Do all home buyers purchase PMI (private mortgage insurance)?

What is PMI? Do all buyers need it? 
PMI - Hundred dollar bills, shape of house and words PMI and your mortgage

PMI, or Private Mortgage Insurance, is used when buyers have less than 20% down and are obtaining just one mortgage.

Who needs PMI? Who doesn’t?

Not everyone needs Private Mortgage Insurance.

If you have 20% to put down (your down payment), and it’s a regular or conventional loan, you do not need to pay for this insurance product.

Put another way, if you are obtaining one mortgage and it has a higher than 80% loan to value ratio, such as an 85% or 90% mortgage, you will buy the mortgage insurance.

A 10% or 15% down mortgage with just one loan will require PMI.

A way to avoid paying for this fee is to get an 80% first loan and a smaller second loan. The first loan won’t require the insurance. The second loan will have a higher interest rate, though. The advantage to this approach is that when you pay off the second mortgage, you are done with the higher cost.

On the other hand, if you have Private Mortgage Insurance and you want to be freed from it when your home value rises,  you’ll need to pay for an appraisal and hope that it comes out favorably. It can be a hassle to break loose of it.

If you’re purchasing with FHA backed financing, there’s mortgage insurance built into the product. (It’s government backed, so it’s just MI rather than PMI.)

Who is protected with PMI?

This type of insurance does not protect the consumer. Instead, it protects lenders in case of a default by the borrower.

 

Related reading:

What is mortgage insurance and how does it work? (From the Consumer Financial Protection Bureau)

Seller concession (this site)

 

 

 

Homeowners insurance

Homeowners insurance in the high fire zones - house in the woodsHomeowners insurance is once again in the news, and home owners (as well as those actively wanting to buy or sell a home) need to know how this may impact real estate transactions. This type of coverage is also called Fire Insurance, though it does cover losses beyond just those caused by fire.

  • Several major insurance carriers have either stopped writing new homeowners insurance policies in California or are severely limiting the number of policies that they’ll write.
  • For property owners in the Very High Fire Hazard Severity Zone, this limitation of conventional coverage is causing insurance premiums to skyrocket, especially if the insurer or last resort has to be used, the California Fair Plan. We’ve heard of insurance costs going up 10 times the previous rate or more in some cases!
  • There are some other options, listed below, that may provide some possible relief.
  • Insurance companies use their own maps, which are not published and in some cases have more expanded zones that they consider too risky for coverage.
  • Buying a home in an area with a higher fire risk? Find out about the insurability of the property BEFORE writing the offer.
  • My insurance agent recently told me that as a rule of thumb, “homes that are within 1000 feet of natural hillside brush or trees on any side of the home will have trouble getting insurance with many carriers.”

Major Homeowners Insurance Carriers Pull Back

Allstate, State Farm, and now Farmers have all pulled back from writing new policies in the Golden State, either completely or partially, due to the fires of recent years and the financial liability that they have caused those companies.

We’re not really in new territory here. Over the last 35 years, we’ve had several cycles of difficulty with obtaining homeowners insurance. In California. In years gone by it was challenging to get it after the Loma Prieta and Northridge earthquakes in 1989 and 1994, respectively. When a spate of mold cases came up in California and Texas in the late 1990s and early 2000s there was also a pullback by insurance companies.
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Why are those Silicon Valley HOA dues so high?

Homeowner Association DuesWhy are some HOA dues so high in certain Silicon Valley townhouse or condo communities?

If you are shopping for a Silicon Valley condominium, townhouse, loft or other property that’s part of a home owners association or “HOA”, you may find yourself flabbergasted at some of the dues being charged in San Jose, Los Gatos, Saratoga, and all over Santa Clara Valley. Today we’ll go over what may be happening in them to cause this problem.

HOA dues may cover a number of things, and if it’s a luxury complex with luxury amenities, those dues will be high:

  • common areas, such as driveways, parking, pool, fitness center, rec room, elevators, landscaping, golf course membership, etc.
  • insurance: regular homeowners or blanket insurance but perhaps also earthquake or flood insurance
  • reserve account funds for planned improvements may have run too low and need bolstering (repainting, termite work, reroofing, repaving, pool plastering etc.)
  • covering the defaults from units where the owners are in or about to be in foreclosure

What is the range of pricing for HOA dues in Santa Clara County and Silicon Valley?

Depending on the age of the property and the amenities, the dues may run between $300 and $350 on the low end (newer, no amenities) to close to a thousand on the high end (The Villages retirement community has extraordinarily high dues but they may include membership in the golf course too). I’ve seen some in Menlo Park closer to $2,000 per month!

“Normal” is anywhere from $400 to $500 per month for a typical condo or townhome community.

Dues over $600 per month will deter investment buyers.  Dues over $700 per month will deter almost everyone! (more…)

Buying a Home Warranty in Silicon Valley? What You Need to Know to Choose Well.

What is a home warranty - photo with very old furnaceAre you considering purchasing a home warranty for your Silicon Valley home? The home warranty gives the buyer and seller both “peace of mind” regarding any surprises after the close of escrow. It is a one year policy, so at the end of that year, the homeowner may want to renew it or purchase a new policy.

If you are not sure what a home warranty is, or how it differs from home insurance or title insurance, please read this article: Homeowner’s Insurance, Title Insurance and Home Warranties on this same site.

Not sure if you need a home warranty or not? If your property is close to new and the appliances are all under warranty, you may not want to spend a few hundred dollars for this coverage. For older homes that you plan to live in without renovating much right away, a home warranty is a really excellent protection. In between? Read the policies on the various providers websites. As with all types of insurance, there are limitations, exclusions, and possible add on items or riders.

How do you make the best selection for your needs?

Its a good idea to get some basic information on plan coverage generally. The California Home Service Contract Association (CHSCA) provides useful information on this subject. The link is     http://www.homeservicecontract.org/state-associations/california/    Request brochures (or read them online) from a few of the companies listed below. There will be some differences in coverage, cost, and co-payment.  This page lists members who sell home warranties in CA.

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California Association of Realtors Incredible Mortgage Protection Program Starts Thursday April 2nd!

The California Association of Realtors today announced to its members a no-cost mortgage protection program that first time home buyers in Silicon Valley will want to know about!  The new program will give peace of mind to first time homebuyers who are worried about buying a condo or house now in case they are laid off later.

The notice we received today stated:

Through the C.A.R. Housing Affordability Fund Mortgage Protection Program (C.A.R.H.A.F. MPP), first-time home buyers who lose their jobs due to layoffs may be eligible to receive up to $1,500 per month for up to six months to help make their mortgage payments. A qualified co-buyer also can participate in the program, for a reduced monthly benefit of $750 per month for up to six months in the event of a job loss. Program benefits also include coverage for accidental disability and a $10,000 death benefit. C.A.R.’s Housing Affordability Fund is dedicating $1 million to the program this year, and estimates that as many as 3,000 families will benefit from the program throughout 2009.

To qualify for the Mortgage Protection Program, applicants must:
. Be a first-time home buyer – someone who has not owned a home in the last three years
. Open escrow April 2, 2009, or later, and close on or before Dec. 31, 2009
. Use a California REALTOR® in the transaction
. Purchase the property in California
. Be a W-2 employee (cannot be self-employed or military personnel)To qualify for the Mortgage Protection Program, applicants must:
. Be a first-time home buyer – someone who has not owned a home in the last three years
. Open escrow April 2, 2009, or later, and close on or before Dec. 31, 2009
. Use a California REALTOR® in the transaction
. Purchase the property in California
. Be a W-2 employee (cannot be self-employed or military personnel)

We’ll be learning more about this program as details unfold.  This is not an unlimited fund, so if you are interested in buying a home with this free mortgage protection program backing you up, you might want to act sooner rather than later!