We posted the article below on our Silicon Valley Real Estate Update blog today which was written by our guest blogger ’s at Bring The Blog.
The article addresses the growing problem facing many home buyers who are now being required to pay Private Mortgage Insurance, whereas about a year ago they would have been able to avoid this dreaded extra monthly expense. Many buyers who are often forced to either come up with larger down payments than they would have just a year ago, or pay the dreaded PMI which can run into the hundreds of dollars a month, are sometimes forced out of the market as a result of the added monthly payment burden PMI can pose for them. This is not a pleasant reality for buyers who have less than 20% to put down. We used to encourage our clients to do what is called an “80/10/10” or “80/15/5” loan (with the 80% being their first mortgage, the 10% or 15% being their second mortgage-often a Home Equity Line of Credit {aka HELOC} and the last number representing their down payment contribution-either cash or equity from another property typically).
This formerly popular method of helping buyers lacking in large amounts of equity from their current home, or cash they can afford to part with, is slowly becoming extinct due to the credit crunch, tightening of overall mortgage lending guidelines, and of course the nationwide foreclosure epidemic. This issue arguably effects home buyer’s in the Los Gatos,Monte Sereno or Saratoga
Read Dan’s review of the topic below for further details.
Private Mortgage Insurance (PMI) is an insurance policy paid to a lender in the event that a homeowner defaults on his
home loan.
With the growing number of mortgage defaults nationwide, mortgage insurers are finding their balance sheets under attack and their revenues in the red.
So far this year, mortgage insurers have paid out $6 billion in claims.
In response to the losses, the mortgage insurance industry is using two tactics to return to profitability — and both mean bad news for homeowners.
- Raise the minimum standards to get insurance
- Raise the annual mortgage insurance cost
This is very similar to what Fannie Mae and Freddie Mac are doing to shore up their respective balance sheets; lending to only the most credit worthy, and making sure to charge them for their commensurate risk.
Because of the higher PMI rates, it’s getting more expensive for small-downpayment home buyers to finance their homes. And that’s if they can even still get mortgage insurance.
Some mortgage insurers now require a 10 percent minimum downpayment in certain states.
So with the number of mortgage defaults expected to rise through 2009, qualifying for PMI should get more expensive and more difficult. If you plan to make a small downpayment on your next home — or plan to remortgage your current low equity home — consider moving up your timeframe.
It may not be as cheap or as easy to get financing as it is today.
(Image courtesy: The Wall Street Journal)
