PMI: Back to Basics... or Not by Jeffrey Chalmers

by 05 Dec 2008
Four score and seven years ago?buying a house meant coming up with some serious coin. If you had any shot of buying a house, you had to show the bank that you had a minimum of 20percent down before they would even talk with you. Then, just like the economy, things changed. Lenders, with the approval of the powerful GSE's , Fannie Mae and Freddie Mac, loosened their historically rigid lending guidelines and aimed to boost the national homeownership rate. Was the change good? Absolutely. Although the last several years has seen many consumers benefit from programs such as 85percent, 90percent, 95percent and even 100percent financing, a small percentage who were qualified shouldn't have. The result was a mortgage market that once again changed and subsequently reconfigured their loose lending guidelines to resemble a combination between days of old and current market needs. Today's lenders will no longer entertain 100percent financing options and some aren't even offering 95Percent. But the market hasn't entirely shut off new would-be homeowners. In fact, lenders, as usual, have come up with a way to beat the street. Generally, lenders would require private mortgage insurance (PMI) when a consumer has less than 20percent to put down as a deposit or is looking to borrow more than 80percent of the value of the home . When the lending guideline meets a loan to value (LTV) of more than 80percent, PMI becomes necessary in order to protect the lender and its future investors in the case of foreclosure and potential loss of equity. With PMI, the lender will be protected for the loan balance exceeding the 80%. One common way to bypass PMI was to originate an 80/20 combination which includes an 80percent first mortgage and remaining 20percent second mortgage; or even an 80/15/5. But doing this could result in additional fees and sometimes caused more complexity than doing just a single loan. Recently, lenders came up with what's called single MI where the borrower would have only one mortgage which would save them on any closing costs associated with doing a second (or third) loan. Moreover, there are some lenders who will even consider 90percent without PMI. What does this mean for you as an investor? Get shopping for properties! Although the mortgage market has changed, it's not necessarily for the worst. What are your options? Buy your properties and lease to potential first-time home buyers or keep them for the long haul. Either way, the market is primed for a change and you are just the person to profit. Jeffrey Chalmers is a 20 year veteran of the real estate, finance and title industries. Chalmers? company, Real Solutions LLC, offers consumers a one-stop real estate service at www.ClicknCompare.com and also free dynamic web marketing for sellers and investors. Chalmers can be reached at (800) 434-4127 x901 or at jchalmers@clickncompare.com. One common way to bypass PMI was to originate an 80/20 combination which includes an 80percent first mortgage and remaining 20percent second mortgage; or even an 80/15/5. But doing this could result in additional fees and sometimes caused more complexity than doing just a single loan. Recently, lenders came up with what's called single MI where the borrower would have only one mortgage which would save them on any closing costs associated with doing a second (or third) loan. Moreover, there are some lenders who will even consider 90percent without PMI. What does this mean for you as an investor? Get shopping for properties! Although the mortgage market has changed, it's not necessarily for the worst. What are your options? Buy your properties and lease to potential first-time home buyers or keep them for the long haul. Either way, the market is primed for a change and you are just the person to profit. Jeffrey Chalmers is a 20 year veteran of the real estate, finance and title industries. Chalmers? company, Real Solutions LLC, offers consumers a one-stop real estate service at www.ClicknCompare.com and also free dynamic web marketing for sellers and investors. Chalmers can be reached at (800) 434-4127 x901 or at jchalmers@clickncompare.com.

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