Tuesday is low down-payment buyers day
Low down-payment lending and Private Mortgage Insurance (PMI) are important to anyone trying to buy without with less than 20 percent down payment. If you are not thinking about doing that, you may find this irrelevant. Instead of staying on it as the only topic for days on end, I will publish something on PMI or lending on a budget every Tuesday until I run out of new information or questions.
What Private Mortgage Insurance is not?
PMI does not insure you for anything. It is not the insurance you can buy that will pay off your mortgage in the event that you die before the end of the term.
What is PMI?
It is insurance the lenders require so the lender will get paid in the event that you cannot pay off your loan. Get it? If you lose your house to foreclosure, your lender is paid by their insurance company. You pay the insurance company every month. That’s the cost of borrowing without 20 percent down. PMI is expensive. And as you expected, it’s getting more expensive. The old rule of thumb for a 90% owner-occupied purchase loan was .52% of the loan amount, now it’s .62%; a 95% used to typically be .78% - now .84%. Here’s a chart calculating the rates.
In real dollars, that's Principle times the Rate, divided by 12, equals your monthly payment.
When I started in real estate, PMI was standard operating procedure on loans with less than 20 percent down payment. Private Mortgage Insurance sort of disappeared during the rah-rah years. It is back. The reason it went away was that it was less expensive to get a loan that did not charge PMI. How’d you do that? Programs like a “soft second” -- which lent you 15 percent, as a second mortgage, to add to the 80 percent primary mortgage. It was less expensive every month to pay both mortgages than it was to pay an 80 percent loan, plus PMI.
Whether the end of soft second programs is good or bad depends on where you sit. Some borrowers are being shut out of loans that would get them in over their heads, which is good. Others, who can make the payments, are paying more for their loans. That's bad.
What's your take on these changes? Anyone been shut out of borrowing? Anyone paying more for their loans?
Thank you to my sources at Asset Mortgage Group, Mortgage Master and Monument Mortgage and as always, Loren .
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Does anyone know the answer to the following: I belong to an association that pays for the maintenance of a common drive. Each month, as per a contract we all signed when buying the house, all 5 households pay $50 towards the cost. One of the houses has been foreclosed on and the bank has left it for over 15 months without auctioning or selling the property. We can not get anyone at the bank to discuss the association fee. Who should we call?
There's a non-profit group called the Massachusetts Affordable Housing Alliance trying to encourage lenders to retain the soft second program in Boston since it does help out a large number of people. You can look at their website http://www.mahahome.org/index.html for information, studies and statistics on the various programs. They require homeowner education classes in order to qualify and provide counseling to ensure people don't get into loans they truly can't afford.
My husband and I just completed the class and feel that if all those people that took out the sub-prime mortgages had attended this class, they would never have taken those loans to begin with! According to their website, there is a lower than average rate of foreclosure with the soft second program than the national average since the program has been in place (1991).
One of the leading causes of homelessness is the lack of affordable housing. If these programs allow lower to middle income people to buy homes, have pride in ownership, rejuvenate troubled neighborhoods and, in turn, provide affordable rental property to people, it's worth fighting for.
Danny, many years ago I was very active in a condo association. I believe your only recourse is to have a lien placed on the offending property. That way when the property is finally sold your association will get paid. Please be sure to check with a real estate lawyer for a definitive answer.
Good luck, Steve
Danny -- I am employed with a law firm that specializes in real estate. Steve is correct. The association should file a complaint against the new owner of the property and concurrently record with the appropriate registry of deeds what is called a "lis pendens." This will put the world (or, really, any potential buyer) on notice that there is a pending suit against the property owner and you will have effectively liened the property. The only problem you have here is that the amount outstanding to the association is roughly $750.00. The cost to retain an attorney and file the complaint in court would exceed what the association needs to recover. I suggest you contact the REO department at the bank to determine if they intend to list the property with a local realtor and then discuss this matter with him/her.
Prices would have never reached unrealistic levels if the old rules were followed.
I'm watching prices drop like a rock now because of loose lending standards. Unfortunately, the innocent are getting hurt by this now. They continue to pay high
mortgage and taxes on homes that were artificially overvalued.
Danny, speak to an attorney. You will be able to also withhold issuing a 6D at closing and will this will prevent many buyers from closing, especially if they are financing. As someone mentioned you can also record a lein on the property as well. In our experience, the foreclosing lenders are making good on back condo fees, and you will have leverage with the 6D if they do not have a cash buyer. Even then, a cash buyer buyer with an attorney worth their salt will require a clean 6D before closing.
Indeed prices were artificially inflated over the past decade and now the chickens have come home to roost. However, John Q. Purchaser must accept some of the blame. (here's lass and less of accepting responsibility these days n'est pas?) If John and Jane Doe just HAD to live in a certain Zip Code because of the schools or prestige so what if they "bid" more than the asking price? This buying frenzy was more like emotional outbursts than thoughtful planning for ones family's future. The lenders without regard for consequence just helped feed the frenzy. A quick buck and "next case" Shame on Us!
You know, I thought it was Principal and not Principle ...
John - to add to your info, there is NO lender that will provide financing on a condo where the association is subject to pending litigation. That will effectively prevent any seller from being able to sell any unit.
To NF - A 6D certificate (as provided for under MGL 183A, section 6D) would only be applicable if this was a condominium. Danny's comments indicate this is a homeowner's association, and accordingly, to properly lien the property, an action against the current (and former) owner would be necessary. I should add that if this was a condominium situation, the trustee(s) of record could easily draft and execute a 6D and record it, thereby creating a de facto lien on the property, however, this is not the proper method of establishing a priority lien on the property under MGL 183A, and only serves to "muck up" or "cloud" the title.
Ti EH - You are correct (provided there is evidence of such litigation in the form of a recorded lis pendens) however, in this instant matter, we are discussing how one would recover against a current or former owner, not the association itself. The association would be the plaintiff, not the defendant.
Dear Mr. Lennon,
You are correct. A principle is an idea, not the funds in a loan. Principal is the correct word. I fly without a copy editor. Thank you for setting me straight. Please forgive me my occasional mistakes.
Imagine there's no spelling errors. I wonder if you can?
Rest in Peace. I think of you this time of year.
This blogger might want to review your comment before posting it.
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