| Home Page | Book Store | Order Form |
If someone offered you a $12,500 loan at 26%, would you go for it ... or call the cops? Millions of homeowners have already signed on
for this kind of loan -- which is offered by private and government lenders -- not your usual loan sharks. It's strictly legit, from sea to shining sea.
Here's the deal: You scrimp and save enough to make a down payment,
then go out with a real estate broker. The first home you see is ok,
not great. The second's no better. The third, over on Elm Street,
is a dream. Unfortunately, it's also a budget buster -- $125,000
is as low as they'll go. You couldn't possibly come up with enough
cash. "No problem," says the commission-hungry broker, "I'll
help you get a loan where you'll only have to put down 5% or 10%.
Trust me."
Take that $125,000 dream house on Elm. Come up with 20% ($25,000),
plus another 5% or so for closing costs and escrow, and you'd get
a $100,000 no-point loan at 7.75%. No PMI, MIP, or other alphabet
soup acronym required.
But come up short, and boy will it cost you. For example, buy that
house with only $12,500, or 10% down, and you'll pay $3,326.68 for
PMI (more or less), which is a staggering 26% of the $12,500 in up-front
cash that you didn't have.
Add in the 7.75% in bank interest, and it's up to nearly 34%, which
is way more than even the greediest credit card companies charged
in their hey day. You'll pay $23,320.74 in premiums and interest on
that $12,500.
As you might expect, the less you put down, the more you'll pay. Putting
5% down on the Elm Street house ($6,250), could mean more than $35,000
in premiums and interest.
With 10% down, it'll take 9 years to build up 20% equity on Elm Street.
Mortgage pre-payments of $50 a month would get you to 20%, 2.5 years
faster, saving you $39,889 in interest and PMI premiums over the loan's
life.
There's another way your home equity can increase. If you're lucky,
property values will go up. (Don't count on it.)
As your equity approaches 20%, or whatever your lender requires (good luck finding out!), get on the case. It's extraordinarily unlikely that you'll get a call saying, "We don't need any more protection. Feel free to cancel PMI.
To inquire about FHA refunds, and to do some persisting of your own,
call HUD at 800-697-6967. But be forewarned. The wait can be interminable.
PMI refunds, after an early sale or pay off, are also possible, if
you buy a refundable policy. If you think you'll only keep the house
for a few years, ask for a monthly premium policy.
The Pocket Change Windfall: Each of our 34 back issues offers painless ways to get out of debt and save on the many expenses that confront us all -- taxes, credit card bills, mortgages, insurance, food, you name it. You can get all 34 for just $29.95 -- that's less than $1 each. To order, you can use our secure server, call 845-657-8245, or write to us at:
Bankers know that the smaller the down payment, the larger the likelihood
of default. So they require "protection money" whenever the
down payment is less than 20%. Borrowers protect lenders by paying
for private mortgage insurance (PMI), or the FHA's equivalent, known
as MIP.
I know these mortgage insurance programs are extolled as a way to
bring the American dream to poorer families. But, as always, the poorer
you are, the more you'll pay. Avoid PMI and MIP. You have alternatives:
Understand what you're getting into. It's confusing, but here's the
gist: You'll pay PMI until your home equity is 20% or 25%. Whoever
owns your mortgage, at that time, gets to decide which, and whether
you'll need to pay for one or more appraisals, before they'll consider
setting you free.
Barbara Walker, one of our readers, found out she was eligible for a partial MIP refund, after her house sold. Her lender sent in an
application to HUD, then she persisted. A year later, the sleepy bureaucracy
issued her an $850 check.
Loans Out on a Clunker or Two, & a Bad Case of the "I'm Tired of Living Payday to Payday" Blues.
PO Box 78
Elizaville, NY 12523
Home Page
Pocket Change Investor
Order Form
Web Page by Good Advice Press © 1998-2007
Good Advice Press
Box 78 - Elizaville, NY 12523
845-657-8245
Send e-mail to Good Advice Press
(Info@GoodAdvicePress.com)
URL: http://www.goodadvicepress.com