How to Finally Get Rid of PMI Insurance on Your Mortgage

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If you took out a conventional mortgage, your monthly payment will consist of more than just principal and interest components. You’ll also be stuck paying for PMI, or Private Mortgage Insurance, if you purchased your home with a down payment less than 20%.

While paying PMI can be somewhat annoying – especially considering all the other costs that come with a home purchase – it’s understandable why PMI is mandatory if you’re putting less than 20% down on a home. This type of insurance protects the lender if you end up defaulting on your mortgage.

The less money you are able to put towards a home purchase, the more money your lender is going to have to front to help you make that big purchase, putting them at increased risk. Should you ever fail to pay your mortgage for whatever reason, your lender will be covered.

The good news is that you don’t have to be stuck paying premiums on PMI forever.

How and When is PMI Eliminated?

Your PMI premium can be removed once you have a minimum of 20% equity in the home, which means you will have to owe less than 80% of the home’s original appraised value before PMI is canceled. Once you’ve reached that number, you can request to have PMI eliminated, but you will have to meet certain conditions first.

For starters, your request must be made in writing, and your payment history needs to be in good standing. Your lender might want to verify whether or not there are any outstanding liens on your home and will want to have the property appraised to ensure it hasn’t decreased in value.

PMI can also be canceled automatically if the amount you owe on your mortgage reaches 78%. As per the Homeowners Protection Act, your mortgage servicer is required to eliminate your PMI when your outstanding mortgage balance reaches this point. There’s no need for a written request; however, you need to be up to date with your mortgage payments before PMI is dropped.

With the right steps and due diligence, you can eliminate PMI payments as part of your mortgage payments sooner rather than later. Here’s how.

Make Bigger Monthly Payments

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The most obvious way to reach that 80% or 78% mark is to put more money towards your mortgage. The faster you pay it down, the faster you’ll reach the point where PMI won’t apply any longer. Even an extra $50 or $100 a month extra can make a big difference in paying down your principal. And depending on your particular mortgage arrangement, you may also be able to make lump sum payments once per year without penalty.

Not only will making bigger monthly mortgage payments help you lower your outstanding balance to 78% and thereby help you effectively eliminate that extra PMI payment, you can also reduce your overall interest payment. This can translate into significant savings over the course of your mortgage.

Get a New Appraisal

Depending on where you live, your home may have increased in value since you first bought it. If it has increased in value high enough, your lender may be more willing to take the PMI off your mortgage. Consider having an appraisal done on your home to see what its present value is and if it’s increased in value. If it has increased by a significant amount to the point that you reach that 80%, your lender may agree to drop the PMI.

Refinance Your Home Loan

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If your home has appreciated in value high enough, you might be able to refinance your home. When you refinance, you basically pay off the first home loan, after which a second loan is created. You’re essentially replacing your present mortgage with a new one. If you’re able to get a mortgage that accounts for less than 80% of the value of your home, you may be able to ditch that pesky PMI payment.

Remodel Your Home

Aside from appreciation over time, there are other ways to increase the value of your home. Remodeling your property is a great way to boost your home’s value. Certain projects can bring in a high ROI, while others can end up costing you a lot more than you will ever get back, which is why it’s important to carefully consider the types of remodeling projects to take on.

If your remodeling job boosts your home’s value high enough, you might be able to reach that 80% threshold and have the PMI officially eliminated. An appraisal will need to be conducted to verify how much the home’s value has actually increased as a result of the improvements made.

The Bottom Line

The best way to avoid having to pay PMI is to put at least 20% down on a home purchase. However, that can be a tall order, especially in certain markets where home prices are through the roof. If you aren’t able to come with a 20% down payment, that doesn’t mean you’ll be stuck with PMI forever.

There are several ways to go about achieving a loan amount that’s less than 80% of the property’s value. All you need is a little due diligence and self-discipline with your finances in order to whittle down your outstanding balance to the point where PMI is no longer required.

6 Kitchen Design Trends Sellers Should Consider

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No buyer is going to want to put up a huge sum of money to purchase a home that they don’t like, unless they’re specifically looking for a fixer-upper. If your goal as a seller is to sell your home as quickly as possible, your best bet is to prep it in such a way that buyers can’t help but fall in love with your place. The more attracted buyers are to your home, the more likely they’ll be enticed to put in a handsome offer.

While every part of your home may warrant attention, the kitchen is particularly important. Great kitchens sell, and they also garner higher bid prices. If you’re considering tweaking your kitchen to attract the masses of buyers, here are a few design trends you may want to consider.

1. Hidden Appliances

Stainless steel appliances have vastly improved the look of a kitchen compared to those outdated and unattractive green or yellow appliances that plagued kitchens through the 1970s and early 1980s. Although white appliances provided homeowners with a much better color option, they still pale in comparison to the esthetics of stainless steel.

That said, sophisticated homeowners of today are opting to hide appliances altogether. Rather than have them stand out in the kitchen, appliances are being camouflaged to blend in with the rest of a kitchen’s cabinetry and walls.

2. Commercial-Grade Appliances

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If you don’t want to conceal your appliances, show them off. But if you do, make sure they’re commercial-grade. Buyers love watching all those home improvement shows on TV, many of which tend to use these higher-end appliances in their kitchen renovation jobs. As a result, more and more buyers want these appliances in their own kitchens.

If commercial-grade is out of your budget, consider just one high-end piece to wow buyers, such as a Sub-Zero fridge or a Viking six-burner gas range. Statement pieces like these will surely get your buyers’ attention and nudge them in the direction of putting in an offer.

3. Reclaimed Wood

Today’s savvy homebuyers love the idea of anything natural or recycled in the homes they buy, including reclaimed wood. Not only is it esthetically pleasing, it also supports a sustainable home. But rather than using it all over the space, reclaimed wood can be added to an accent wall or an island countertop to add an element of natural beauty.

Reclaimed wood looks especially sharp when complemented with small doses of metal, which helps to harmonize both a natural and industrial look into the kitchen. Adding warm features like this into the kitchen can help you infuse some interesting character to the space while still keeping it modern and updated.

4. Quartz Countertops

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Granite saved the day years ago when it became affordable enough to replace all those outdated vinyl and laminate countertops. And while granite is still a highly coveted feature in homes, buyers are becoming increasingly impressed with something a little different but just as classy: quartz.

This material is manufactured using crushed quartz mixed with resin, and comes in a wide array of different colors and patterns to help homeowners create a truly unique look in their kitchens while perfectly matching the rest of the space’s decor. Quartz has the look of natural stone but has a few added benefits.

For starters, quartz is more flexible than granite, which makes it easier to work with when it’s being installed. It’s also non-porous, which means that it is resistant to stains and bacterial growth, unlike granite which is porous and susceptible to staining.

Buyers will certainly be impressed when they see this durable, gorgeous material as your kitchen countertop.

5. Smart Technology

More and more homes are being controlled remotely through digital technology these days, so the fact that buyers appreciate and look for “smart homes” to buy is no surprise. But smart technology is increasingly taking over kitchen functions, in particular.

From smart refrigerators that let you make notes of your grocery list and upcoming events, to touch-sensor sinks and faucets, and even ovens and stovetops that can be turned off remotely, smart technology can make a kitchen a cinch to operate. No more fretting about whether or not the stove was left on – simply turn it off with the touch of a button from a smartphone!

6. More Space

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Buyers want space, especially when it comes to kitchens. Even if they don’t necessarily want oodles of square footage in the kitchen, they still want a space that is large and open enough to be able to move freely and comfortably about as they prep their meals and entertain guests. If your kitchen is a little tight on space, you may consider opening it up by knocking down a wall.

If that’s not possible, you might even be able to create the illusion of more space by incorporating open-concept shelving, installing glass cabinet doors, or hanging pots above your island or stovetop. While you may associate such exposure of dinnerware and cookware with a cluttered space, these tactics actually have a way of creating a more open and warm feel to a kitchen.

The Bottom Line

If you’re going to invest some time and money into updating your home to make a good impression on buyers, focus on the kitchen. Buyers will often base their buying decisions on the state of a home’s kitchen, which makes this space worthy of your attention. Consider any one of the above trends, or something that your real estate professional recommends that would attract the specific pool of buyers looking in your area.

7 Quick Tips for Buying Your Second Home

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Everyone needs a getaway every once in a while, and a change of scenery can be just what’s needed to refresh and unwind. But sometimes having to book a hotel or chalet can be a bit of a challenge, especially during peak seasons when availability is scarce and prices are through the roof. In cases like these, having your own retreat that you can visit at the drop of a hat can be a lot more convenient.

These days, plenty of people are snatching up second homes of their own. In fact, about one-fifth of all homes purchased in the U.S. are vacation homes, according to the National Association of Realtors. You might want to consider jumping on that bandwagon.

But before you put in an offer on that second home, make sure to heed the following tips first.

Assess Your Long-Term Needs and Goals

What exactly are your current needs, and what do you anticipate them to be in the future? Will you be using the home just for quick weekend getaways, or for extended summer holidays? If it’s the former, you should probably look at homes no further than an hour or two away, while the latter might even justify a plane ride to get there.

You should also consider whether or not the second home would serve as your retirement home. If so, you want to make sure that certain amenities are close by, especially health care services. Before you buy a second home, be realistic about the type of property that suits your particular lifestyle, ,both now and in the future.

Stay in the Area Before You Buy

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If you’ve never been to the area that you’re looking to buy in, do yourself a favor and book a few visits to get a feel for what it would be like to vacation there. Even if you have stayed there before, try to get to know the area as a local rather than as a tourist. Visit the place in all four seasons, including during off-peak times, and chat up the locals to get their opinion of what life is like in that community before you buy.

Compare the Cost of Location

In housing markets that are dominated by vacation properties, the price of homes can vary a great deal. The same house in one vacation spot can be a lot more expensive than in another.

And of course, properties on premium lots, such as those that are located facing a lake or at the foot of the mountain, will obviously be more expensive than those sitting on a traditional lot. Try to compare similar homes in different vacation spots to see what their price difference is before settling on a particular location.

Consider Renting or Fractional Ownership to Keep Costs Down

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Renting out your second home could be a viable option if you want to supplement the mortgage with a rent check. This is especially true if the home will sit vacant for the majority of the year. You could find yourself spending a lot of money for a home that you don’t spend a lot of time vacationing in.

During the remainder of the weeks when you’re not there, you may want to consider filling it with paying customers in the meantime to offset the costs. Just remember to become familiar with the landlord/tenant laws in your area to make sure you’re well aware of your responsibilities as a landlord.

Additionally, you could consider fractional ownership whereby you and others share ownership and costs of the home. By sharing the expenses of the home, you and your friends or relatives can all enjoy a vacation for a fraction of the cost.

Get the Right Mortgage For Your Second Home

The type of mortgage your lender will give you to finance your second home will depend on whether the property is viewed as a rental home versus a vacation home. If the lender considers the purchase to be for investment purposes so you can rent it out for a period of time throughout the year, it will be considered an investment property. In this case, the mortgage you get will be different than a traditional mortgage, and will typically be more expensive in terms of higher interest rates and bigger down payment.

That’s because lenders consider loans for these types of investment properties to be riskier. Since buyers aren’t living in these homes full time, lenders may be more concerned that borrowers might be more prone to default on their monthly payments if they’re unable to keep up with their mortgages. That said, a slightly more expensive mortgage shouldn’t throw your finances off if you are collecting a handsome rent check during those times of the year when the property is being used as accommodations for others.

On the other hand, if the home is seen as a vacation property in which you actually live in it on a semi-regular basis, the mortgage conditions will change. Vacation home mortgages have only slightly higher interest rates compared to primary home mortgages. Just like with your main home, it’s worth it to shop around for the best mortgage rate and terms.

Check Out Potential Tax Breaks For Owning a Second Home

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If the home is being used for your own personal use, then you can deduct mortgage interest as you would be able to with your primary residence. Up to 100% of the interest paid up to a total of $1.1 million of debt that’s secured by both your first and second properties can be deducted. You’re also able to deduct property taxes on your second home. However, you typically aren’t allowed to write off the cost of utilities, maintenance or insurance like you would on a primary home, with certain exceptions.

On the other hand, the tax rules are different if you rent your second home out. The rules also depend on how long the home is rented out each year. For instance, if your second home is rented out for less than 15 days per year, you do not have to pay taxes on the rental income you collect. However, you can’t deduct rental expenses. If your second home is rented out for more than 15 days per year, the rental income needs to be reported, but you can still deduct expenses associated with upkeep.

Use a Local Real Estate Agent

Buying a home, whether it’s your primary residence or a second home, should always be done with the help of an experienced real estate agent. In the case of your second home, it’s important that you use an agent who works in the community you’re looking to buy in and is familiar with the local market as well as any particular issues that you might not look for in a typical home.

Areas with road restrictions, access issues, or protected plant life can impact the use and enjoyability of your home if you’re not aware of them and prepared to deal with them. A local real estate agent will know what to look for and will fill you in on these often hidden issues, especially if you’re not from the area.

The Bottom Line

There are plenty of conveniences that go along with owning a second home, as well as the obvious extra expenses. Buying real estate – whether it’s your first or your second home – is a huge financial decision and one that should be made only after careful consideration. Be sure to think about all the possible pros and cons to help you make a more informed decision.

Negotiating Repair Requests From Sellers

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Unless the home you’re buying is fresh off the builder’s hands, it’s likely going to have some blemishes, no matter how minor they may be. Ideally, you should have included a home inspection contingency in your purchase agreement, which will give you the opportunity to have the home inspected in greater detail.

Without a home inspection, you may end up with a house that’s riddled with issues that will cost you a lot in terms of time and money to repair. Instead, having the home scoped out by a licensed home inspector will give you a chance to have any unknown issues uncovered.

Once these items have been identified, you may choose to go back to the negotiating table. But how you approach these negotiations can make all the difference between a big dispute and a successful agreement.

Here are some tips for buyers when it comes to negotiating repairs after a home inspection.

Don’t Be Too Picky

Your inspector is obligated to identify any and all issues to you, and your home inspection report will come back to you with a list of every possible issue in the home. However, that doesn’t mean every single one of them needs to be repaired before you take possession. Going back to the seller and demanding that they fix every single one of the issues on the report – no matter how small – could put the seller off.

Instead, go through the list of repairs with your real estate agent and decide whether or not they warrant negotiation. For instance, fixing a loose handrail might be a valid concern and could be a subject for negotiation. However, replacing a one-foot square of grass in the yard probably isn’t.

Other issues might be so major that they might be too much for the seller to have to deal with, especially if the closing date is fast approaching. For instance, replacing an old HVAC system or roof are big jobs that can take a long time to fix. In cases like these, you may want to renegotiate the purchase price to cover the cost of you tackling these repairs yourself, which brings us to our next point.

Ask For the Purchase Price to Be Reduced

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If the repairs that need to be made add up to the thousands, you might have a leg to stand on if you request a reduction in price. Be sure to have your real estate agent pull a list of recently sold homes in the area that are similar to the property you’re buying.

Let’s say you agreed to pay $520,000 for the home in question, but $15,000 will be needed to replace the HVAC system and roof. If similar homes in the area recently sold around the $500,000 mark, you should be able to make a solid case as to why the purchase price can be cut down to accommodate for the repairs that must be made.

Ask the Seller to Make the Repairs Before Closing

There’s always the option to request repairs to be made by the seller before the closing of escrow. Sometimes sellers may be open to this, especially if the requests aren’t too significant, such as changing light bulbs or tightening up loose door handles and knobs. However, you if you choose to go this route, expect some grumbling.

At this point, sellers are probably scrambling to get all their belongings packed up and organized for the big move, and making arrangements for their own new home.

Spending their remaining days in their home making repairs is probably the last thing on their minds. Even if they do agree to perform the work, they might not complete it with the same level of care and detail that you might.

Request a Credit For the Repair Work

Rather than requesting that repairs be done by the seller, you might want to consider asking the seller for a cash-back credit at closing. That money can then be put towards doing all the repairs yourself. Not only that, asking for a credit will cut down on all the back-and-forth bantering that’s typically involved in a negotiation process.

The Bottom Line

Don’t be surprised or alarmed when your home inspector comes back to you with a list of issues with the home that you plan to buy. And while you may have already negotiated the purchase price and other terms of the contract, the negotiations don’t necessarily stop there.

In fact, it’s quite common for buyers and sellers to make their way back to the negotiating table to iron out a few more details, and repair requests tend to be one of them. As long as you’ve got your real estate agent by your side, there’s no reason why a settlement can’t be reached that is satisfactory to both you and the seller.

7 Myths Vs. Facts About Your Credit Score

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If you’re planning on applying for a conventional mortgage, you’re going to need a decent credit score before applying. Generally speaking, anything over 620 is needed to get approved for a conventional mortgage, though a lower score is fine for other types of government-backed home loans.

That said, you should understand what impacts your credit score and what doesn’t in order to make the right financial decisions that will ensure a healthy credit report. The thing is, there are plenty of misconceptions floating around out there regarding credit scores and what affects them.

Here are some common myths surrounding credit scores, and the truths behind them.

Myth #1. Your Credit Score Drops Every Time Your Credit Report is Pulled

The truth: Your credit score isn’t necessarily affected by the number of times that your credit report is pulled, but rather the manner in which it is pulled. A “soft inquiry” won’t affect your score, which is when you pull your own report. You’re entitled to get a copy of your credit report without penalty once every 12 months from each of the three major credit bureaus.

A soft inquiry also occurs when a creditor only looks over a part of your credit report, and is basically something that a credit card company or lender will do prior to providing pre-approval notice.

A “hard inquiry,” on the other hand, can negatively affect your credit score, and is something that happens when a creditor pulls your credit report after you apply for a credit card or loan. Even still, a hard inquiry usually only shaves a few points off your score.

Myth #2. Closing Credit Cards Will Help Your Credit Score

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The truth: Your credit score won’t increase just because you close old accounts or credit cards that you don’t use. Actually, it’s generally advised that old credit accounts are left open, as closing them can lower your score. That’s because closing an account reduces the amount of available credit you have — which can boost your debt-to-credit ratio and thereby pull down your score. The longer your credit cards and accounts are left open, the better.

What does matter is how you use your credit cards. Racking up a credit card bill that’s at or near your credit limit can have a negative effect on your credit score. It’s typically recommended that you shouldn’t use any more than 30% of your available credit. If your credit utilization ratio — which is the credit card balance compared to your credit limit — is well past that mark, your credit score can suffer.

If you need to close an account, close a newer one or those with lower credit limits.

Myth #3. Paying Down Bad Debt Will Be Immediately Removed From Your Credit Report

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The truth: Getting rid of any bad debt that you may be carrying is definitely a step in the right direction, but this act alone won’t necessarily boost your credit score right away. Any negative credit history, such as late payments, discharges, bankruptcies, or collection accounts can stay on credit report for as long as 10 years.

Myth #4. Your Employment History Affects Your Credit Score

The truth: It doesn’t matter what type of job you currently have or had in the past when it comes to your credit score. Your employment status has no bearing on your credit score, regardless of whether you have a high-paying full-time job or are a part-timer making minimum wage. That said, your employment will likely be looked at by a lender when you apply for a loan.

Myth #5. There is Only One Type of Credit Score

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The truth: There are actually many types of credit scores produced by the credit bureaus, and every lender uses a specific one before making a credit decision. However, the type of credit score that most people think of is the FICO score, which is most often used by creditors.

Myth #6. Paying Only With Cash Can Help Improve Your Credit Score

The truth: If you have trouble with excessive spending, it might be a good idea to use cash for many of your purchases. This will help ensure you’re not spending more than you actually have, which is easy to do when you pay with plastic. However, using cash exclusively isn’t a good idea either, as it won’t help you build a good credit history.

After all, if you never use a credit card, how will the credit bureaus know how good you are at paying down your debt? When you use a credit card responsibly, your credit score increases over time, after which you’ll be better able to get approved for a conventional loan at a decent interest rate.

Myth #7. Too Many Credit Cards Can Hurt Your Credit 

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The truth: Having several credit cards doesn’t necessarily ding your credit score. That said, applying for too many cards within a short time period certainly can.

The Bottom Line

Understanding the truth about credit scores and what impacts them both positively and negatively can empower you to make the right decisions when it comes to your financial health. That said, paying your bills on time and in full every month on a consistent basis is probably your best bet in terms of boosting your score.

It’s also a good idea to pull your credit report once a year from one of the credit bureaus in order for you to stay in-the-know about your score so you’re well aware of your status when it comes time to apply for a home loan.