What You Need to Know About PMI

  
If you are looking into buying a home, you may have come across the acronym PMI, which stands for private mortgage insurance. While PMI results in additional monthly or annual payments, it may be financially beneficial to consider a mortgage with a PMI plan. Consult with your real estate agent or mortgage loan officer to determine whether PMI is appropriate for your financial situation.

What PMI Is

If your down payment is less than 20% of your home's value, the lender may want you to purchase PMI to cover its losses in case you default on the payments. Typically, you will pay a PMI monthly along with each month’s mortgage payment. Your PMI can be canceled at your request, in writing, when you reach 20% equity in your home based on your original purchase price if your mortgage payments are current and you have a good payment history. By federal law your PMI payments will automatically stop when you acquire 22% equity in your home based on the original appraised value of the house as long as your mortgage payments are current.

What PMI Isn’t

PMI is different than FHA. Recent FHA-insured loans require payment of mortgage insurance premiums for the life of the loan. The mortgage insurance premiums can’t be canceled. Instead, you have to refinance the loan.
PMI is also different from homeowner’s insurance. Homeowner’s insurance protects the owner of the home, who also pays the insurance premiums. Private mortgage insurance, on the other hand, is paid by the homeowner monthly but protects the mortgage lender.



According to Bankrate.com, PMI usually costs between .5 and 1 percent of the total loan amount. This figure is the annual premium, which is divided into monthly payments. According to Allie Mae, average monthly costs tend to run between $50 and $80 per month. However, prices also vary based on down payment amounts and the type of mortgage. So talk with your loan professional if it’s required for you, and how much it will add to your monthly costs.

So, if your home increases dramatically in value, then it’s time to look into canceling your PMI. In general, on a 30 year fixed rate mortgage, it takes approximately 15 years to build up to 22% equity. This may seem a little astonishing, but it’s in the nature of an amortized loan. You pay mostly interest in the beginning and slowly chip away at the principal. This is why it’s great to pay even a few extra dollars a month towards the principal of the loan. So your next step would be to pay for an appraisal. If your equity is 20% or greater, request that your PMI be canceled in writing. (And put the money that went towards PMI directly to your loan. You will pay it down even faster, and you’ve already learned you can live without that extra money each month.)

If you’re applying for a VA loan, you should never be required to pay PMI. If it looks like it’s added in, double check with your loan officer that the loan is a VA specific loan or perhaps the fees are for something else.

5 Smart Strategies to Win Sellers Over

  In a tight market, you want your offer to be the winner. Often, buyers will fixate on purchase price and mortgage size overlooking opportunities to save money on both.

Usually, the lower the purchase price, the smaller the mortgage a buyer must borrow. We’re not suggesting that buyers buy less or resort to trickery or pressure to arrive at an attractive lower purchase price. Nor, are we suggesting a price chopped by tens of thousands. Instead, by adding value to the components of an offer, a lower purchase price may be acceptable to the seller.

Market value is not one price, but is represented by a price range. This means a property can sell at market value at any price across this range, especially when the offer is taken as a sum total of value for the seller, not just at its stated price.

By planning ahead and being prepared, you can significantly improve your bargaining position with sellers. Here are five smart value strategies to ensure the entire offer to purchase has value to the seller beyond the purchase price.

#1 Match Seller Closing Date

Prepare for home buying by becoming as flexible as possible about when the transaction closes. If you offer to match the seller’s best closing date, you may be saving them from incurring significant cost. Even the difference between popular moving dates and lower-fee moving dates can represent value for sellers. This savings may be reflected in a lower selling price.

Check out your lease options if you’re a tenant, so you know exactly how much it will cost you to close in 30 days, 6 months, or whenever suits seller needs. If you have a home to sell, consult your real estate salesperson to determine whether to sell or buy first. If the latter makes more sense in your market, get numbers on bridge financing, that is, the cost of owning two homes at once, so you know, in advance, exactly how much closing-date flexibility you have and what’s at risk. Obviously, if family or friends can help with temporary housing, furniture storage, and/or financing, you may have an advantage over other buyers.

#2 No Conditions

When faced with a firm, no-conditions offer to purchase, a seller may be tempted to accept a lower purchase price than if the offer is full of “ifs” and “maybes.” Conditions for financing, home inspection, and other significant concerns beyond buyer’s control cannot always prudently be removed, but when they can, buyers benefit. Paying for a home inspection before making an offer or arranging lender commitment in advance can provide a buyer with bargaining leverage.

#3 Don’t Ask for More

Avoid including appliances, light fixtures, furniture, or other items not automatically and legally considered part of the house, townhome, or condominium. Since appliances no longer last the decades they used to, its crazy to purchase them, or any other furnishings, second-hand through your offer. By including them in the purchase price, buyers may end up paying mortgage interest on these furnishings for decades. On the other hand, selling used appliances and furnishings online is easy for sellers who end up with cash in hand.

#4 Personalize the Offer

Sellers who love their home see value in buyers who “get” the property and who may even plan to realize a dream sellers had, but did not complete. Providing details in a letter, short video, or photos about why purchasing the seller’s home is important can also add weight to your offer. Personalize the offer and emphasize why buyers can and will close as promised. Sometimes, sellers can be won over by offering something of value to them that is uniquely available to the buyer. For instance, one experienced restauranteur/buyer offered to cook and serve at a dinner party hosted by the seller. Your real estate professional may have suggestions about what would sway sellers and add value without overly complicating the real estate transaction. Which service, experience, or convenience do you have access to that would represent value and savings to a seller?

#5 Negotiation Prowess

Market value is represented by a price range, which means a property can sell at market value, and be sold at any price across this range. Further, when the offer is taken as a sum total of value for the seller, emphasis is taken off the purchase price. Explaining these concepts, calculating full offer value, and convincing the seller of the unique opportunity provided by the buyer employs the skills of the real estate professional representing the buyer. Take time to engage a strong professional negotiator who can convince sellers how the buyer’s lower purchase price represents full value to the seller.

Prepare, in advance, to present multi-pronged value in your offer to purchase, and you may benefit with an accepted offer and perhaps a smaller mortgage which carries lower overall mortgage interest cost.

Written by PJ Wade

Market Commentary for the Week of April 25th

      
This week brings us the release of seven economic reports that may affect mortgage rates in addition to an FOMC meeting and a couple Treasury auctions. One those reports is considered to be extremely important to the financial and mortgage markets and can cause a great deal of volatility. Throw in the FOMC meeting and we have the makings of a highly important week, not only for mortgage rates but also for the broader financial markets.

The week kicks off late Monday morning when March’s New Home Sales numbers are posted. This Commerce Department report tracks a much smaller portion of all home sales than last week's Existing Home Sales report did. It also gives us an indication of housing sector strength and future mortgage credit demand, however, unless it varies greatly from analysts’ forecasts I am not expecting the data to cause much movement in mortgage rates. Analysts are currently forecasting an increase in sales of newly constructed homes. Good news for mortgage rates would be a sizable decline in sales.

Tuesday has two reports scheduled that we need to watch. The first of those two is the more important and comes at 8:30 AM ET. That is when March’s Durable Goods Orders will be released. This report gives us an indication of manufacturing sector strength by tracking orders for big-ticket items at U.S. factories. These are products that are expected to last three or more years, such as appliances, electronics and airplanes. Current forecasts are calling for an increase in new orders of 1.7%. This would be a sign of manufacturing sector strength, but this data can be quite volatile from month-to-month. Therefore, a small variance between forecasts and the actual results will not heavily influence the markets or mortgage rates. A large decline would be considered good news for bonds and mortgage pricing, while a large rise would indicate strength in the sector. A sign of solid manufacturing growth could lead to higher mortgage rates Tuesday.

April’s Consumer Confidence Index (CCI) will be posted at 10:00 AM ET Tuesday. This index is considered to be an indicator of future spending by consumers. The Conference Board surveys 5,000 consumers from across the country about their personal financial situations. If sentiment is strong or rising, it is believed that consumers are more apt to make large purchases in the near future. However, if they are concerned about issues such as job security and savings, they will probably delay making large purchases. The latter is better for the bond market and mortgage rates because the expected slowdown in spending would keep inflation and economic growth to a minimum. On the other hand, a sizable increase could hurt the bond market, pushing mortgage rates higher Tuesday. It is expected to show a reading of 96.0, which would be a small decline from March’s 96.2 reading. The lower the reading, the better the news it is for mortgage rates.

This week’s FOMC meeting will begin Tuesday and adjourn Wednesday afternoon. It will likely adjourn with an announcement of no change to key short-term interest rates, but we may see some volatility in the markets following the post-meeting statement. If the statement gives any hint of change in their current forecasts on when they expect to adjust key short-term interest rates again, we could see a sizable change to mortgage rates Wednesday afternoon. This meeting will not be followed by a Fed press conference or economic projections.

Thursday has the most important report, not only this week but arguably in general. At 8:30 AM ET, the preliminary version of the 1st Quarter Gross Domestic Product (GDP) will be released. There is a strong argument to be made that this is the single most important report that we see on a regular basis. The GDP is the sum of all products and services produced in the U.S. and is considered to be the best measure of economic growth or contraction. I expect this report to cause sizable movement in the financial marketsThursday and therefore the mortgage market also. Analysts are expecting it to show that the economy grew at an annual rate of 0.8% during the first three months of this year. That would be a much slower pace than the 1.4% pace of the final quarter of last year. A weaker rate of growth would be considered good news for mortgage rates. But a stronger than expected reading would almost certainly cause stock prices to rise and bond prices to fall, leading to higher mortgage rates Thursday morning.

Friday has the final three economic reports, starting with March’s Personal Income and Outlays data at 8:30 AM ET. It helps us measure consumers’ ability to spend and current spending habits. This information is important to the mortgage market due to the influence that consumer spending-related data has on the financial markets. If a consumer’s income is rising, they have the ability to make additional purchases in the near future, fueling economic growth. This raises inflation concerns and has a negative impact on the bond market and mortgage rates. Current forecasts are calling for a 0.3% increase in the income reading and a 0.2% rise in spending. If we see smaller than expected readings, the bond market should open higher Fridaymorning.

Also early Friday is the 1st Quarter Employment Cost Index (ECI). This index tracks employer costs for wages and benefits, giving us a measurement of wage-inflation. If it shows a large increase, we may see wage inflation concerns rise as employers will need to pass those increases into the pricing of their products and services. That would cause the bond market to fall and mortgage rates to rise. A smaller than expected increase would be good news for the bond market and mortgage pricing although I doubt this report will affect mortgage rates. Current forecasts are showing a rise of 0.6%.

The week closes with the University of Michigan's revised Index of Consumer Sentiment for April just before10:00 AM ET Friday. This report gives us an indication of consumer sentiment and their willingness to spend. Current forecasts are calling for a rise from the preliminary reading of 89.7. This means that surveyed consumers were a little more optimistic about their own financial situations as they were earlier this month. This data is relevant because if consumers feel better about their own financial and employment situations, they are more apt to make a large purchase in the near future, fueling economic growth. I don’t expect this report to have a significant impact on bonds and mortgage pricing unless it shows a noticeable revision.

In addition to this week’s economic reports, there are two relatively important Treasury auctions that may also influence bond trading enough to affect mortgage rates. There will be an auction of 5-year Treasury NotesTuesday and 7-year Notes on Thursday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions to mortgage rates. On the other hand, strong sales usually make government securities more attractive to investors and bring more funds into bonds. The buying of bonds that follows usually translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET each auction day, so look for any reaction to come during afternoon hours.

Overall, I am expecting it to be a pretty active week for the markets and mortgage rates. We have several days that appear likely to be particularly volatile. Wednesday looks to be the best candidate for most important due to the FOMC meeting but Thursday's GDP reading can easily be a market-mover. The calmest day could be Monday, although I would not be surprised to still see some movement as investors prepare for this week’s activities. If floating an interest rate and closing in the near future, I strongly recommend maintaining contact with your mortgage professional this week.

Market Commentary for the Week of April 18th - Tax Day!

     
This week has only three pieces of economic data scheduled for release that have the potential to influence mortgage rates, none of which are considered to be key or highly important reports. All of them are set to be posted the middle days, so we could see the most movement in rates mid-week. We also need to watch stocks since we are still in corporate earnings season. There is nothing of importance scheduled for Monday, meaning we can look towards stocks to help determine bond and mortgage rate direction early in the week.

March’s Housing Starts will start the week's releases early Tuesday morning. This report tracks groundbreakings of new home construction, giving us a measurement of housing sector strength and future demand for mortgage credit. It is not considered to be highly important to the markets but does draw enough attention to influence trading if it reveals surprisingly strong or weak numbers. The report will be posted at8:30 AM ET and is expected to show a small decline in starts from February to March. Good news for mortgage rates would be a sizable decline in starts that points toward housing sector weakness.

Next up is March’s Existing Homes Sales numbers from the National Association of Realtors at 10:00 AM ETWednesday. This report gives us an indication of housing sector strength and mortgage credit demand. It is considered to be moderately important to the markets, but can influence mortgage pricing if it shows a sizable variance from forecasts. Ideally, the bond market would like to see a drop in home resales because a soft housing sector makes broader economic growth more difficult. Analysts are expecting to see an increase in sales between February and March. The larger the increase, the worse the news it is for bonds and mortgage rates.

The third and final monthly release will come from the Conference Board late Thursday morning when they post their Leading Economic Indicators (LEI) for March. This data attempts to predict economic activity over the next three to six months. It is also considered to be only a moderately important report, so at best we can expect to see a slight movement in rates as a result of this data. It is expected to show a 0.4% increase from February’s reading, meaning it is predicting moderate growth in economic activity over the next several months. A decline would be considered good news for the bond market and could lead to slightly lower mortgage rates.

Overall, there is nothing scheduled this week that is expected to create much volatility or be a market mover. Chances are decent that we will see a fairly calm week for mortgage rates unless stocks make a significant move or something unexpected happens. I don't see any particular day as a good candidate for most important of the week. Still, despite the lack of key economic data, it would still be prudent to maintain contact with your mortgage professional if floating an interest rate and market conditions can change at any time.

Market Commentary for the Week of April 11th

      
This week brings us the release of six economic reports that have the potential to affect mortgage rates in addition to a couple of Treasury auctions. We also have the start of corporate earnings season that can significantly impact the stock markets and help direct funds into or away from bonds.

There is nothing of importance set for Monday or Tuesday. That leaves stocks as the most likely cause of a noticeable move in mortgage rates. Strong earnings reports should fuel a stock rally that pressures bonds and leads to higher mortgage rates. On the other hand, disappointing earnings news should make bonds more attractive to investors and lead to rate improvements.

The Commerce Department will start this week’s activities with the release of March’s Retail Sales data at8:30 AM ET Wednesday morning. This piece of data gives us a measurement of consumer spending, which is very important because consumer spending makes up over two-thirds of the U.S. economy. Forecasts are calling for a 0.1% increase in sales from February to March. If we see a larger increase in spending, the bond market will likely fall and mortgage rates will rise as it would indicate consumers are spending more than thought, fueling economic growth. However, a weaker than expected level of sales could push bond prices higher and mortgage rates lower Wednesday.

Also early Wednesday morning, the Labor Department will post March’s Producer Price Index (PPI). It will give us an important measurement of inflationary pressures at the producer level of the economy. There are two portions of the report that analysts watch- the overall reading and the core data. The core data is more important to market participants because it excludes more volatile food and energy prices. If it shows rapidly rising prices, inflation fears may hurt bond prices since it erodes the value of a bond’s future fixed interest payments and cause the Fed to raise key short-term rates sooner. A good size decline in prices would be good news for the bond market and mortgage rates. Current forecasts are calling for a 0.3% increase in the overall reading and a 0.2% rise in the core data.

The Federal Reserve’s Beige Book report will be posted Wednesday afternoon. This report is named simply after the color of its cover but details economic conditions throughout the U.S. by Fed region. Since the Fed relies heavily on the contents of this report during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any significant surprises. Generally speaking, signs of strong economic growth or inflation rising from the last update would be considered negative for bonds and mortgage rates. Slowing economic conditions with little sign of inflationary pressures would be ideal for mortgage rates. The report will be released at 2:00 PM ET, so any reaction will come during mid-afternoon trading.

The two Treasury auctions are scheduled for Wednesday and Thursday. There is a 10-year Treasury Note sale Wednesday and a 30-year Bond sale Thursday. We could see some weakness in bonds ahead of the sales as participating firms sell current holdings to prepare for them. This weakness is usually only temporary if the sales are met with a decent demand. The results of the auctions will be posted at 1:00 PM ET each day. If the demand from investors was strong, the bond market could rally during afternoon trading, leading to lower mortgage rates. If the sales were met with a poor demand, the afternoon weakness may cause upward revisions to mortgage pricing Wednesday and/or Thursday afternoon.

Thursday’s only monthly data is March’s Consumer Price Index (CPI), coming at 8:30 AM ET. This index is one of the more important pieces of data the bond market gets each month. It is similar to Wednesday’s PPI but measures inflationary pressures at the consumer level of the economy. If inflation is rapidly rising, bonds become less appealing to investors, leading to bond selling and higher mortgage rates. As with the PPI, there are two readings in the index that traders watch- the overall and the core data. Analysts are expecting to see a 0.3% rise in the overall readings and a 0.1% increase in the core reading. The core data is the more important reading, which ideally would show a decline in prices at the consumer level, keeping inflation concerns subdued.

Friday has two pieces of economic data worth watching. The first of the day will be March’s Industrial Production data at 9:15 AM ET. It tracks output at U.S. factories, mines and utilities, translating into an indication of manufacturing sector strength. Current forecasts are calling for no change in the level of production from February's level. This data is considered to be only moderately important to rates, so it will take more than just a slight variance to influence bond trading and mortgage pricing. Signs of manufacturing sector strength are considered negative news for mortgage rates, while a large decline in output would be favorable news for the bond market and mortgage shoppers.

The week's calendar will close with the release of the University of Michigan’s Index of Consumer Sentiment at 9:55 AM ET Friday. This index will give us an indication of consumer confidence, which hints at consumers’ willingness to spend. If confidence is rising, consumers are more apt to make large purchases. But, if they are growing more concerned of their personal financial or employment situations, they probably will delay making that purchase. This influences future consumer spending data and can have a moderate impact on the financial markets. Good news would be a sizable decline from March’s 91.0 reading. Current forecasts are calling for a reading of approximately 92.0.

Overall, look for Wednesday to be the key day of the week with a couple of important economic releases and the 10-year Treasury Note auction. The calmest day could be Monday or possibly Tuesday. Because we also have earnings reports to watch this week in addition to the economic releases, there is a high probability of seeing an active week in the financial and mortgage markets. Therefore, please maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.

Market Commentary for the Week of April 4th

This week has little in terms of economic data scheduled that is expected to influence mortgage rates with only one relevant monthly report and the minutes from the most recent FOMC meeting on the calendar. This means stocks may have a bigger impact on bonds and mortgage pricing than they usually do and makes it harder to predict which day(s) will be the most active.

February’s Factory Orders will be released late Monday morning. This data is similar to the Durable Goods Orders report, except it includes orders for both durable and non-durable goods. It will give us another measurement of manufacturing sector strength. This report is considered to be only moderately important to the bond and mortgage markets, so unless it varies greatly from forecasts of a 1.6% decline, I suspect that the data will have a minimal impact on Thursday’s mortgage rates.

The biggest event of the week will come Wednesday afternoon when the minutes from the last FOMC meeting will be released. Market participants will be looking at them closely as they give us insight to the Fed’s current thought process and individual Fed member opinions. Any surprises in the 2:00 PM ET release, particularly about inflation, economic conditions or when the next rate hike will take place, could cause afternoon volatility in the markets Wednesday and possible changes in mortgage pricing.

Overall, look for the most movement in rates the mid part of the week. Wednesday could be the most active day of the week if the FOMC minutes reveal any surprises. If not, the best bet would be Monday. Tuesday appears to be the lightest and will probably be the calmest day for mortgage rates. Look for the stock markets to also influence bond trading and mortgage rates a good part of the week due to the light economic release schedule. I am expecting it to be a relatively calm week for the mortgage market, but that can change at any time so please maintain contact with your mortgage professional if still floating an interest rate.