Ask Realty Times - September 3, 2004
by Peter G. Miller
Question: Our private mortgage insurance payment amounts to $300 a month. Isn't this too high? We purchased a home last year in May (our first one) using a conventional loan with zero-down (6.5 percent interest), and were at a somewhat high credit risk level. We know others who have similar factors involved in their purchase with significantly lower PMI payments. Answer: Private mortgage insurance (MI) exists to protect lenders in those instances where a home is bought with little or nothing down. MI costs are likely to be highest for adjustable-rate loans with little or nothing down and where a partial premium refund is available. Loan size is also important: If you had a .55 percent annual premium and your cost is $3,600 a year, it means you borrowed $654,545. If you feel your premium is too high, speak with the lender to determine how the fee is calculated. The fee could be too high -- or it could be just right given your down payment, type of loan and amount borrowed. Question: We just sold a home and purchased a newer one. What is the etiquette regarding each of the brokers? Is a thank-you note sufficient or is a gift in order? Answer: A thank-you note would be appreciated and gifts are certainly welcome, as you prefer. That said, if you think the brokers have done an excellent job then there is something you can provide that they will greatly value: A letter of recommendation in your own words which extols the broker's services and professionalism. This is not only a gracious thing to do, but it will be important to the broker in the future as prospects ask about performance and skills. Question: I'm building a new home. The purchase price will be approximately $285,000. My middle credit score is approximately 630 and I haven't had any late payments in the last two or more years. My problem is that I was forced to change jobs when my prior company downsized. I have been in my current position for approximately six months. My debt-to-income ratio is pretty low. My lender has offered an 80/20 stated loan program with the first loan being a 7.6 percent and the second at 12.5 percent (whoa, was my initial reaction). The loan comes with no pre-payment penalty. Is this a fair offer considering my circumstances or should I tell her to hit the road and explore other options? Answer: The real question here is whether this is the best available loan in your circumstances. Your credit score is not high but not terribly low either. That your former employer downsized is something that you should explain and document -- especially if your credit standing has been impacted. Six months at a job may not be an issue if the job is within a field where you have a longer work history. As to the mortgage offer you received, why go with a "stated income" loan where the lender generally does not check your income? Since you must properly report your income with any loan, why not just get a plain vanilla regular mortgage with regular paperwork and less lender risk? Also, do you really need 100 percent financing? That also suggests a lot of risk to lenders and thus higher rates. The only way to determine if the loan terms you received are the best available is to speak with several lenders and let them compete for your business. Question: I sold my home within three days of putting it up for sale. Closing was supposed to take place on the 25th of next month but I need a closing check before I can move. What can I do? Answer: You need a short-term loan -- a "bridge" loan. You may find such financing available with several points up front and a low interest rate or with no points and a high interest rate. Given that this will be a short-term loan, perhaps a few weeks, the higher rate is likely to be far cheaper -- run the numbers to see what makes sense. Perhaps get a loan from family, friends, a retirement account (if possible) or a community group. Or, look into giving your new landlord or seller a promissory note with payment to be made with the closing of your home. Question: We have a basement apartment in a converted townhouse. The bathroom above us has a leak. It has not been fixed for two months. Isn't the landlord supposed to repair this? Answer: Yes. If the leak is something other than water it may represent a substantial health hazard. If the leak is water it may ruin your possessions and damage the property. In either case this is a matter for the owner to resolve. By any chance is it not a leak? Just the renters upstairs not closing a shower door or something similar? If yes, this too is a matter for the owner to remedy. Question: I was just told about the "COFI" loan, and I wanted to know what kind of questions to I ask so I know that I am not being thrown a loop. Answer: The 11th District Cost of Funds Index (11th District COFI) is widely used with adjustable-rate mortgages. This index tends to move slowly up and down which means fewer extremes for borrowers. At this time the index stands at 1.816 percent. This index level, coupled with a "margin," produces the full interest rate for a loan. For instance, if the margin is 2.5 percent the interest rate would be 4.316 percent. (2.5 + 1.816) As with any adjustable-rate mortgage, good questions to ask include: What is the start rate? How long does the start rate last? What is the maximum monthly payment increase? What is the maximum interest rate increase? What is the lifetime interest cap? Can the loan be prepaid in whole or in part at any time and without penalty? Question: My husband and I are buying a new home. We can pay cash for it and not have a mortgage. I think it sounds great to own a home free and clear of debt, but what are the risks if we get sued for some reason? Is there anyway to protect ourselves? Answer: There are great protections in buying property as a married couple. As well, you need to look at the rules in the jurisdiction where the property is located. This requires advice from an attorney or legal clinic since state rules vary. Ask about a trust to protect your property and the value of an umbrella insurance policy. | 
