Homeowners Insurance is not only an essential support for you as a homeowner, it is also an unavoidable part of a mortgaging process. You are required to have homeowners insurance on the property you are mortgaging, no mortgage will close without it. The lenders’ concern is obvious - your property is the collateral of their expenses, they are not ready to give it all up to rain or fire.

Talking about rain, water, and particularly flooding.  Surprisingly enough, it was not until Hurricane Katrina struck, that the whole nation woke up to realize that regular insurance policies did not cover damage from floodwaters (nor hurricanes, nor earthquakes). Too many were unaware that the circumstances required a special federal flood (hurricane, earthquake) insurance policy in addition to their regular one. Moreover, certain carriers did (and some still do) take advantage of this unawareness to avoid payment by claiming the damage was due to flooding even when it was not. Nowadays, flood-related insurance can be required in certain areas, along with a regular policy, to close a mortgage. Generally, your broker should be able to provide you with this information, but you can also do some research yourself. The official on-line resource is the page of the U.S. Department of Homeland Security. You can find out if you are in a risk zone for flooding and the degree of the risk, as it determines the necessity of the insurance. Because there are policies that cover water damage from hurricanes but not from floods, make sure you understand the subtle differences that can disallow one type of damage while allowing for something similar. Check out other risks of your area - it will help you decide what kind of insurance you will want for your property because the main purpose of any insurance is to compensate for losses, not just meet a paper requirement at closing. Read the rest of this article »

There has been a lot of change in probably the most liberal until recently mortgage offer - the FHA-insured mortgage. Are you confused by the middle word in the title? Well, it is there rather to clarify any possible confusion or misunderstanding that FHA mortgages (that’s how they are called a lot more often) usually carry around themselves. First of all, FHA mortgages are not mortgages where the FHA performs as a lender, they are mortgages where the FHA performs as an insurer who actually protects the lender; and second - the borrower is the one to pay the insurance premiums! I don’t know if this explanation really clears the confusion or makes it even worse, for now regular mortgage insurance sounds pretty much the same, if you come to think of it…

In my post today I will try to explain the difference and draw your attention to the details that may help you decide whether an FHA mortgage loan is the one for you.

The Federal Housing Administration (FHA) has insured over 35 million home mortgages and 47,205 multifamily project mortgages since its foundation in 1934. Early decades of popularity during and soon after the Great Depression declined as new favorites - the recent interest-only loans and option ARMs among them - came on the scene, but reclaimed its position later as these “favorites” failed to deliver. Currently, FHA has 4.8 million insured single-family mortgages and 13,000 insured multifamily projects in its portfolio. Experts expect a sharp increase in these numbers in the coming years. What makes FHA mortgages attractive? Read the rest of this article »

Piggyback mortgages were quite popular before the year of 2007 as a tax deductible alternative for conventional PMI premiums. 2007 broke this subtle balance as Congress made PMI premiums tax deductible, too, but for that one year only. Being limited to certain restrictions and so far unpredictable future, PMI still leaves some room for the piggyback to kick and prove its worth.

First, let me explain how the Piggyback Mortgage option works. If a homebuyer needs to borrow more then 80% of the property’s purchase price, he either goes for one conventional mortgage and pays Private Mortgage Insurance (PMI) premiums, or tries to avoid it by opting for either Lender-Paid Mortgage Insurance (LPMI) or a Piggyback Mortgage, also known as 80/20. Actually, “80/20″ explains a lot by itself: the mortgage is, in fact, a combination of a primary mortgage for 80% of the purchase price and a secondary mortgage for an amount required to fill up after the down payment. The more comprehensive names for this mortgage sometimes are 80/10/10, or 80/15/5, or 80/5/15, indicating the details of the secondary mortgage - 10% borrowed/10% own down payment, 15% borrowed/5% own down payment, 5% borrowed/15% own down payment, respectively. Read the rest of this article »

Lender-Paid Mortgage Insurance (LPMI) is one of the ways, along with the Piggyback loan, to avoid the notorious conventional Private Mortgage Insurance (PMI) if you borrow more than 80% of the purchase price while buying yourself a home.

To be perfectly honest, you, as the borrower, are the one to pay this insurance anyway. The amount the lender pays as insurance premiums is charged on to you through a higher interest rate on your mortgage. The difference lies in how the amount of your monthly payments towards the insurance is determined. Technically, the lender shops for the insurer himself, but unlike PMI, in the case of LPMI he is interested to get a better deal with a lower insurance rate, as there is no referral involved and the resulting interest rate on his mortgage products has to be still competitive. Consequently, the borrower ends up with a higher interest rate on his mortgage, but does not have to pay private mortgage insurance. How good is that? Read the rest of this article »

If you are sure, that you will be able to put down at least 20% of the property purchase price, don’t bother to read this article - there is no way any lender should make you pay this insurance. Mortgage insurance is something that happens to you only if you cannot make a 20% down payment.

Well now, if are still reading, that means you are looking for the best way to attend to the 20% business.  Read the rest of this article »