variables to decide on how much you will pay for insurance on an individual basis. Once you take all of these factors into consideration prior to applying for a home loan, you can minimize the amount of money you pay out of pocket each month for coverage.

People Also Ask

What is the benefit of mortgage insurance?

Mortgage insurance directly benefits and protects the lender of the mortgage from having to pay the full principal amount when a buyer fails to pay

How long do you pay mortgage insurance?

The amount of time that you pay for mortgage insurance depends on how much money you put down on the loan initially

How much is PMI monthly?

PMI is calculated with a 0.5%-1% rate to determine the monthly amount, which equals to about $90 a month on a $100,000 mortgage.
See more information about “What is home loan insurance?“.
Additionally, you may want to see our “mortgage checklist

 

Do I Qualify for a Home Loan?

Do I Qualify for a Home Loan?. You can check if you qualify for a home loan by looking at your past credit history and current credit score.TLDR: Preapproval and prequalification for a home loan are two separate things, prequalification simply means that lenders are assessing whether or not you should waste your time applying. Preapproval of a home loan means that your loan terms have already been secured and locked in. You can check if you qualify for a home loan by looking at your past credit history and current credit score.

Whether you’re a first-time homebuyer or someone looking to switch from your existing home to a new one, qualifying is the first step that you’ll need to tackle. Every year the requirements to get approved for a home loan change based on economic conditions, tax rates, and more. Before wasting your time applying for home loans that you’ll never get approved for because you don’t meet the qualifications, research, and learn about home mortgage requirements so you’re better equipped to handle the process.

Each mortgage lender uses different rules and factors to determine your worthiness to take out a loan. To help you better answer the question of “How much do I qualify for a home loan?” we’re going to provide you with a detailed guide below.

Make sure you read all of the sections in this article so that you will know exactly what factors lenders are looking at when you submit your home loan application.

How much do I qualify for?

Before you get to the process of applying for a home loan, you will likely go through a process known as prequalification. During the prequalification process, you will be asked to fill out a simple financial statement and provide basic details related to your income such as your salary and credit rating. It’s important that you don’t get the prequalification process confused with preapproval as they are totally separate.

Preapproval means that a particular loan amount is already secured so you as the homeowner knows exactly what you’re getting into. Preapproval only happens when a lender runs a verified credit check on you to determine whether or not you can withstand the responsibility of your new mortgage.

When looking for homes, you’ll quickly realize that credit is one of the most important factors that will determine whether or not you get approved. Take a look below to see some of the other really important factors that determine how much you can qualify for on a mortgage loan.

Home Loan Determination Criteria:

  • Current state and credit usage of any open credit card accounts that you may have
  • Marks on your credit such as late payments, collections, or bankruptcies will all impact your ability to get approved for a home loan
  • Your credit score
  • Any current monthly payments that you’re making will be compared against the total amount you would be paying with the home loan you’re applying for
  • These are the key factors that will be used by lenders to decide on whether or not you should be approved for a home loan. Your debt to income ratio and your current monthly housing costs are two things that you need to pay attention to when trying to secure a home loan.

Approval or Denial of a home loan application

Once your home loan application has been submitted, the lender will take their time to review all aspects of your income, credit, and payment history to decide on whether or not you deserve to be approved. In the event that you are approved for your home loan, the next steps will involve you filling out obligatory paperwork as it relates to the terms of your new loan.

You should ask your realtor to assist you with signing your approved home loan papers to ensure that the terms are exactly what as agreed to prior. If your home loan application happens to be denied, you shouldn’t worry because not all hope is lost.

There are several reasons why your home loan application could be denied. Most lenders will let you know what factors played a key role in the refusal of your loan application. Commonly, credit and payment history are the two biggest factors which impact lenders loan decision. As long as you work to resolve the problem by paying things on time and reducing your total monthly expenses, you should be able to re-apply and get approved in no time.

People Also Ask

How much do you have to make to qualify for a home loan?

You have to make at least 70% more than what your mortgage will be in order to be looked at as favorable to most lenders

When and where to apply for a mortgage?

Most lenders will allow you to meet them to request pre-qualifying documents at any time

How hard is it to get preapproved for a home loan?

The difficulty of getting preapproved for a home loan will all depend on your credit history and payment history as a whole. Some people can get preapproved quite easily while others can’t

Conclusion

All of these tips can be used to assist you in finding the right lender who is willing to sit down and work with you so that you can secure that home loan you’ve always wanted.

Here is the link to our mortgage calculators

Culling is Caring

buffalo roaming

“I’m not a very productive person, but I recently finished the internet. When you do, a picture of Bill Gates appears, and you get to enter your initials.” Traveling between appointments and listening to the radio recently, I heard comedian David O’Doherty share this little tidbit that made me laugh. As he went on to observe how ironic it was that a bald man was making fun of his hair, I thought more about his internet comment and concluded that this should be the subject of this week’s edition of our award-winning publication. If you’re scratching your head and wondering where I’m going with this, then you’re probably new to our weekly missive. For those of you who are veterans, you’re probably just saying, “Get on with it! I have a flan in the oven and don’t have time for this twaddle!” To the newbies, welcome! To the veterans, please don’t invite me over for dessert!

With inventories reaching historic lows in the real estate market and interest rates starting to inch their way up over time, we’re seeing one of two things: a mass exodus out of the industry or a doubling down by both real estate agents and loan originators. For those of you who are currently wading into the buying pool or are poised on the very edge with your toes testing the waters, this is actually a good thing. While the lack of inventory obviously reduces your choices of homes, this phenomenon that is causing so many to bail out is culling the herd and leaving you with agents and originators who are serious, experienced, and savvy. What else does this mean to you, the consumer?

For example, “knowing” your credit score can be quite deceiving. Just because one of the many services being advertised on TV tells you that you have a credit score that’s 800+, that doesn’t mean you’re going to qualify for the loan you want. Why? The reason could be that you’re only six months into a new job in a new industry, so most underwriters are going to require additional factors that will make your loan go in a different direction. In other words, every situation is treated on its own merits, and credit score is only ONE factor in a sometimes very complex equation. What you should really do is meet with a mortgage company – even if you’re 12 months away from when you THINK you’re ready to buy a house – and have them pull your credit REPORT. They’ll then be able to help you craft a plan that will get you a loan approval BEFORE you even start looking at homes. When you have that approval, you’ll be unstoppable as you go out to look at houses and there are seven other parties who want THAT house. This is one of those moments when it would be appropriate to stick your tongue out at others.

So, while it may seem intriguing to spend your time “finishing the internet” so you can get to that elusive Bill Gates photo and the chance to enter your initials, your time will be better spent getting ready to buy a home – if you do your loan with me, I promise not to send you my photo.

Truth is Loud, Silence is Deafening

Once, many years ago, a very wise person shared with me a small but very powerful insight that has helped me in practically every aspect of my life – it’s easy to remember, too: Seek first to understand, then to be understood. Whenever I rush headlong into any situation with the goal to be understood first, I hit resistance or find my argument to have more holes in it than I had thought possible. Just the opposite: whenever I pause to ask questions and digest the answers, I find it so much easier to reach my goal(s) because I’ve either found a way to build a bridge without the need to take a leap or that my original goal needed to be adjusted because it had holes in it. There’s a great line from the novel (and movie) To Kill a Mockingbird that sums it up: “You never really understand a person until you consider things from his point of view . . . until you climb in his skin and walk around in it.” (I chose not to open this week’s article with that line for fear you might have thought I was going in a different direction with a different movie about lambs and how quite they can be.)

Recently, I was meeting with two real estate agents who handle a lot of higher-priced properties, and I wanted to steer the conversation to a topic that I thought was perfect for who I thought was their ideal clientele. Just as I was about to launch into my presentation, I stopped myself and asked this question: What’s the makeup, demographically, of most of your cash buyers? Of course, I KNEW the answer to this question – older folks who were close to retirement or who were already retired and wanted to downsize – but I asked the question because I’m big-hearted and noble that way. Their response, though, absolutely shocked me: Millennials. What?!!! They explained that most of their cash buyers were folks in their early 30s who have been saving for quite some time and have amassed enough capital to purchase a small home without a mortgage. This not only pulled the rug out from under me as to what I wanted to discuss, it went against practically everything I had believed and read about Millennials.

The focus of this week’s article isn’t really Millennials and the unexpected saving/spending habits of some of them (because my gut still tells me that Millennials buying houses with cash isn’t THAT big of a group in the grand scheme); it’s about being open to the unexpected and learning from new revelations. Because I asked the question and waited to digest the answer, I was able to make a completely different pitch on the fly that gave these two agents something that they could use to market AND take to their existing cash buyers that they’ll find very attractive (and should increase more selling/buying options for those agents). This exchange was a two-way street: I now possess a piece of information that I can add to my repertoire and trot out with other agents when the moment is right. Not bad for asking just one question, right? When you think you have all the answers, that may be true – because you’ve stopped asking questions. Whether you’re an agent or a buyer/seller of property, not asking questions severely limits your options.

I’ll close with this Chinese proverb: “He who asks a question is a fool for five minutes; he who does not ask a question remains a fool forever.” Depending on your personality, five minutes might FEEL like forever, but it beats the alternative, right? So ask the question(s) NOW, and get it over with.

Bubbles: History or Hysteria?

A bubble coming out of a bubbler.

 

Whether you’re a flipper of TV channels or a die-hard fan of one particular news source (television, radio, internet, or some weird thing called a newspaper), you can’t help but come across a story or twelve on a semi-regular basis about the housing market and whether we’re on a “bubble”.  There are those pundits who claim everything points toward the market being on a bubble and how close we are to it bursting, and there’s an equal number who blow off the idea like that’s the most ridiculous thing they’ve ever heard.  What you don’t hear, though, is actual data supporting their arguments concerning a “bubble” in the housing market because it makes for a better story to watch people wring their hands and make emotional pleas and/or flash artificially whitened and perfectly aligned teeth at the camera and say these end-of-days kooks have it all wrong.  Well, buckle up, kids!  THIS is about to become your favorite news source (at least for the next two or three minutes) because here’s some data to let you decide what’s going on in the housing market – taken from the Housing Finance Policy Center’s housing affordability index:

  • In 2006, in the run-up to the ugliness of 2008-09, there was a $22,000 shortfall between what the median household income could afford and the median sales price of a home.  In some parts of the country, that shortfall was an even greater chasm between what could be afforded and the price at which homes were selling.
  • Today, the median household can afford a home that is $70,000 higher than the price of the median house sold.

For the former, it doesn’t take Einstein to figure out that promising to spend money you don’t have at present along with the distinct possibility that you won’t be getting annual raises or increases to your income to make up that shortfall in the near future is a surefire recipe for things going sideways fairly quickly. Using that same set of sub-Einstein analytical skills, it’s not hard to see the makings of the bubble back in the day and why it eventually burst.

From the latter, we can see that income today is staying ahead of the prices – that could change, and there’s no guarantee that it won’t, but it’s pretty safe to say it’s not going to change drastically in the next 5-6 months – so the makings of a bubble, at present, are fairly absent.

I’m not trying to make any specific forecasts or prognostications about the near and/or distant future – I’m just presenting you with the data, and my interpretation of the data, that’s all. It’s up to you decide what to do with it Think of it this way: if your child – we’ll call him Jack – comes running into the living room where you’re holding a small cocktail party and says, “Jimmy was blowing bubbles, and one of them popped right in Cathy’s eye,” do you wring your hands and lose your cool or do you pat Jack on the head and ask him to join his diminutive friends back outside? Well, it might all depend on whether the source of the bubble was soap or chewing gum. Having a little bit of data can make all the difference, right?