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Archive for July 13th, 2017

Homeowners can make a lot of mistakes during that first year in homeownership, especially when eagerness can sometimes lead to ignorance. HouseLogic recently featured several of the most common and costly missteps homeowners most often make in their first year, including:

1. Always going with the lowest bid.

Homeowners may be smart about gathering multiple bids when, say, that HVAC system needs repairs. But they may be tempted to always go with the lowest price. HouseLogic recommends ensuring that all bids include the same project scope. At times, one bid may be less expensive but may not include all of the actual cost or details of the project, or the contractor may lack the experience to do a good job.

2. Submitting small insurance claims.

Owners shouldn’t be in a rush to submit an insurance claim every single time something goes wrong. Filing a claim or two, particularly over a short time, can prompt an increase to your premium. Amy Bach, executive director of United Policyholders, says it’s better to pay out of pocket than to submit claims that are less than your deductible. “You want the cleanest record possible,” Bach says. “You want to be seen as the lowest risk. It’s like a driving record—the more tickets you have, the more your insurance.”

3. Failing to consider the ROI of home remodeling improvements.

Homeowners shouldn’t believe that just because they see the value in an upgrade, they will get an added market value for it when they go to sell. Owners can over-upgrade their home. “It’s easy to build yourself out of your neighborhood” and invest more than you can make at resale, says Linda Sowell, a real estate professional in Memphis, Tenn. Homeowners should check with a real estate professional or appraiser before they start a project to learn whether the improvement will help boost their property value.

4. Tossing receipts and paperwork.

Homeowners need to be good record-keepers. HouseLogic recommends keeping home improvement receipts, contracts, and manuals in a three-ring binder with clear plastic sleeves. Or they can photograph documents and and store them on a computer or in the cloud.

5. Ignoring seemingly minor items on an inspection report.

An inspection report can make a great first to-do list once moving in, HouseLogic says. Seemingly minor issues, like loose gutters or uninsulated pipes, may eventually cause bigger damage if not repaired soon. New owners should consult a contractor and make an informed decision about what needs to be fixed right away and what can wait.

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Source: Yahoo Finance

Is now the right time to refinance? If you’re a homeowner, it’s a question you’re bound to ask yourself at some point during the life of your mortgage.The short answer is … It depends on your specific situation and goals.

There are a few reasons to refinance your mortgage– maybe interest rates have dropped since you took out your initial loan and you want to take advantage of the lower rate, or you want to shorten your loan’s term.

For instance, if you have an adjustable-rate mortgage you might want to switch to a fixed-rate loan in order to lock in the lower interest rate.The good news is that mortgage rates are still near historic lows.
The national average for a 30-year fixed mortgage is currently about 4%, according to Bankrate.com.

But before you decide to take the plunge, you’ll want to ask yourself a few questions. First, do you own at least 20 percent of your home? Many banks won’t even consider refinancing until you do.

Ask yourself how long you have left on your loan and how long you plan to stay in your home.

If you have five years or more left on your mortgage and plan to live in your home for at least another three years, it may pay to spend the money and refinance now.

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If you bought a house with a down payment of less than 20 percent, your lender required you to buy mortgage insurance. The same goes if you refinanced with less than 20 percent equity.

Private mortgage insurance is expensive, and you can remove it after you have met some conditions.

How to get rid of PMI

To remove PMI, or private mortgage insurance, you must have at least 20 percent equity in the home. You may ask the lender to cancel PMI when you have paid down the mortgage balance to 80 percent of the home’s original appraised value. When the balance drops to 78 percent, the mortgage servicer is required to eliminate PMI.

Although you can cancel private mortgage insurance, you cannot cancel Federal Housing Administration insurance. You can get rid of FHA insurance by refinancing into a non-FHA-insured loan.

Canceling PMI sooner

Here are steps you can take to cancel mortgage insurance sooner or strengthen your negotiating position:

Refinance: If your home value has increased enough, the new lender won’t require mortgage insurance.
Get a new appraisal: Some lenders will consider a new appraisal instead of the original sales price or appraised value when deciding whether you meet the 20 percent equity threshold. An appraisal generally costs $450 to $600. Before spending the money on an appraisal, ask the lender if this tactic will work in the specific case of your loan.
Prepay on your loan: Even $50 a month can mean a dramatic drop in your loan balance over time.
Remodel: Add a room or a pool to increase your home’s market value. Then ask the lender to recalculate your loan-to-value ratio using the new value figure.
Refinancing to get out of PMI

When mortgage rates are low, as they are now, refinancing can allow you not only to get rid of PMI, but to reduce your monthly interest payments. It’s a double-whammy of savings.

The refinancing tactic works if your home has gained substantial value since the last time you got a mortgage. For example, if you bought your house four years ago with a 10 percent down payment, and the home’s value has gone up 15 percent over that time, you now owe less than 80 percent of what the home is worth. Under these circumstances, you can refinance into a new loan without having to pay for PMI.

Many loans have a “seasoning requirement” that requires you to wait at least two years before you can refinance to get rid of PMI. So if your loan is less than 2 years old, you can ask for a PMI-canceling refi, but you’re not guaranteed to get approval.

What mortgage insurance is for

Mortgage insurance reimburses the lender if you default on your home loan. You, the borrower, pay the premiums. When sold by a company, it’s known as private mortgage insurance, or PMI. The Federal Housing Administration, a government agency, sells mortgage insurance, too.

Know your rights

By law, your lender must tell you at closing how many years and months it will take you to pay down your loan sufficiently to cancel mortgage insurance.

Mortgage servicers must give borrowers an annual statement that shows whom to call for information about canceling mortgage insurance.

Getting down to 80% or 78%

To calculate whether your loan balance has fallen to 80 percent or 78 percent of original value, divide the current loan balance (the amount you still owe) by the original appraised value (most likely, that’s the same as the purchase price).

Formula: Current loan balance / Original appraised value

Example: Dale owes $171,600 on a house that cost $220,000 several years ago.

$171,600 / $220,000 = 0.78.

That equals 78 percent, so it’s time for Dale’s mortgage insurance to be canceled.

For a fuller explanation of the above formula, read this article about figuring the loan-to-value ratio to remove PMI.

Other requirements to cancel PMI

According to the Consumer Financial Protection Bureau, you have to meet certain requirements to remove PMI:

You must request PMI cancellation in writing.
You have to be current on your payments and have a good payment history.
You might have to prove that you don’t have any other liens on the home (for example, a home equity loan or home equity line of credit).
You might have to get an appraisal to demonstrate that your loan balance isn’t more than 80 percent of the home’s current value.
Higher-risk properties

Lenders can impose stricter rules for high-risk borrowers. You may fall into this high-risk category if you have missed mortgage payments, so make sure your payments are up to date before asking your lender to drop mortgage insurance. Lenders may require a higher equity percentage if the property has been converted to rental use.

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Homeowners think their homes are worth an average of 1.70 percent more than appraisers do, according to Quicken Loans’ National Home Price Perception Index (HPPI). This marks the first time in seven months that the gap between the two opinions of value narrowed.

Despite differing opinions in appraisals, home values continue to rise across the country. Quicken Loans’ National Home Value Index (HVI) showed appraisals rose an average of 1.25 percent from May to June and increased 5.35 percent year-over-year.

Homeowners are still estimating their homes at higher values than the appraisal, although the spread is now slightly narrower. Nationally, appraisals were an average of 1.70 percent lower than what homeowners thought they would be, as measured by the HPPI. This is compared to June when estimates were 1.93 percent higher. There is a wide range of perceptions across the country. The Midwestern and Eastern regions kept with the national trend of a lower appraiser opinion. On the flip side, the Western markets were more likely to have owners underestimate their home value.

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