Still renting? It adds up

By Kristen Elliott on 8/1/2022

Why renting may not be the cheaper alternative after all
It’s an age-old quandary that millions of Americans confront every year: Should I rent or should I buy a home? Admittedly, it’s not always easy to decide.

The choice on whether to own a home or to rent one is subject to much debate, and people on both sides of the argument have no shortage of reasons why their decision is the right one. But if we’re being honest, we have to assume that the primary driver is financial, and that those who propose renting a house, condominium or apartment think that renting is simply the cheaper way to go—at least for now. Are they right?

Renting vs. owning: Reality check
If you’re just starting out in life as an adult, then sure, renting makes a ton of sense. After all, you need time to build up credit, save money for a deposit and get serious about making those monthly mortgage payments. But for everyone else, the case can be made that renting a home doesn’t add up in the short or the long term.

In today’s economy you might be surprised to learn that owning a home can save you money right now and over time. Let’s take a look at some of the key reasons why you might want to hold off signing that rental lease and look into buying a home in 2022—and beyond.

The zero-equity truth of renting
When looking around for a place to live, it’s easy to be swayed by the lure of simply plunking down a modest security deposit and first month’s rent. Problem solved, right? There are no interest rates to worry about, the transaction is not particularly complex or time-consuming and there’s really nothing that will leave you in suspense beyond a routine credit and employment check. It’s straightforward and simple. To many home hunters, it has appeal.

But here’s the thing: While you may be “saving” money upfront by foregoing a serious down payment and side-stepping a monthly mortgage, you aren’t doing anything to build equity. And without building equity, you’re just treading water as a renter.

Buying a home and building equity
In simple terms equity is the difference between the fair value of your home and what you owe on the outstanding balance of all your liens—or what you owe on your mortgage. If your house costs $300,000 and you put 20% down ($60,000) and have been able to pay back $20,000 thus far, your equity is $80,000.

But of course, equity isn’t strictly about the sticker price of your home; as we said above, it’s about how much it’s worth in the marketplace today. That means a professional will need to evaluate your home and issue an appraisal. And as we know, a home’s worth can rise and fall depending on the state of the marketplace.

This affects your equity, too. But there’s no option for equity when you’re a renter—unless you’re talking about building up your landlord’s equity. Yes, your monthly rental payments help increase your landlord’s equity but do nothing to establish your own.

As you can see below, if you’re a renter this is how much you may be paying toward your landlord’s mortgage.

ENT / MO. ($) 3 YRS. ($) 10 YRS. ($) 15 YRS. ($) 30 YRS. ($)
1,800 64,800 216,000 324,000   648,000
2,000 72,000 240,000 360,000 720,000
2,200 79,200 264,000 396,000 792,000
2,400 86,400 288,000 432,000 864,000
2,600 93,600 312,000 468,000 936,000
2,800 100,800 336,000 504,000 1,008,000
3,000 108,000 360,000 540,000 1,080,000
3,200 115,200 384,000 576,000 1,152,000
3,400 122,400 408,000 612,000 1,224,000
3,600 129,600 432,000 648,000 1,296,000
3,800 136,800 456,000 684,000 1,368,000
4,000 144,000 480,000 720,000 1,440,000

Beyond equity: Other advantages of owning a home vs. renting
Equity isn’t the only reason why owning a home may be advantageous to you. There are a number of compelling reasons to consider taking the plunge of homeownership rather than continuing to rent, including:

Potential tax benefits accorded to homeowners
You aren’t captive to a landlord who can suddenly raise your rent
You can decorate/renovate your home any way you choose
Potential tax benefits accorded to homeowners
There are some very interesting tax-related reasons to purchase a home. While it’s recommended that you always check with irs.gov and your specific state for the most up-to-date information, we’ve highlighted some of the more prominent tax breaks below:

Property taxes: You can deduct real estate taxes paid on your home up to $10,000 at the federal level ($5,000 if married filing separately). Some states may allow you to deduct the full amount.
Mortgage interest: Homeowners are allowed to deduct home mortgage interest on the first $750,000 ($1M if the mortgage was secured prior to December 14, 2017).
Deductions on home improvements: Major home improvement repairs can be used to decrease gains you may assume when you sell your house—that’s down the road. In the shorter term, should those repairs be financed through a HELOC, a home refinance or other loan, you may be eligible for deductions. Additional federal tax deductions also exist for energy efficiency modifications to your home. Your state may offer similar tax breaks.
Capital gains: If you meet certain federal requirements, the first $250,000 of profit ($500,000 if married and filing jointly) is exempt from capital gains tax when you sell your home. This means the vast majority of homeowners get to reap the full financial benefits of having the price of the home appreciate over time.
Income from rent: While it may not be the first thing you’re concerned with when you buy a new home for you and your family, at some point you might find yourself renting out your home. If that’s the case, you can claim your real estate taxes and mortgage interest as a deduction. You can also deduct your home insurance and any money spent on repairs.
You aren’t captive to a landlord who can suddenly raise your rent
Besides not enjoying the tax-related or equity-building benefits of homeownership, there’s another harsh reality that renters must face: They have zero control over price increases in their rent.

When you sign a lease with your landlord, you’re only locking in the monthly rent on your home for a limited period of time (typically 12 months). After that, should you choose to renew your lease, your landlord can suddenly decide to raise the rent without warning—sometimes quite dramatically. If you haven’t been looking around for alternative accommodations, you might be stuck at the last minute signing a lease for another year at a price point beyond your comfort level. And as bad as that sounds, the next year could result in yet another rent hike. That’s the unpredictable nature of renting, and another reason why homeownership puts you in the driver’s seat: greater control over your financial well-being.

You can decorate/renovate your home any way you choose
Exercising the full privileges of homeownership means having the right to determine how your home looks—inside and out. That’s a beautiful thing, and it’s not something extended to renters.

When you rent a house or an apartment you’re essentially a long-term visitor. In a sense, you’re a glorified guest in your own home, never fully rewarded the right to redo the kitchen, add a skylight or construct an outdoor patio—all things homeowners regularly undertake every year with great panache.

Even seemingly uncontroversial activities such as painting your kitchen or family room a color other than white (or equivalent) can sometimes sound alarms with strict landlords. On top of that, there are a host of hidden fees that can inflate the cost of renting. These aren’t discussed a lot but they’re there in the fine print and they can sour the renting experience very quickly.

All in all, renters need to think long and hard whether answering to a landlord is impinging on their lifestyle and shrinking their dreams. While the financial component will always loom large, you also need to think about the opportunity cost of staying too long in an apartment or neighborhood that no longer suits who you’ve become and where you want to go. For many Americans, homeownership is where dreams take seed.

You may not think you need to remodel that kitchen today, but wouldn’t it be nice to know you could if you wanted to? That’s homeownership; it unlocks choices well beyond equity or intergenerational wealth. It allows you to participate in the American dream on your terms.

*Guaranteed Rate Affinity does not provide tax advice. The consumer should always consult a tax advisor for information regarding the deductibility of interest and other charges in their particular situation.

It’s important to learn more about the neighborhood HOA, such as annual dues, community amenities, and restrictions when looking to buy a new home. The goal of the HOA is to help maintain home values and the overall aesthetics of a neighborhood.
AMY POE
OCT 25, 2017
When looking for a house, many buyers tend to take into account costs associated with owning a home such as insurance, utilities, and taxes. One thing buyers may not think to consider is whether the house is in a neighborhood with an HOA, what the dues are, and how the association is run. Many buyers may be aware of association dues and regulations in multi-family developments such as condos or townhomes. But, it’s becoming a new normal to find HOAs in developments with single-family homes.

What is an HOA?

There are different definitions out there for a Homeowners’ Association and many operate differently from one another. A Homeowners’ Association, or HOA, is an association that works to maintain and oversee the common areas of a neighborhood or property complex. It’s fairly common to find them in neighborhoods that offer amenities such as a community pool, gated access, a playground, tennis courts, etc. The HOA is typically a volunteer-based board made up of homeowners living in the neighborhood. Many HOAs have committees that coordinate neighborhood events, review proposed changes homeowners wish to make to their property, enforce the covenants, and more.

Get to Know the Rules

The covenants, conditions, and restrictions are different for every HOA. Some rules commonly seen in HOAs are in regard to the overall appearance and aesthetics of the neighborhood, such as the appearances of houses and lawn maintenance. Some also have restrictions regarding street parking or where residents can park their boats and RVs. Others may deal more with coordinating neighborhood crime watches and events.

When considering a house, it’s a good idea to ask for a copy of the HOA covenants, conditions, and restrictions to get a better idea of what is allowed and not allowed in the neighborhood. It’s becoming more common for HOAs to have a website or social media page, which is a great place to learn more about the community. For example, some mandate there can be no cars parked in the yard of any house in the neighborhood. If a homeowner wants to paint the house a new color, change the landscaping, or add on to the property, the owner has to submit the proposed changes to the HOA for review and approval. The committee will review the proposed changes to ensure they fall in line with the covenants of the neighborhood. While these may seem rather burdensome or trivial, the HOA was designed to help maintain home values and the overall aesthetics of a neighborhood.

How are HOAs Funded?

Many HOAs require annual dues. Those dues will vary based upon the size of the neighborhood and amenities. Dues are used for a number of things including maintenance of common spaces such as neighborhood entrances, playgrounds, pools, etc. In gated neighborhoods, many of the items that would normally be maintained by the city or parish must be maintained by the HOA. These items may include roads, sidewalks, and street lighting to name a few. Some HOAs will hire a property management company to oversee the collection of dues and coordinate maintenance issues.

Another thing to consider is whether the house is located in a new development. There may not be many amenities or common spaces to maintain as the neighborhood is being developed, so dues may be minimal. The developer may cover some of the associated costs while the neighborhood is still being developed. The true cost associated with running the HOA and maintaining the neighborhood may not fully come to light until the neighborhood is near completion and the developer turns the HOA over to the new residential board.

It’s important to pay the dues on time. Depending on the bylaws, late fees and interest could be tacked on to the bill and the HOA could place a lien on the property if the dues are not paid. The HOA could also foreclose on the property for nonpayment of dues.

After the Closing

Contacting the HOA should be a priority on the Post Move-in List as it is important to provide contact information to the HOA. It’s also a great time to get more information regarding upcoming neighborhood events or other ways to get involved. The HOA cannot operate without residents who are willing to give of their time.

It’s also a great idea to attend neighborhood events such as an ice cream social, an Independence Day parade, Halloween trick-or-treating, and a Christmas party. These events can serve as a great way to meet neighbors and build relationships.

It’s important to remember that the volunteers who serve on the HOA are your neighbors and friends. Like you, they want what’s best for the community. Every homeowner benefits from a well-cared for neighborhood.

By Audrey Ference
Aug 8, 2022

Buying a home often entails also buying various types of insurance to protect your property, and one type you might need to get is called title insurance.

When you buy a home, you “take title” to it and establish legal ownership. A title insurance policy protects you against the possibility that someone else might have a claim on your home. In essence, it ensures that a homeowner and their lender will be okay in the event that the seller or previous owners didn’t have absolute ownership of the house. (It sounds crazy, but sometimes it turns out that the homeowner is not the only one with rights to a home!)

If you need a mortgage to buy real estate, your lender will likely require you to buy a title policy from a title insurance company. Although it’s a cost home buyers incur, getting a title policy from a title insurance company is critical to establishing peace of mind.
Let’s examine the ins and outs of title insurance, why home buyers need it, how much you can expect to pay, and how you can save on a title insurance policy.

What is title insurance?
Holding a title insurance policy means you and your mortgage lender are protected against any financial loss or title issues due to liens, disputes between prior owners over wills, clerical problems in courthouse documents, or fraudulent claims against the property or forged signatures.

A title search will be performed by your title or settlement company to uncover any issues with your title that could give you legal troubles down the line.

The title company then insures your claim to the property’s title. If anything is missed during the search or there are lawsuits questioning your legal ownership of the property after closing, your title insurance policy will cover the costs of resolving the problem.

Why a title search is required with a mortgage
When getting a mortgage to buy real estate, you’ll find that most lenders will typically require that you get a title search before you close the deal with your escrow company. Basically this would mean you’ll have to hire a title company to search local records on your property. Some of the issues they’re looking for include the following:

Disputes between prior owners over wills: If your property was inherited and then sold by the heirs, there could be other heirs contesting the will and claiming ownership of your property.
Liens for unpaid property taxes.
Liens for contractors who worked on the home but were never paid.
Clerical problems in courthouse documents: Believe it or not, a simple typo can lead to title claim problems.
Fraudulent claims against the property or forged signatures: For example, if a group of heirs can’t get a holdout to agree to sell the home, it’s possible that someone will forge a signature on a quitclaim deed.
While most homeowners will never need to use their title insurance, its existence offers protection against a potentially aggravating—and very expensive—financial loss.
Lender’s title insurance vs. owner’s title insurance
There are two types of title insurance: lender’s and owner’s. Almost every lender will require you to pay for a lender’s title insurance policy. This protects the lender—not you—from incurring any costs if a title dispute pops up after closing.

Owner’s title insurance is usually optional, but it’s highly recommended. Without it, you’ll be left footing the bill for all the costs of resolving a title claim, which could be thousands or even hundreds of thousands of dollars. Even though it can feel like you’re hemorrhaging cash when you’re closing on a house, a title insurance policy is one of those things that can save you money in the long run.

“When you consider the benefits of title insurance and some of the unique aspects of title insurance relative to other kinds of insurance, it is clear why it’s risky and ill-advised to purchase real estate without a title insurance policy,” says Brian Tormey of TitleVest in New York City.

You can purchase basic or enhanced owner’s title insurance, with the enhanced insurance policy offering more coverage for things like mechanic’s liens or boundary disputes.

While your title insurance covers you for things such as mistakes in the legal description of your property or human error, be aware that it will have some exclusions—particularly in cases where violations of building codes occur after you bought your home.

How much does title insurance cost?
Wondering what the cost of title insurance is? The average cost of title insurance is around $1,000 per policy, but that amount varies widely from state to state and depends on the price of your home.

Title insurance premiums can vary from a couple of hundred dollars to a couple of thousand dollars. Some factors that can affect the cost of your premium include the title search, examination, and expected cost of any title defects.

“In general, each policy price is based on the purchase amount of the home or the total amount of the loan,” explains Tormey. “Title insurance is a highly regulated industry, so title insurance policy types and costs will vary from state to state. Each state’s Department of Insurance can provide information on the pricing regulations in their state.”

In some states such as Texas and Florida, title insurance premiums are fixed by the government, so you will pay exactly the same amount no matter what. Other states such as California and New Mexico have unfixed premiums, which means that buyers can shop around.

Unlike other types of insurance, a title insurance policy is paid with a single premium during escrow while closing for your mortgage. If you’re buying a real estate resale or refinancing, you may be eligible for a “reissue” rate, which could offer a substantial discount off the regular premium—because the title policy is already in effect, and the title research has already been completed.

How to save on title insurance costs
In some states, title insurance premiums are the same no matter who you work with, but in the majority of states, you can save money by shopping around. Even in states with highly regulated title insurance industries, there are ways to save. Here are some ways to lower your title insurance costs.

Shop around. If premiums are unregulated in your state, find the company that offers the best deals. Just make sure you’re not sacrificing customer service to save a few dollars: Resolving a title issue can be stressful, and you want a company that will help you through the process. Read reviews and talk to your real estate agent for recommendations.
Bundle. Some companies will offer a discount if you bundle your lender’s and owner’s policies.
Negotiate add-ons. Even if the premium itself is fixed, there are almost always other fees built into your total premium price. See if there is any wiggle room with those items. They may be optional, or the insurance company might be open to discounting them.
Negotiate with the seller. Closing costs are always open to negotiation, and picking up the tab for the title insurance might be worth it to a seller who’s highly motivated to close the deal. But be wary of using this tactic in a competitive market.

By Rachel Stults
Aug 1, 2022

It’s a slow Sunday morning. You’ve just brewed your Nespresso and popped open your laptop to check out the latest home listings before you hit the road for a day of open houses.

You’re DIYing this real estate thing, and you think you’re doing pretty well—after all, any info you might need is at your fingertips online, right? That and your own sterling judgment.

Oh, dear home buyer (or seller!)—we know you can do it on your own. But you really, really shouldn’t. This is likely the biggest financial decision of your entire life, and you need a Realtor® if you want to do it right. Here’s why.

1. They have the right expertise
Want to check the MLS for a 4B/2B with an EIK and a W/D? Real estate has its own language, full of acronyms and semi-arcane jargon, and your Realtor is trained to speak that language fluently.

Plus, buying or selling a home usually requires dozens of forms, reports, disclosures, and other technical documents. Realtors have the expertise to help you prepare a killer deal—while avoiding delays or costly mistakes that can seriously mess you up.

2. They have turbocharged searching power
The Internet is awesome. You can find almost anything—anything! And with online real estate listing sites such as yours truly, you can find up-to-date home listings on your own, any time you want. But guess what? Realtors have access to even more listings. Sometimes properties are available but not actively advertised. A Realtor can help you find those hidden gems.

Plus, a good local Realtor is going to know the search area way better than you ever could. Have your eye on a particular neighborhood, but it’s just out of your price range? Your Realtor is equipped to know the ins and outs of every neighborhood, so she can direct you toward a home in your price range that you may have overlooked.
3. They have bullish negotiating chops
Any time you buy or sell a home, you’re going to encounter negotiations—and as today’s housing market heats up, those negotiations are more likely than ever to get a little heated.

You can expect lots of competition, cutthroat tactics, all-cash offers, and bidding wars. Don’t you want a savvy and professional negotiator on your side to seal the best deal for you?

And it’s not just about how much money you end up spending or netting. A Realtor will help draw up a purchase agreement that allows enough time for inspections, contingencies, and anything else that’s crucial to your particular needs.

4. They’re connected to everyone
Realtors might not know everything, but they make it their mission to know just about everyone who can possibly help in the process of buying or selling a home. Mortgage brokers, real estate attorneys, home inspectors, home stagers, interior designers—the list goes on—and they’re all in your Realtor’s network. Use them.

5. They adhere to a strict code of ethics
Not every real estate agent is a Realtor, who is a licensed real estate salesperson who belongs to the National Association of Realtors®, the largest trade group in the country.

What difference does it make? Realtors are held to a higher ethical standard than licensed agents and must adhere to a Code of Ethics.

6. They’re your sage parent/data analyst/therapist—all rolled into one
The thing about Realtors: They wear a lot of different hats. Sure, they’re salespeople, but they actually do a whole heck of a lot to earn their commission. They’re constantly driving around, checking out listings for you. They spend their own money on marketing your home (if you’re selling). They’re researching comps to make sure you’re getting the best deal.

And, of course, they’re working for you at nearly all hours of the day and night—whether you need more info on a home or just someone to talk to in order to feel at ease with the offer you just put in. This is the biggest financial (and possibly emotional) decision of your life, and guiding you through it isn’t a responsibility Realtors take lightly.

Unmarried Americans Would Prefer to Invest in a Home, According to Coldwell Banker Survey

Latest Coldwell Banker survey gauges home buyer and seller sentiments heading into 2022
ATHENA SNOW
NOV 17, 2021

MADISON, N.J. (November 17, 2021) – Americans pressed pause on many milestones in 2020, but in 2021 they reignited plans to buy and sell homes. The real estate market is strong according to the National Association of Realtors® and homeownership is top of mind for Americans. In fact, 82% of unmarried Americans would rather invest in a home than pay for a big expensive wedding, according to the latest survey from Coldwell Banker Real Estate LLC, a Realogy (NYSE: RLGY) company.

Conducted online by The Harris Poll among over 2,000 U.S. adults, the survey reveals what’s on home buyers’ and sellers’ minds as we close out a strong year for real estate in a market marked by tight inventory. A sellers’ market still prevails and competition remains strong across many cities, especially as younger Americans enter the real estate market and various demographics set their sights on homeownership.

Who’s Got Real Estate on their Mind?

Gen Z & Millennials are moving on up: Younger Americans surveyed (age 18-44) are more likely to say owning a home is an important financial goal for them (45%) compared to those 55+ (30%).
Goodbye renting, hello homeownership: 47% of Respondents who are renters say “owning a home” is an important financial goal for them.
Hispanic homeownership desire is high: 42% of Americans surveyed who self-identified as Hispanic say “owning a home” is an important financial goal, and among Hispanics this is higher than any other financial goal.
As many Americans experienced life in 2020 without big vacations or weddings, Coldwell Banker Real Estate set out to discover what goals Americans would prioritize. Overall, Americans are still thinking of homeownership, indicating that they would rather allocate money to achieving those dreams than investing in other personal milestones such as big weddings, vacations or even paying off their student debt.

What Would They Be Willing to Trade for a Home?

Home is the new engagement ring: 82% of unmarried Americans surveyed, including 85% of females who aren’t married, would rather invest in a home than pay for a big expensive wedding.
Staycation: Over three quarters of Respondents (77%) would rather invest in a home than spend money on an expensive vacation.
Save student debt for later: College graduates are more likely to select “owning a home” (41%) as an important financial goal than “paying off student debt” (17%).
Amid this tight housing market – and with so many Americans invested in finding the perfect home to fit their lifestyle – Coldwell Banker affiliated agents serve as trusted advisors, guiding people home since 1906.

QUOTES:

“The 2021 housing market has been marked by low inventory and competition as Americans continue to keep homeownership top of mind. Our latest survey suggests that, with generations of all ages and backgrounds prioritizing homeownership over other financial goals, this sellers’ market may continue into 2022. Our network of approximately 100,000 agents is ready to help home sellers take the next step.”M. Ryan Gorman, president and CEO, Coldwell Banker Real Estate LLC
“Coldwell Banker’s survey found that homeownership is a primary financial goal for 47 percent of Americans surveyed who identify as Hispanic. The U.S. Hispanic population reached more than 62 million in 2020, growing significantly in the past decade, according to the Pew Research Center. The affiliated agents at Coldwell Banker recognize this incredible potential for increasing homeownership, and they’re equipped to help this population looking for a home navigate the complexities of a tight housing market.”

Ricardo Rodriguez, Coldwell Banker Global Luxury Ambassador, Boston, Mass.

Survey Methodology

This survey was conducted online within the United States by The Harris Poll on behalf of Coldwell Banker from October 21 – 25, 2021 among 2,027 adults ages 18 and older. This online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated. For complete survey methodology, including weighting variables and subgroup sample sizes, please contact dgorecki@gscommunications.com.

About Coldwell Banker Real Estate LLC

Powered by its network of over 99,000 affiliated sales professionals in approximately 2,200 offices across 40 countries and territories, the Coldwell Banker® organization is a leading provider of full-service residential and commercial real estate brokerage services. The Coldwell Banker brand prides itself on its history of expertise, honesty and an empowering culture of excellence since its beginnings in 1906. Coldwell Banker Real Estate is committed to providing its network of sales professionals with the tools and insights needed to excel in today’s marketplace and is known for its bold leadership and dedication to driving the industry forward. The brand was named among the 2021 Women’s Choice Award® Most Recommended brands for customer experience and overall quality. Blue is bold and the integrity and values of Coldwell Banker give the Gen Blue network an unbeatable edge. Coldwell Banker Real Estate LLC fully supports the principles of the Fair Housing Act and the Equal Opportunity Act. Each office is independently owned and operated. To join Coldwell Banker Real Estate and unlock the possibilities of Gen Blue®, please visit www.coldwellbanker.com/join.

About Realogy Holdings Corp.

Realogy Holdings Corp. (NYSE: RLGY) is moving the real estate industry to what’s next. As the leading and most integrated provider of U.S. residential real estate services encompassing franchise, brokerage, relocation, and title and settlement businesses as well as a mortgage joint venture, Realogy supported approximately 1.4 million home transactions in 2020. The company’s diverse brand portfolio includes some of the most recognized names in real estate: Better Homes and Gardens® Real Estate, CENTURY 21®, Coldwell Banker®, Coldwell Banker Commercial®, Corcoran®, ERA®, and Sotheby’s International Realty®. Using innovative technology, data and marketing products, high-quality lead generation programs, and best-in-class learning and support services, Realogy fuels the productivity of its approximately 196,600 independent sales agents in the U.S. and approximately 140,800 independent sales agents in 117 other countries and territories, helping them build stronger businesses and best serve today’s consumers. Recognized for ten consecutive years as one of the World’s Most Ethical Companies, Realogy has also been designated a Great Place to Work four years in a row, named one of LinkedIn’s 2021 Top Companies in the U.S., and honored on the Forbes list of World’s Best Employers 2021.

If you bought a home with a down payment that is less than 20% of the purchase price, or if you refinanced with less than 20% equity, your lender will require you to purchase mortgage insurance.

It’s important to note that not all loan programs will offer the same terms. That’s why it’s smart to contact your agent when looking to find the right loan for you. A savvy agent can help you navigate the often confusing world of finance as they work with a wide range of professionals who can help.

Is There Only One Kind of Mortgage Insurance?

All mortgage insurance serves the same purpose-to protect your lender should you default on your mortgage. However, different loan types use different terminology for mortgage insurance.

– FHA – MIP (mortgage insurance premium)
– VA – no mortgage insurance required
– Conventional – PMI (private mortgage insurance)
– USDA – MI (mortgage insurance)

How Much Is It?

Your premium is determined by the lender and will depend on two things: your loan to value ratio and your credit score. So for example, someone with a credit score below 700 who puts down only 5%, will pay a higher premium than someone with a credit score of 760 who puts down 15%.

Conventional loans: 0.20% to 1.50%

FHA loans : Upfront premium often added to loan amount has two payments. 1.75% of loan amount + annual premium (paid monthly) 0.7% to 1.3%

USDA loans : Upfront premium of 2.75%, based on loan size, added to loan balance + .50% annual fee based on remaining principal balance

How Do I Pay It?

There are several options you have to pay mortgage insurance.

Monthly. This is the most common type of mortgage insurance payment. The premium will be calculated into your monthly payment. The lender will then pay the premium annually on your behalf. So for example, let’s say you’re purchasing a $200,000 home and have put down 10%. The PMI at a 1% rate would be $1,800 per year, $150 monthly.

One-time payment. If you prefer to keep your monthly payments as low as you can a single payment might be the way to go. Typically, this kind of premium will range from 1% to 2% of the loan amount, so taking the same example above, you would be paying anywhere from $1,800 to $3,600 at the time of closing to cover your mortgage insurance premiums. The lender might also let you roll the premium into your loan so that it will be financed over the life of the loan rather than annually.

Lender paid premium. Some lenders will pay the mortgage insurance if you agree to pay a higher interest rate. This keeps your monthly payments lower than if you had to pay a monthly PMI premium, however keep in mind that you will be paying this higher interest rate until you either refinance or pay off the loan.

How Do I Get Rid of PMI?

For conventional loans you must have at least 20% equity in the home. When you have paid the mortgage balance down to 80% of the home’s original appraised value, you can ask your lender to drop the mortgage insurance.

When your loan balance drops to 78% the mortgage servicer is required to eliminate the mortgage insurance.

FHA loans, however are dealt with differently.

For FHA loans with MIP (mortgage insurance premium) that originated before June, 2013, mortgage insurance cancels when the loan to value gets to 78% and 5 years have passed since the loan was created. FHA loans taken out after this date will pay mortgage insurance for as long as the loan is in place.

So as you can see, in some cases the best way to get out of paying mortgage insurance on an FHA loan is to simply refinance. USDA loans also have mortgage insurance for the life of the loan, so to get rid of mortgage insurance you would need to refinance.

Can I Get Out of PMI Early?

Get a new appraisal. Some lenders will consider a new appraisal instead of the one acquired at the time of purchase. If they agree with the appraisal – which typically costs from $300 to $500 – they might agree that you meet the 20% equity threshold and drop the PMI.

Make loan prepayments. Paying something as small as an extra $50 per month can drop your loan balance dramatically. There are a number of repayment calculators available online to help you find the best way to pay your loan down faster.

Remodel. Increase your home’s value by making improvements to your home. Not every change to your home will increase its value. Consult an agent about those changes you can make to your home before you get started.

How Do I Calculate My Equity?

Simply divide your current loan balance (how much you still owe) by the original appraised value (typically the same as the purchase price).

For example, let’s say you purchased a home for $250,000 dollars and have paid the mortgage down until it has a balance of $190,000. Your PMI should have been canceled by now, because you’re at less than 78% of original value.

Are There Any Other Requirements to Cancel?

Yes. You should request PMI cancellation in writing. You must be current on your payments and have a good payment history. You may be required to prove there are no other liens against the property. You might be required to get an appraisal to prove that the loan isn’t more than 80% of the home’s current value.

What if my Lender Doesn’t Agree to Drop It?

If your home has increased enough in value, you can refinance without paying mortgage insurance. Calculate the costs of refinancing to be sure it doesn’t cost more than if you were to simply keep paying the mortgage insurance.

Get more information on the home buying process by visiting https://www.coldwellbankerhomes.com/fl/boynton-beach/agent/saby-hedeman/aid_257335/