refi

Private Mortgage Insurance (PMI) and Refinancing

Rising home prices has helped many homeowners get richer on paper...they have also prompted a big influx of questions about private mortgage insurance (PMI) and refinancing, so we figured it was time to bring on an expert.

Nicole Hamilton, a tech executive-turned-mortgage and homeownership expert, founded Tactile Finance, the first digital tools that let people visualize their homeownership outcomes over time, putting consumers on a level playing field with the professionals who serve them.

Nicole is also the author of the book Avoid the Money Pit, Turn Your Home into a Financial Powerhouse, and the founder of Homeownering.com, a company that provides unbiased, independent information for homeowners to get the best financial outcome possible.

We touched on a variety of topics and questions facing the average consumer as they try to navigate the murky waters of homeownership:

  • What if I don’t have 20% for a downpayment?
  • What is PMI?
  • How do I know if I need PMI?
  • Should PMI be a dealbreaker?
  • Will PMI eventually go away?
  • Will PMI go away on its own or is it my responsibility?
  • Is refinancing always a good idea?
  • Pros and cons of an adjustable rate mortgage (ARM)
  • Should I prepay my mortgage?

All those topics and more! And based on what we’ve been seeing in the inbox, I think we did a pretty good job covering all your burning questions!

So when you’re checking out those open houses this summer, or considering a refi before rates go even higher, playback this episode and you’ll be well armed with loads of information.

“Better Off” is sponsored by Betterment.

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Mortgage Market: What you Need to Know to Close a Loan in 2015

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Fears over a global slowdown may have stock investors wishing for the merry go-round instead of the roller coaster, but bond investors have been thrilled. In fact, the recent unrest has meant that investors are pouring money into the US government bond market, which drives prices higher and yields lower. As of this writing, the yield on the 10-year treasury has fallen to 1.85 percent, a far cry from the 3 percent seen just over a year ago. As a result of the bond market rally, the average contract interest rate for 30-year fixed-rate mortgages for conforming loans ($417,000 or less) has dropped to 3.8 percent, the lowest level since May 2013, according to the Mortgage Banker’s Association. A jumbo loan will cost slightly more—3.86 percent and the average rate for a 15-year loan has decreased to 3.1 percent.

Additionally, there is new pricing on FHA loans, which could bring more first time homebuyers into the market this year. With an FHA loan, borrowers need a 3.5 percent down payment and the agency is more flexible when it comes to underwriting, especially for those with credit scores all the way down to 620 and for those carrying student loan debt. This year, FHA loans are cheaper, because the government reduced premiums for FHA mortgage insurance by 0.5 percent – its now 0.85 percent, down from 1.35 percent of a loan's value. The move is expected to save a typical first-time homebuyer about $900 in her annual mortgage payments.

With all of this news, I thought it was time to check in with Mortgage Mike (aka Mike Raimi of PMAC Lending Services) for an update on the 2015 mortgage market.

What do you need to know about attaining a mortgage now? “The process continues to improve, but it is still labor intensive. Borrowers need patience and perseverance” according to Mike. Mortgages for new home purchases can take about three weeks to close, while refinancing can take longer – “anywhere from 30 to 45 days.”

If you are looking for a 30-year conventional mortgage with 20 percent down, the best rates are available for those with credit scores above 740. For every 20-point drop in score, the mortgage rate jumps by a quarter of a percent. If your credit score is below 620, it’s tough to get a loan closed. (Credit scores do not have nearly as much impact on loans of 15 years and shorter.)

If you are preparing for the mortgage process, here’s what you will need:

  • W-2 (2 years)
  • Tax Returns (2 years)
  • Pay Stubs (2 months)
  • Bank statements – all pages (2 months): You may also need to provide the lender with an explanation for any large deposits that have been made into bank accounts. This has more to do with beefed up anti-money laundering efforts than the mortgage process itself.
  • 6 months of mortgage payments in cash reserves (sometimes less, but this is a good rule of thumb)
  • Investment accounts: If bank accounts do not show adequate assets, lenders may ask for investment account statements.
  • Donor letter: If a family member or friend is helping you with your down payment or providing cash for the re-fi, he or she may be required to provide a letter and may also have to present his or her account statements.
  • Self-employed applicants: Must have 2 years of proof of self-employment and 2 years of tax returns. Gone are the days when self-employed borrowers can “add-back” tax preference items. While you may have used the tax code to your advantage, the bank will not cut you any slack – the numbers on the return are set in stone.