The Lending Coach

Coaching and teaching - many through the mortgage process and others on the field

Removing Mortgage Insurance: A Guide to Financial Freedom

September 19, 2023 / / 0 Comments

Mortgage insurance is a common expense that many homeowners face, especially when they buy a house with a down payment of less than 20% of the purchase price.

Understanding how to remove mortgage insurance can really help in lowering your overall mortgage payment.

Let’s take a look at how to remove this financial hurdle and ultimately save money in the long run.

Understand the Types of Mortgage Insurance

Before diving into the removal process, it’s crucial to comprehend the two main types of mortgage insurance: Private Mortgage Insurance (PMI) for conventional loans and Mortgage Insurance Premium (MIP) for FHA loans.

Both serve the same purpose: to protect the lender in case the borrower defaults on the loan. PMI can be removed under certain circumstances, while MIP remains for the life of the loan for FHA borrowers.

Achieve 20% Equity

The key to removing PMI on conventional loans is reaching 20% equity in your home. Equity is the percentage of your home’s value that you own outright.

You can accomplish this in several ways, such as making extra payments towards your principal balance, making home improvements that increase its value, or waiting for your home to appreciate naturally over time.

Tracking your loan balance and property value will help you gauge when you’ve reached the 20% threshold.

Request PMI Cancellation

Once you believe you’ve achieved 20% equity, contact your lender to request the removal of PMI. They may require an appraisal to verify your home’s current value.

If the appraisal confirms your equity position, your lender should terminate the PMI premiums.

It’s essential to stay diligent and follow up to ensure this happens, as some lenders may not automatically remove PMI.

Refinance Your Loan

Another way to remove mortgage insurance is by refinancing your loan…and this is how you remove MIP from FHA loans.

If market interest rates are lower than when you initially purchased your home, refinancing could not only save you money on your monthly payments but also allow you to secure a loan without mortgage insurance if your equity position has improved. 

This is the option most used by homeowners.

In Conclusion

Understanding how to remove mortgage insurance is a crucial financial piece that can help you save money in the long run when you become a homeowner.

Achieving 20% equity and requesting PMI cancellation or refinancing your loan are two effective strategies to eliminate this extra expense.

Please do reach out to me today to discuss your current situation, as I’d be more than happy to discuss your options!

Why Pausing Your Home Search Might Not Be a Good Idea

August 29, 2023 /

For those who have been shopping for a home recently, you’ve likely confronted more than a few challenges along the way.

High mortgage interest rates and rising home prices cut into affordability, pushing many would-be buyers to the sidelines. Secondly, a lack of housing inventory is only making matters worse.

woman with credit card pondering while buying online with laptop

Due to these conditions, some buyers have decided to pause their home purchasing plans on hold, at least temporarily. But is that such a good idea?

You can find out more from Erik Martin’s article at The Mortgage Reports here…

Temporarily stopping your home buying search might seem like a reasonable decision in certain situations, such as a volatile real estate market or personal financial uncertainty.

However, there are several compelling reasons why hitting the pause button on your home buying journey might not be the best move.

Ever-Changing Market

The real estate market is dynamic and ever-changing. Pausing your search could mean missing out on potential opportunities.

Market conditions can shift quickly, and a property that fits your criteria perfectly may become available during your hiatus.

In today’s market, for example, home prices are continuing to rise due to lower supply and higher demand. So, if buyers choose to wait, it’s a guarantee that they will pay more for a home in the future.

By staying active in your search, you can capitalize on favorable market conditions and secure a property that aligns with your needs and preferences.

Long-Term Hold

Moreover, real estate is a long-term investment that tends to appreciate over time. This is especially true if borrowers are looking to keep the property for an extended period of time, versus flipping it quickly.

By delaying a purchase, would-be buyers could potentially miss out on the appreciation of property values in their desired area.

This could limit their ability to build equity and wealth through homeownership. Over the years, the property they had their eye on might become out of reach due to escalating prices.

Interest Rates

Yes, interest rates are at much higher levels than they were 2+ years ago, but most experts agree that waiting for rates to come down before making a purchase is a risky strategy.  Timing the market is always a very difficult task.

When rates do drop, many believe that there will be renewed interest and added demand in the real estate market…which means prices will rise at a faster pace than today.

By waiting, you might end up paying more for the same property when interest rates inevitably drop.  Remember, borrowers can always refinance when rates go down, so ‘Marry the House but Date the Rate’!

In Conclusion

While pausing your home buying search might seem like a cautious approach, it comes with potential drawbacks that could impact your financial well-being and future prospects.

The real estate market’s volatility, fluctuating interest rates, and the potential appreciation of property values all underscore the importance of staying active in your pursuit of homeownership.

By maintaining a proactive stance, you position yourself to make informed decisions that align with your goals and aspirations.

Please reach out to me for more so we can strategize about the right options for you!

Why Are Mortgage Lenders Requiring Upfront Points Today?

August 21, 2023 /

There’s been a recent change in the mortgage marketplace, as lenders are now requiring borrowers to pay upfront discount points when obtaining a home loan.

This is much different than in years past, when borrowers could easily qualify for a home loan with no points – and in some cases even receive a lender credit.

To find out more about discount points, please refer to this article…

Why Is This the Case?

Today’s situation has everything to do with volatility in the mortgage market over the last few years.

In essence, it’s very difficult for lenders to determine the value of a mortgage consummated today, because it’s unclear where mortgage rates go next.  Lenders need to make sure that they don’t lose money on each loan they originate.

So, to guard against this unknown, nearly all lenders are charging discount points to ensure at least some profits are being captured upfront.

Why Do Mortgage Lenders Charge Points?

Mortgage lenders charge points to collect profit upfront as opposed to over time via regular monthly interest payments.

Instead of waiting to collect interest each month once the loan is closed, they can collect some money upfront.

Lenders use upfront points to manage their risk. By requiring borrowers to pay discount points, lenders can ensure a more predictable profit over the life of the loan.

selective focus photo of stacked coins

This can be particularly important when interest rates are expected to rise, as it helps lenders secure a steady income regardless of market fluctuations.

Mortgage investors generally make money from the interest charged on the loans they provide. However, many of the mortgages originated today might be refinanced quickly, all but eliminating their projected revenue stream.

By requiring up-front points, the lender is compensated for the reduced interest income they would have received over the life of the loan.

How Will These New Mortgages Perform for Lenders and Investors?

Because mortgage rates have more than doubled in a short period of time, there’s a great deal of uncertainty regarding recently-originated home loans.

The big concerns for lenders and mortgage investors is a situation where rates improve enough for many of these borrowers to refinance.

Will those borrowers who obtained mortgages in 2022 and 2023 keep them for the long haul, or will they quickly refinance them if/when mortgage rates improve?

Per The Truth About Mortgage’s article, “a recent stat from Black Knight found that at least 10% of 2022 mortgages would become refinance candidates if the 30-year fixed fell to 4.75%”.  And many believe that number is low…

So, if these homeowners refinance, their loans no longer earn profitable interest for the investors. In normal times, lenders can sell their loans to investors at a premium, and use the proceeds to cover their commissions and your closing costs (via lender credits).

Currently, however, this is proving difficult because the value of these loans is essentially unknown. Hence, the profit is being taken upfront in the form of discount points.

In Conclusion

Today’s current mortgage rate environment is much more volatile than in years past. This has made it difficult for investors to determine the value of their underlying loans.

This is why many borrowers are seeing multiple mortgage points attached to today’s mortgage rates.

For example, if you’re planning to stay in your home or hold that investment property for a long time and have the upfront funds available, paying points could be a financially sound decision.

On the other hand, if you’re planning to move or refinance in the near future, paying extra upfront points might not provide as much benefit. It’s important to always compare the total costs and potential savings over the life of the loan before making a decision.

Do reach out to me to discuss the options of paying points…and how much!

A Fantastic Option: The Bridge Loan

August 14, 2023 /

Bridge loans can be a fantastic help for those who want to buy a new home while still owning their current one. It can provide buyers with a strategic financial tool that can significantly boost their purchasing power and streamline their property acquisition process.

These loans act like a bridge between the time you sell your old home and buy a new one. They are a special tool that borrowers can use to make their home-buying journey smoother.

Flexibility and Competitiveness

Imagine you find your dream home, but you haven’t sold your old house yet. That’s where bridge loans come in. They provide you with the money you need to buy the new house while you wait for your old house to sell.

In a competitive market, where desirable properties can swiftly come onto the market and disappear just as quickly, having access to immediate funds through a bridge loan can be a game-changer.  This way, you don’t have to miss out on the perfect home just because you’re still trying to sell your old one.

A Huge Stress Reliever

Moreover, bridge loans can alleviate the stress and logistical challenges that happen from the timing between selling one property and purchasing another.

Coordinating these two transactions can be a logistical nightmare, and the financial strain of managing two mortgages can be overwhelming.

Bridge loans eliminate this double burden by offering temporary financial relief, enabling buyers to focus on their new property without the pressure of an impending sale hanging over their heads.

Buying and Selling Power

Furthermore, bridge loans can give you more power when you’re buying and selling. Armed with the financial flexibility that a bridge loan provides, buyers can negotiate more confidently with sellers, often securing favorable prices or conditions.

At the same time, having the financial means to move quickly can also give buyers an advantage when selling their own property, as they can often afford to hold out for more favorable offers instead of rushing into a sale.

The Specifics

•          Minimum Credit Score: 720

•          Maximum Loan-to-Value: 80%

•          Maximum Loan Size: $300,000

•          Minimum Loan Size: $40,000

This bridge loan is a short-term (6 months) loan that is secured by the borrower(s) existing primary residence.

Purpose of the bridge loan proceeds are for borrower(s) purchasing a new primary residence using The Lending Coach as their lender.

Each borrower whose income or assets are used to qualify must meet the minimum credit score and tradeline requirements.

In Conclusion

A bridge loan is a great tool for buyers in the real estate market, enabling them to capitalize on opportunities, reduce stress, and negotiate with greater confidence.

They make the whole process less stressful and give more control over buying and selling.

So, if you ever find yourself in a situation where you want a new home but haven’t sold your old one, remember that bridge loans can be a great option to make things easier!  Reach out to me for the specifics, as it would be my pleasure to help you.

Overcoming Financial Constraints: Buying a Home with Limited Income

August 1, 2023 /

The prospect of buying a home is an essential milestone in many people’s lives, signifying financial stability and long-term security.

However, for individuals with limited income, achieving this dream can seem daunting.

Nevertheless, with careful planning, resourcefulness, and the right strategies, it is possible to turn this aspiration into a reality.

Let’s take a look at the challenges faced by those with limited income when purchasing a home and outlines practical steps to overcome these obstacles.

Assessing Financial Readiness

The first step in buying a home with limited income is to assess one’s financial readiness. This involves taking a close look at one’s budget, income, and existing debts.

A realistic understanding of current financial capabilities will help in setting a suitable price range for a home and determine the affordability of monthly mortgage payments.

It’s crucial at this time to consult with a financial advisor or mortgage expert to gain a better understanding of the financial situation and to put a plan in place.

Saving for a Down Payment

One of the major hurdles for individuals with limited income is saving for a down payment. While conventional wisdom suggests a 20% down payment, this might be unrealistic for many.

Fortunately, there are many low down-payment options – some as low as 3% down!

Researching and applying for these options can significantly reduce the upfront costs associated with buying a home.

Consider Multiple Options

While buying a traditional single-family home may be the ultimate goal, individuals with limited income might consider alternative housing solutions. Townhouses and condominiums might offer more accessible entry points into the housing market.

These options can provide an opportunity to build equity and eventually transition to a larger home in the future.

Know Your Markets

The location of a prospective home can significantly impact its affordability.

aerial view architecture autumn cars

Researching different neighborhoods and real estate markets is crucial to find areas where property prices align better with the limited income.

Additionally, considering up-and-coming neighborhoods can be a wise investment strategy, as property values tend to rise in such areas over time.

Improve Your Credit Score

A good credit score is essential when applying for a mortgage. Homebuyers with limited income should focus on improving their credit score before starting the homebuying process.

Paying bills on time, reducing credit card debt, and correcting any errors in credit reports can positively impact the credit score and increase the chances of securing a favorable mortgage deal.

In Conclusion

person with keys for real estate

Buying a home with limited income is undoubtedly challenging, but it is not an impossible feat.

By taking a proactive and strategic approach, prospective homebuyers can overcome financial constraints and realize their dream of homeownership.

Assessing financial readiness, exploring affordable housing programs, saving for a down payment, and researching the real estate market are just some of the steps that can lead to a successful homebuying journey.

Please do contact me to discuss your current situation and how you might be able to prepare for a home purchase.  It would be my pleasure to help you!

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