BEFORE YOU BEGIN
Before you begin looking for your new home, it is important that you determine how much you can afford to pay monthly for your new home and how much you will need to borrow from a Mortgage Lender. The simplest and easiest way to obtain this information is to contact a Mortgage Lender or Broker and pre-qualify. You should carefully read the section on Lenders below before proceeding further. To decide whether you should buy a new home, think about how long you’re planning to stay. It doesn’t generally make economic sense to purchase if you are only planning to stay for a year or two because of the fees to buy and then to sell. The property would have to appreciate in value very quickly, between the time you buy it and the time you sell it, to make it financially worthwhile.
GETTING STARTED
The initial step in your home purchase should be to consult with a real estate attorney. While you may think it important to obtain a real estate agent, a one hour consultation with an attorney can help you avoid the pitfalls that would otherwise be unknown to you, and real estate agents cannot provide you legal advice. A real estate attorney can answer your questions and provide you advice that could save you money later. A home is the most important and usually the most expensive purchase most people will ever make and an hour of a real estate attorney’s time for advice is one of the best decisions you can make.
Should you obtain a real estate agent to assist you in finding your “dream” home, he or she will be paid by the Seller, from the proceeds of sale at settlement. This means you will likely be limited to homes that are listed on MRIS, because homes for sale by owners will not pay your agent a commission. While your agent may be able to negotiate a commission with the private owner, this negotiation may not be in your best interest. Such practices may have the unexpected effect of increasing the sales price of the house to cover your agent’s commission. If you are planning to remain in the house for an extended period of time, this may have little effect, but if you are planning to sell within two or three years you may have difficulty selling without some amount of loss.
The real estate professional that you select should help you to focus your search for a home that fits your needs and desires as well as the realities of your budget. Your real estate agent should introduce you to the entire home buying process from identifying areas, features and types of homes in which you are interested, to assisting you in determining your qualifications for the financing of your purchase.
Legal and ethical responsibilities of your real estate agent are established by Virginia statute and by Virginia Real Estate Board regulations. Prior to entering into any brokerage relationship an Agent or Broker is required by law to advise the prospective client of (i) the type of brokerage relationship proposed by the broker and (ii) the broker’s compensation, and (iii) whether the broker will share such salary or compensation with another broker who may have a brokerage relationship with another party to the transaction.
Regardless of which type of relationship you establish, the real estate professional should perform countless services for you with the goal of making the home buying and settlement process as simple and enjoyable as possible. The duties owed by a licensed real estate agent engaged by a buyer are set forth in Virginia Code Section 54.1-2132 (1950), as amended, and as effective on July 1, 2011 state that a Licensee engaged by a buyer shall:
1. Perform in accordance with the terms of the brokerage relationship;
2. Promote the interests of the buyer by:
a. Seeking a property of a type acceptable to the buyer and at a price and on terms acceptable to the buyer; however, the licensee shall not be obligated to seek other properties for the buyer while the buyer is a party to a contract to purchase property unless agreed to as part of the brokerage relationship;
b. Assisting in the drafting and negotiating of offers and counteroffers, amendments, and addenda to the real estate contract pursuant to ยง 54.1-2101.1 and in establishing strategies for accomplishing the buyer’s objectives;
c. Receiving and presenting in a timely manner all written offers or counteroffers to and from the buyer and seller, even when the buyer is already a party to a contract to purchase property; and
d. Providing reasonable assistance to the buyer to satisfy the buyer’s contract obligations and to facilitate settlement of the purchase contract.
3. Maintain confidentiality of all personal and financial information received from the client during the brokerage relationship and any other information that the client requests during the brokerage relationship be maintained confidential unless otherwise provided by law or the buyer consents in writing to the release of such information;
4. Exercise ordinary care;
5. Account in a timely manner for all money and property received by the licensee in which the buyer has or may have an interest;
6. Disclose to the buyer material facts related to the property or concerning the transaction of which the licensee has actual knowledge; and
7. Comply with all requirements of this article, all applicable fair housing statutes and regulations, and all other applicable statutes and regulations which are not in conflict with this article.
B. Licensees shall treat all prospective sellers honestly and shall not knowingly give them false information. No cause of action shall arise against any licensee for revealing information as required by this article or applicable law. In the case of a residential transaction, a licensee engaged by a buyer shall disclose to a seller whether or not the buyer intends to occupy the property as a principal residence. The buyer’s expressions of such intent in the contract of sale shall satisfy this requirement and no cause of action shall arise against any licensee for the disclosure or any inaccuracy in such disclosure, or the nondisclosure of the buyer in this regard.
C. A licensee engaged by a buyer in a real estate transaction may, unless prohibited by law or the brokerage relationship, provide assistance to the seller, or prospective seller, by performing ministerial acts. Performing such ministerial acts that are not inconsistent with subsection A shall not be construed to violate the licensee’s brokerage relationship with the buyer unless expressly prohibited by the terms of the brokerage relationship, nor shall performing such ministerial acts be construed to form a brokerage relationship with such seller.
D. A licensee engaged by a buyer does not breach any duty or obligation to the buyer by showing properties in which the buyer is interested to other prospective buyers, whether as clients or customers, by representing other buyers looking at the same or other properties, or by representing sellers relative to other properties.
E. Licensees shall disclose brokerage relationships pursuant to the provisions of this article.
F. Licensees are not required to disclose whether settlement services will be provided by an attorney or a non-attorney settlement agent.
FINDING YOUR HOME
In order to determine the exactly what you’re looking for it will be necessary for your real estate agent to ask you many questions. These questions should assist your agent to design a focus for your search for the perfect home. These details should include the types and styles of homes you are interested in as well as the areas or neighborhoods in which you wish to purchase, and the price range which you can afford. Identify the area in which you wish to live. Check the infrastructure and conveniences you require such as schools, churches, shopping malls, entertainment, medical, dental, legal, accounting, professional centers, Fire stations, Police, Rescue, Metro Rail and/or Bus, VRE, or other transportation requirements. Also check the proximity to your place of employment and traffic to and from your home during the period when you must arrive and leave. Finally, check the types of homes you’re interested in, single family, townhomes, or condominiums, and the number of bedrooms, baths, whether you desire to have a basement, garage, fireplace, etc. Based upon this information you provide your Agent will search the Metropolitan Regional Information System (MRIS) which lists all homes currently for sale and registered with the local board of real estate agents/brokers. Your agent should have access to these homes through a lock box which contains a key and will be able to show you these homes.
TITLE TO REAL PROPERTY
Before you write your contract, you should decide how you wish to take title to the property. If you are unmarried and are purchasing the property by yourself, you will take title in your own name as you sole and separate estate. If you are taking title with another person, you have a couple of options on how to take title.
TENANTS IN COMMON
If a property is owned as tenants in common, each party who is shown as a grantee will own the share indicated in the deed. If no specific share is designated, each grantee will own an equal share. If any of the owners die, his or her share will pass to his or her heirs at law through the law of intestate succession unless he or she has otherwise indicated by Last Will and Testament, in which case it passes according to the Will.
TENANTS BY THE ENTIRETY WITH RIGHT OF SURVIVORSHIP AS AT COMMON LAW
This form of ownership can only be held by a husband and wife. If the property is to be held in this manner, the husband and wife each own an equal and undivided share of the property. Should the husband or wife predecease the other, the survivor becomes the sole owner of the property by operation of law without any additional requirements. Only creditors whose debt is owed by both the husband and wife may obtain a judgment required to be paid upon the sale or refinance of the property (except for federal taxes). This type of ownership treats the husband and wife as one person and requires both parties to sign any kind of deed of conveyance, including a “quitclaim” deed. Neither party may transfer his or her interest in the property by Last Will and Testament. In the event of divorce, the tenancy is severed and ownership is automatically converted to a tenancy in common (see below).
JOINT TENANTS WITH RIGHT OF SURVIVORSHIP AS AT COMMON LAW
Any two, or more, individuals may choose to hold title to property as joint tenants with right of survivorship as at common law. Each joint tenant will own an equal undivided percentage (or fractional share) in the entire parcel of real estate. Upon the death of a joint tenant, his or her interest will automatically convey by law to the surviving joint tenants. A creditor of any joint tenant may obtain a judgment which will attach to the property and is required to be paid upon the sale or refinance of the property. This type of ownership does not require all of the parties to sign a deed of conveyance, but the signing joint tenants can convey only their share and then the share conveyed will be owned as tenants in common with the remaining joint tenants. No Joint Tenant may grant, devise, or bequeath his or her portion of the property to another by Last Will & Testament.
WRITING THE CONTRACT
Once you have identified the home that you wish to purchase, you will need to prepare a contract specifying the details of your purchase of the property. When you write the contract and when you apply for your loan, you should have your name listed as you wish to sign, i.e., first name, last name; or, first name, middle initial, last name; or first name, middle name, last name. It is recommended you look at your driver license or passport to see how you usually sign your name legally and that you use this as the name for the contract. Your Agent will help you to prepare a purchase contract utilizing standardized forms provided by your real estate agent’s local board of realty. These standardized forms are used in order to assure that both you and the Seller comply with the various laws and regulations that govern the home sale and purchase transaction. If there are specific issues you wish identified in the contract that are not provided for in the standardized forms, your Agent may recommend language or you can consult with an attorney. Again, your real estate agent is not an attorney and cannot provide you legal advice. You are getting ready to make what is perhaps the biggest purchase of your life and you should consider consulting with a real estate attorney before making the plunge. Once your contract has been completed and signed by you, your Agent will provide it to the Seller’s agent (often referred to as the “Listing Agent”) for presentation to the Seller. The contract is not ratified and does not become a valid and binding contract under Virginia Law until both sides of the transaction have signed the contract and initialed any changes.
LENDERS, BROKERS, AND MORTGAGES
Mortgage Lenders will present the biggest obstacle to your home purchase. Basically, they will ask you for all types of information which will bare your financial soul and after reviewing this information may decide not to lend you the money you’ve requested. The Lender will review your income, credit, and collateral in arriving at their final decision of whether to lend money to you. The lender is concerned about getting their money back and wants to know if you make enough money to repay them, if you have been trustworthy in repaying your debts in the past, and if you have something of value they can attach if you do not repay them as you have promised.
AMOUNT OF THE LOAN
Ideally, you will want to come up with at least 20% of the value of your new home as a down payment, to avoid things like mortgage insurance payments (See the Mortgage Insurance Section) but, you can probably qualify for financing arrangements that will get you into a new home for as little as 3% of the sales price. The lender will plug your income numbers into a formula called the front-end ratio to determine the amount of your gross income you can pay toward your monthly mortgage payment. For example, suppose you have gross income of $5,000.00 per month. Most lenders will allow you to pay 29 percent of that gross income toward you mortgage payment or $1,450.00. The lender will them plug your debt payments into a formula called the back-end ratio to determine the percentage of debt you are paying. For example, suppose you are paying $500.00 per month for debt, and you add $1,450.00 for a mortgage payment, this totals 39 percent for your back-end ratio. Usually lenders will allow up to 41 percent of your gross income going to total debt and in this case you’re only paying 39 percent.
REPAYING THE LOAN
Your lender will want to know not only how much money you have, but how much you will likely make in the future, what your other debts are, whether you owe money for college loans or credit cards, whether you have other assets, such as stocks, bonds, mutual funds, automobiles, boats, etc., are all considered in determining whether a bank will give you a loan and in what amount.
Lenders will want to know if you can repay the mortgage debt you incur — this is known as your capacity. Lenders will base their evaluation on employment information, how long you’ve worked, and how much you are paid. Lenders will also review your expenses and any other debt obligations you have. This means they’ll want to know how many dependents you have and whether you pay any alimony or child support, for example.
COLLATERAL
The house you buy will generally be considered collateral for your mortgage. As a result, in case you can’t repay the loan, the bank can decide to do something really nasty: foreclose on the mortgage and repossess the house. You will find yourself out on the street — with your dog, your bed, and your suitcase. Your house belongs to the bank, and it is unlikely that anyone will ever loan you money again. Avoid this scenario at all costs.
COMFORT ZONE
Before you borrow $200,000, $300,000, or whatever you need for your mortgage, figure out whether you can really afford it. Just because the bank will loan it to you, doesn’t mean that you will live your life in such a way as to be able to pay it back. Are you planning to have a big family? Would you rather replace your Chevy Cavalier with a new Mercedes? Your house payment is just one piece of your financial puzzle. What might you need to give up to make that house a reality and are you really willing to do it?
CREDIT REPORT
One of the most frequently used ways for lenders to evaluate your credit profile is to access your credit report. If you are trying to purchase a home with a co-borrower, that person’s credit report will also be reviewed. The three major sources of credit information are Equifax, Trans Union, and Experian. The information contained in the report focuses on how you have managed your debt over time. The information includes the length of time you have had credit cards and how you have used them There’s also a review of how promptly you have paid your credit card bills. Additionally, the report lists any auto or other consumer loans that you have and shows your record for payment.
CREDIT RATING
Your credit rating is based on the information in your credit report. This information is converted into a number — a credit score — that the lender uses to determine whether you are likely to repay your loan in a timely manner Using mathematical formulas and statistical techniques, credit bureaus routinely provide lenders with a three digit number, known as a FICO score, which is typically in a range between 500 and 800. This score represents your credit history in a nutshell and more importantly to lenders, your credit worthiness. The higher the score, the better credit risk you are. Obviously, not all of these formulas are identical and each of the credit bureaus may have slightly different information pertaining to you. This can result in significantly different scores, but it is important to lenders that these credit scores be realistically optimal. If a formula eliminates too many applicants, the lender will lose revenue; but if it eliminates too few, the lender will suffer more defaults on their loans. Lenders are so sensitive to the bottom line that more and more are offering special incentives to borrowers with higher scores, such as lower interest rates or instant approval. It is important to know that your credit score is based solely on information in your credit report. Factors such as race, age, religion, national origin, marital status, gender, income, where you live, and employment are not considered in determining your credit score.
Credit bureaus attempt to refine their calculations by drawing representative samples from large data files covering the past history of individual consumers as they search for patterns that would isolate historical consumers who proved to be bad credit risks. To the bureaus, and more importantly the lenders, applicants who look like past defaulters are more likely to be future defaulters, and consequently formulas will be designed to generate lower scores for these patterns.
In order to maximize your credit scores, pay your bills on time, especially mortgage or rent payments. Other than extreme circumstances like bankruptcy or tax liens, nothing has the impact of late payments. Anything more than 30 days late will be damaging. Never let a payment of any kind, even phone or utility bills, to get 90 days past due.
While no one can state with specificity how many credit cards you should own, not having any is likely to reduce your credit score. Having clean, active charge accounts established many years ago will boost your score. If you are adverse to credit, on principle, consider setting up automatic monthly payments for, say, utilities and phone on a credit card account and locking the card away where it’s not a temptation. The sooner you get started, the better, if you plan to buy a house someday. It’s not necessarily a good idea to cancel extra cards, if you have more than one or two, but it’s a good idea to total credit card debt to total credit available as low as possible.
Do not apply for too much credit in a short amount of time. Multiple requests for your credit history (not including requests by you to check your file) will reduce your score. If you are hunting around for good loan rates, assume that every time you give your Social Security number to a lender or credit card company, they will order a credit history. Check your credit history for errors, especially if you will soon be requesting a time-dependent loan, like a mortgage All three national credit bureaus, Equifax, Experian, and TransUnion — have consumer ordering information on their websites. If you have problems with your credit, remember that more recent credit history usually is a greater predictor that older history and begin to change your score today.
ERRORS IN YOUR CREDIT REPORT
Your credit report may contain inaccuracies. The best way to ensure there are no errors in your credit report is to request copies and review the information. Since each of the main credit bureaus keeps its own records, you may want to request copies from all three. Experian, Equifax, and Trans Union. You can request credit reports individually from each of these agencies or order from all three agencies in one easy step at www.TrueCredit.com.
Equifax (800) 685-1111
Experian (800) 682-7654
Trans Union (800) 916-8800
If you have been turned down for credit because of the information in your credit report, you are entitled to receive a free copy of your report within 60 days of the denial. If you haven’t been denied credit, you can still request a copy of your credit report, usually for a nominal fee.
If you find errors in your report, follow the directions in the credit report, and contact the agencies to have the errors corrected. They will investigate the targeted items and remove incorrect information. You don’t have to delay applying for a mortgage while errors in your report are being corrected. Explain the discrepancies in the report to your lender, and state that the credit agency is correcting them.
WHAT YOU NEED TO KNOW ABOUT MORTGAGE INSURANCE
WHAT IS MORTGAGE INSURANCE
Mortgage lenders have learned through experience that borrowers who have less than a 20% equity stake in their homes are more likely to default on the debt than a homeowner who has 20% or more equity. Because of this, lenders were unwilling to lend money when borrowers were putting up less than a 20% of the value. Many purchasers simply didn’t have the cash to put up a 20% down payment, which provided an opportunity for the creation of mortgage insurance. A mortgage insurance company agrees, in exchange for a premium, to insure lenders against the risk that the borrower might default. The borrowers pay the mortgage insurance premiums, either directly or indirectly, in the form of higher monthly payments.
While mortgage insurance allows borrowers to buy a home even when they don’t have a 20% or better down payment, borrowers often continue to pay premiums even when the equity in their homes exceed the 20% threshold and the insurance is no longer necessary. This overpayment of unneeded mortgage insurance premiums costs borrowers in the United States millions upon millions of wasted dollars. You may be one of these borrowers yourself!
WHO PAYS FOR MORTGAGE INSURANCE
If you have an FHA home loan less than 10 years old, then you paid a large premium for mortgage insurance when you purchased your home and took out your loan. On many FHA loans, you also pay with your monthly payments an additional mortgage insurance premium on top of the up-front premium.
If you purchased a home, and financed that purchase using a conventional loan, and if the loan amount was 80% or more of the purchase price of the home, then you may be paying for mortgage insurance now with your monthly payments.
If you refinanced your home loan, and if the conventional loan amount at the time of the refinance was 80% or more of the appraised value of your home, then, like the new home purchaser, you may also be paying for mortgage insurance through your monthly payments.
HOW DO YOU GET RID OF MORTGAGE INSURANCE WHEN IT ISN’T NEEDED ANYMORE
Congress passed the Homeowners Protection Act of 1998 (the “HPA”), which was signed by the President and passed into law on July 29, 1998. The HPA makes very significant changes with respect to mortgage insurance termination. However, except for some new disclosure rules, the HPA applies only to new conventional mortgage loans which are made more than one year after the date the IITA became law. That is, new conventional loans made on or after July 29, 1999 will be eligible for the protections of the HPA, but conventional loans made up until July 29, 1999, will not. The HPA does provide that for all loans with mortgage insurance, including existing loans, the lender must provide annual notices of the borrowers’ rights to terminate the mortgage insurance and contact information with the lender to process termination requests. These notice requirements will probably appear on the borrowers’ armual statement from the lender.
The protections offered by the HPA include:
Borrowers have the right to cancel mortgage insurance if (a) the borrowers ask for cancellation, (b) the borrowers can prove that they now have at least a 20% equity stake, (c) the borrowers have a good payment history, (d) the loan isn’t exempt or “high risk” as determined by the HPA, and (e) there is no equity line or other subordinate financing
Mortgage insurance will be automatically terminated without action from the borrowers once the loan reaches 78% (77% for “high risk” loans as defined in the HPA) of the lesser of the original sales price or appraised value (as these were used by the lender originally), if payments on the loan are current, and if the loan isn’t otherwise exempt or “high risk.” There is also a cure procedure to bring payments current for the purpose of automatic termination of mortgage insurance.
Even if a loan doesn’t qualify for the new cancellation or automatic termination procedures of the HPA, no mortgage insurance premiums will ever be allowed to be collected beyond the half-way point of the original amortization schedule of the loan. That is, if the loan was a 30-year loan, and for some reason didn’t otherwise qualify for cancellation or automatic termination, mortgage insurance would end anyway at the 15-year mark.
Nothing in the HPA requires mortgage insurance on a loan, and nothing in the HPA restricts the borrowers and their lender to agree on a shorter cancellation or termination procedure.
Closings on new mortgage loans after July 29, 1999 must contain detailed disclosures about borrowers’ rights of cancellation and termination or mortgage insurance. Also, as previously noted, ALL borrowers, both existing, current and new, must receive annual notices of cancellation and/or termination rights available to them.
FHA and VA insured loans are exempted from the HPA.
Other than the Homeowners Protection Act of 1998, there aren’t any regulations or laws regarding the borrowers’ ability to terminate unnecessary mortgage insurance premiums. Because there isn’t any automatic termination of mortgage insurance, termination only happens when an informed borrower asks for it and meets the lender’s termination polices. Termination policies vary from lender to lender, and from loan to loan, but a lender will usually allow borrowers to terminate their mortgage insurance when the borrowers have a good payment history and can prove a 20% equity stake by either a new appraisal or a principal reduction of the loan to below 78%. Borrowers who are motivated to save money will contact their lender, determine that lender’s mortgage termination policies, and then follow through to get rid of their unneeded mortgage insurance premium.
Remember however, that the lender has no incentive to help borrowers get rid of mortgage insurance and borrowers are generally unaware that they even have the right to ask for elimination of unneeded mortgage insurance, and so in blissful ignorance they continue to pay.
Is there a way to avoid mortgage insurance if I’m buying a new house now, or refinancing? With a little foresight, and the help of a good mortgage lender, there are some inventive ways to avoid mortgage insurance. We strongly suggest that you consult with your favorite mortgage lender to determine whether or not you can structure mortgage insurance avoidance into your next mortgage loan transaction. There are three basic ways to avoid mortgage insurance:
The first, and most obvious way, is for new purchasers to have the 20% cash down payment needed, or for refinances to have an appraisal showing that the new loan is 80% or less of the new appraised value.
The second way is a variation of the first, but involves a second mortgage. You borrow on a first mortgage as much of you can, but not going over the 80% of value rule, so that you can avoid mortgage insurance. Then you put up what cash down payment you can and take out a second mortgage for the difference. The plan avoids mortgage insurance, but has two drawbacks: (a) not every mortgage lender will allow second mortgages as part of issuing a first mortgage and (b) interest rates may be higher on the first mortgage and/or second mortgage, or both. However, interest is tax deductible and mortgage insurance is not. If you can get a competitive interest rate on the first mortgage, and the first mortgage lender allows a second mortgage so you can avoid the mortgage insurance, then you can adopt a strategy to pay off the second mortgage early with prepayments, but still deduct the interest on both.
The third way is what is referred to as “lender paid mortgage insurance” (LPMI). The mortgage industry sometimes calls LPMI “tax advantaged” mortgage insurance. What happens is that borrowers are still required to have mortgage insurance for a loan which exceeds the 80% loan-to-value rules, but the premium for the mortgage insurance is paid directly by the lender. The lender recoups this payment usually by charging a higher interest rate for the mortgage. However, as with the second option, since interest is tax-deductible, it may be worth the extra amount paid. The disadvantage of LPMI is that you don’t get any refund, cancellation or termination rights when your loan balance drops below the 80% threshold.
FHA LOANS
As noted earlier, FHA is not covered by the HPA. FHA financing is very popular among first-time and lower-income home buyers, because they can buy a home with only 3% of the purchase price paid in a down payment. What happens in an FHA loan is that the US government guarantees that the lender will not suffer a loss in the event of loan default. The FHA charges a substantial up-front mortgage insurance premium at the time of closing, but allows the lender to increase the loan amount beyond the 97% threshold to cover this premium in full. Because the loan amount increases to cover the premium, the borrower is actually paying for the mortgage insurance in the form of higher monthly payments. The FHA lender also charges an additional and separate monthly mortgage insurance premium which is collected on the first 7-10 years of payments. There is no termination or cancellation of the up-front mortgage insurance premium or the monthly mortgage insurance payments, even if the loan balance drops below the 80% threshold used in conventional loans. However, the FHA does employ a refund procedure if the FHA loan is paid off early. That refund is greatest if the FHA loan is paid off during the first three years and tapers off significantly, until after about 7 years from the time the loan was taken out, there is no longer any refund. If an FHA loan is paid off during the first 7 years of the loan, the borrower is entitled to a refund from the FHA of part of the up-front FHA mortgage insurance premium that was built into the original loan and collected at closing, however, the borrower will not be entitled to any refund of the additional FHA mortgage insurance payments made through the monthly payments. As with conventional loans, borrowers are often unaware of the FH_A mortgage insurance refund when the FHA loan is paid off early. The FHA borrower must seek this refund, which may be a substantial sum of money, only by filling out a refund application and sending it into the FHA.
For more information on the refund of FHA insurance premiums, check out the FHA Refund Fact Sheet page as well as the searchable FHA database, where you can see if you have earned or may be entitled to a refund.
VA LOANS
Although VA loans also involve US government insurance of loan default, VA loans do not have prepaid mortgage insurance like FHA loans VA loans are made only to active or former members of the US armed services, and can be up to 100% of the purchase price of a home (that is, no down payment). The VA charges a substantial “funding fee” which is similar to the FHA up-front mortgage insurance premium and is also financed into the loan at closing, but which is not at all refundable upon early payoff of the VA loan.
CONCLUSION
If you have an existing home mortgage loan which is not FHA or VA, and if you pay mortgage insurance as part of your monthly payments, then check your current loan balance against your original home purchase price (if this loan was the one you used to buy the house) or against the appraisal which was used by your lender when the loan was made, to see if you are at or near the 80% loan-to-value threshold. If you’re close, contact your lender to determine its procedures to terminate the mortgage insurance. If the lender informs you that you only need to reduce your loan balance by a few thousand dollars, consider taking out an equity line mortgage with your bank to raise the money to pay down your mortgage loan and get rid of the unproductive mortgage insurance. If your lender allows you to reach the 80% threshold by securing a new and higher appraisal, and you think your house has appreciated substantially, then consider spending the money for a new appraisal and getting rid of mortgage insurance.
If you’re getting ready to take out a new loan for purchase or refinance, consider the impact of mortgage insurance if you’re going to borrow more than the 80% loan-to-value ratio. Explore with your lender available mortgage insurance avoidance techniques.
Even if you’re not ready to get rid of mortgage insurance by these methods, remember that thanks to the new HPA, you will be receiving annual disclosures from your lender describing your continuing rights to do this.
If you have paid off an FHA loan within the last five years, either by sale of your house or refinance to a conventional or VA loan, and if you didn’t receive any refund from the FHA of the unused upfront mortgage insurance premium, then find your original closing statement for when the paid-off FHA loan was originally taken out to see if you in fact paid for up-front FHA mortgage insurance. If you see that you did, then check out the online searchable FHA database to see if you have earned or may be entitled to a refund