Private Mortgage Insurance

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Make the most of your home investment Ask Our Broker

I often see ads by lenders claiming to cut my payments in half. Too good to be true? Q: I have a 5.5-percent, fixed-rate mortgage. However, I keep seeing ads from lenders who say they can cut my payments in half. Should I refinance to get the lower cost?

A: No.The ads say they will cut your “payments” in half, not your loan cost or your interest rate. In other words, you will pay less than you should for a teaser period, anywhere from one month to several years. However, the interest you do not pay will be added to the loan balance, thereby increasing your debt.When the teaser period ends you will have a bigger debt plus less time remaining to pay off the loan.The result will be vastly higher payments than you now have. If you have a 5.5-percent, fixed-rate loan, you have an asset – a hedge against higher rates.This is a loan to keep – at least until financing with a lower fixed-rate is available.

Q: I purchased my home in 2003. It was new construction and was listed as 1,732 square feet on the multiple listing service. Last week I discovered that the heated/cooled space in my home is actually 1,312 square feet, with my garage being 420 square feet. I have been under the impression that when advertising a home’s square footage, it usually shows the heated/cooled living area and not the gross size of the house. I paid $76.73 per square foot to include the garage for a total of $132,900 for my house. Is this correct? Or should I have paid less considering the heated/cooled space? If so, do I have any recourse at this point?

A: Four years have passed since you bought, making it difficult to complain. More importantly, there’s no standard definition of square footage. For instance,American National Standards Institute protocol Z765-2003 shows how to measure residential square footage; however, this approach is voluntary. This may seem terribly inexact and unscientific, but to me a better way to value homes is to see them as a package that includes price, features, design, condition, location and space.You can then compare one property with another and not worry about specific costs per square foot. Q: I have a vacant lot in a rural area. The property See ASK OUR BROKER, Page 2

Plan, plan, plan: Knowing what you really want to take with you – and what you can toss in the heap – is the start of a hassle-free move.

All’s Well That Moves Well Don’t let a bad move ruin the first day in a new home. Here’s a foolproof plan for a smooth transition BY BARBARA BALLINGER CTW Features

Along with death and divorce, moving is considered one of life’s biggest stressors. It requires countless decisions sparks potential problems and involves emotional adieus. Moreover, it’s expensive.The cost goes up with the more stuff you move and the farther away you go, says Barry J. Izsak, a professional organizer with Arranging It All,Austin,Texas, and author of “Organize Your Garage in No Time” (Que, 2005). For instance,Anne Carroll, vice president of business development at Moving.com, says

moving the contents of a three-bedroom house – 10,000 pounds – from New York to Florida, with movers packing at the house but homeowners unpacking, might run between $9,000 and $11,000. After spending time to get your house in shape and get an acceptable offer, don’t let a haphazard move complicate your new life. Plan in advance:

DECIDE WHAT TO GET RID OF, KEEP OR STORE Go through your home room by room. Make piles of what you want to discard, give to family or friends, donate to charity, sell or put on consignment.To do so efficiently, it

Do You Have 80/20 Vision? BY CHARLES SCUTT CTW Features

OPHTHALMOLOGISTS MAY consider 20/20 vision to be ideal, but when it comes to the pictureperfect loan-to-value ratio, 80/20

is the number to set your sights on if you want to avoid paying for private mortgage insurance. PMI is the coverage that a mortgage lender may require when a borrower puts less than 20 percent down to purchase a

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helps to know where you’re headed. Study your future floor plan and determine how much room you have.“Be ruthless when sorting and packing. Don’t move anything you don’t want into your new house,” says Lindsey Jesch, who recently survived her first post-college move. Izsak concurs and says it’s important not to store stuff that you pay a monthly fee for in the hope that you or loved ones may want it, what he terms the “someday syndrome.” Get rid of it unless it’s beautiful, useful or you love it and it has great sentimental value, he

See MOVING Page 2

Here’s all you need to see clearly on private mortgage insurance

home, says Kevin Hardin, CEO of the IMI Group, an international mortgage lender in Phoenix. PMI is required because it “reduces the lender’s risk in the event the borrower defaults on the loan and the lender incurs a

loss,” says Myron Headen, a vice president at Bryn Mawr Trust Mortgage Co., Bryn Mawr, Pa. The amount one can expect to pay each month in PMI often

See VISION Page 2

MOVING underline head here CONTINUED FROM PAGE 1

Shacka, assistant vice president of operations at Two Men and a Truck in Lansing, Mich., recommends checking the Web site www.protectyourmove.gov.

GET THREE TO FOUR BIDS

says.

FIND TOP-NOTCH MOVERS Finding a qualified mover is much like picking a good doctor, lawyer or accountant.Ask friends and family for recommendations. Check with sources like the American Moving and Storage Association for tips, planning guides and quotes.Ask real estate experts for companies that clients have hired.

KNOW WHAT TO ASK Are they licensed? How much do they charge to pack and are supplies included or extra? Are they experienced in moving specialty items such as antiques, pianos, artwork? Do they offer discounts during slower periods, such as winter? Do fuel-cost changes alter prices? Also, check complaints with the Better Business Bureau and any state moving organizations. Randy

VISION underline head here CONTINUED FROM PAGE 1 is difficult to generalize “because it depends on many different factors, including the amount of the down payment, the amount of the loan, and the specific terms and condition of your mortgage,” says John Turner, president, DebtHelp.com, Columbus, Ohio.“To get some idea, however, you can expect to pay about a half- to 1 percent of the loan amount, not including the amount of the down payment, in PMI.” For example, Headen says that a $100,000 home purchased with a 20-percent down payment and an $80,000 30-year, fixed-rate loan at 6.625 percent interest would equate to a monthly principal and interest payment of $512.25.The same home purchased with only a 10percent down payment would result in a monthly principal and interest payment of $615.28, which would include a PMI premium of $39. Typically, PMI premiums

It’s always better to get an onsite written estimate, says Ram Katalan, founder and president of NorthStar Moving Corp., Los Angeles. Don’t pay in full until you’ve moved and are satisfied, though you may have to put down a deposit for an out-ofstate move, Katalan says. Be sure your mover provides you with an inventory and be sure every box is labeled with contents, as well as the room where it will go in your new home.“This saves time and effort when unpacking,” says Laurie J. Bloom, author of The Homebuyers’ Guide. For more peace of mind and to cope with potential complaints, take photos of belongings before you move, says Lynn North of Alain Pinel Realtors in the San Francisco Bay area. Finally, watch while boxes are loaded on a truck, so you know all gets included, says Sandy Ernst, with The Warren

range between $50 and $100 a month on a median-priced home, says Jeff Lubar, director of communications for the Mortgage Insurance Companies of America,Washington, D.C. “A borrower has two options to pay PMI,” Hardin says.“They can pay a single premium up front or pay a monthly amount that is determined by their loan type and their credit.” While PMI does make the monthly payment slightly more expensive, it is often unfairly criticized as a pricey, excessive stipulation by greedy lenders, say the experts. “PMI permits first-time buyers to get into a home much sooner and with much less money out of pocket,” says Lubar.“Indeed, amidst the current downturn in real estate values and home sales, a loan with private mortgage insurance is the smart choice for many home buyers because it is the safe, affordable and predictable way to buy a home with a low down payment.” “It often gets a bad rap,” adds Hardin.“Without PMI, first-time homebuyers would have to turn to higher-rate, non-prime loans

Group, an insurance company in Chesterfield, Mo.

THINK ABOUT MOVING IT YOURSELF Some prefer to rent a truck, pack everything and move themselves. Before you do, weigh the costs and time, as a professional may do the job more efficiently, says Izsak.Advance preparation helps, says Keith R. Pillow, a selfmover who lives in Camarillo, Calif.Another tip he offers: Getting free boxes by visiting local stores that have unloaded their stock.

CHECK YOUR INSURANCE Ask your insurance agent whether your homeowner’s policy covers your possessions during a move, and line up coverage in advance for your new home. If you’re temporarily moving to a rental, get a renter’s policy that covers your property – everything from electronics to clothing to art, says Ernst.

furnishings, Jesch says.As you unpack, keep a running list of anything broken to make a claim to the moving company or your insurance carrier.

BE PATIENT

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is paid for, so do I need insurance?

Eventually, your new house will feel like home but probably not right away, says Leslie Levine, author of “Will This Place Ever Feel Like Home? How long does it take?” (Real Estate Education, 1998).“That’s the first question everybody asks me,” she says. “There’s no timetable. It may be once you have a good friend or serve your first meal to friends.”

A:Yes.We usually think of homeowner’s insurance as covering fire, theft and liability risks, and as something required by mortgage lenders. In fact, you want insurance – whether there’s a mortgage or not. In the case of a vacant lot, you want liability coverage since there is nothing to steal or break into. Liability coverage for vacant lots is available from insurance brokers and typically is inexpensive because coverage is limited.

LAST-MINUTE TO-DO’S

a house. She has great credit and a good job that she’s been at for seven years. His credit is less than perfect. Should she try and buy a house in her name only, or try with her husband with less than perfect credit?

Call your service providers – cable, gas, electric, phone company, post office – ahead of time to disconnect or move the service, and arrange with a locksmith to change locks at your new home, prior to moving.

© CTW Features

UNPACK SLOWLY Set up the kitchen and make the beds the day you move in, but you can slowly unpack other

for home purchasing, and we’ve all seen the disastrous effects of those most recently.” What’s more, it’s important to realize that PMI can be canceled once the principal is reduced to 80 percent of the loan-to-value ratio or when the property reaches a loan-to-value ratio that meets the lender’s requirements for removal (often around 78 percent). In fact, nine out of 10 borrowers discontinue their PMI within 60 months, Lubar adds. Plus, just like mortgage interest, PMI now is tax deductible. Homeowners earning less than $110,000 in adjusted gross income can deduct, for the 2007 tax year, some or all of the PMI premium payments – but only on mortgages closed in 2007. PMI can be avoided right from the start, however, with some careful strategizing. “One option is to take out a ‘piggy-back’ loan, which is actually two separate mortgages,” Turner says.“For example, if you make a 5 percent down payment, you would get one mortgage for 80 percent and a second for 15 percent, both of which are small enough not to require PMI.”

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In the past,“the blended interest rate between the first and second mortgage would end up resulting in a combined payment that might be slightly higher than a normal high loan-to-value first mortgage plus PMI,” says Hardin.“But with the tax deductibility of the mortgages, this would result in a net benefit to the borrower.” “It may also be possible to obtain a mortgage that is selfinsured,” says Turner,“but the interest rate on it will be higher than it otherwise would be.” Above all else, says Headen,“a borrower should never stretch his or her finances to the limits to purchase a home.They should always try to live below their means so that they can comfortably afford to make their mortgage payments and have funds available for savings and to pay all their other living expenses.” The bottom line, Hardin says, “is that if a borrower is properly qualified by the originator of the mortgage, the borrower ends up buying the appropriate house for the appropriate payment.”

© CTW Features

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Q: My daughter and her new husband want to buy

A: The first step for both your daughter and her husband is to go to AnnualCreditReport.com.This is the Web site where – under federal rules – consumers can order one free credit report every 12 months from each of the three major credit-reporting agencies – a total of three free reports per year. The reason to check credit reports is to see if any items are out-of-date or factually incorrect. Such errors and inaccuracies can lower credit scores, so it’s important to get them fixed. If you find a problem, contact the agency immediately. If the credit reports seem accurate, then begin to speak with lenders. Let them run a credit check for your daughter and her husband (they use merged reports from the three major agencies) and then have them show how your daughter and her husband can borrow money at the lowest cost individually and together. Q: Can a real estate broker represent both a buyer and a seller? A: In most jurisdictions, yes.This is typically done by having the broker act as a disclosed dual agent, an arrangement sometimes also called “designated agency.” The existence of dual agency must be known and approved in advance and in writing by both buyer and seller. By having agreements in writing, the broker is protected against possible claims of undisclosed dual agency, a violation of real estate regulations. As an alternative, consider a buyer brokerage agreement, if you are a purchaser. For specifics, speak with your broker. © CTW Features Need real estate advice? Peter G. Miller, author of “The Common-Sense Mortgage,” would love to hear from you. Send your questions to [email protected]. Due to the volume received, not all letters may be answered.