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Removing that pesky Private Mortgage Insurance (PMI)!

I like saving money, don’t you!! So, how can you make that line on your monthly mortgage statement called Private Mortgage Insurance, better known as PMI, go away? PMI is often misunderstood and we quite often hear from borrowers, loan officers and realtors the popular statement of “all PMI stops at 80%”. However, that’s incorrect and there are definite nuances that you should know about so let’s review PMI.

Let’s drop that PMI aka saving money …..

If you took out a conventional (Fannie Mae or Freddie Mac) loan when you purchased your new home and didn’t put down a 20% down payment, then odds are you have PMI on your loan. For some homeowners, refinancing is the ideal way to drop PMI, because they can also lower their interest rate and save a great deal of money. But the good news is refinancing is not the only way to rid yourself of PMI. This monthly cost can be eliminated when certain criteria is met. In fact, Federal law (The Homeowners Protection Act of 1998 or HPA Act) requires loan servicers to terminate PMI when these conditions are met and provides three options for terminating PMI.

 Option 1 – Borrower Requested PMI Cancellation: Once the loan balance is paid to under 80% of the original price, the borrower may request (in writing) that PMI be cancelled on the cancellation date. The cancellation date means either the date when the principal balance is first scheduled to reach 80% of the original property value (lower of purchase price or appraised value) or date on which the principal balance reaches 80% of the original value based on actual payments. The borrower may make extra payments to move up the cancellation date. For this option the following conditions must be met:

• You submit a written request for cancellation

• Borrower must be current on the loan.

• No additional subordinate liens

• Must provide evidence satisfactory to the note holder that the current property value has not declined below its original value (usually the original sales price). This basically means you will probably end up paying for a new appraisal. If trying to use current value (presumably higher) than please note most loan servicers have a minimum 2-year seasoning requirement. In addition, if the loan has been seasoned for less than five years than Fannie/Freddie Mac will require the LTV to be below 75% if you are using current value (which is presumably higher than the value at the time of purchase).

Option 2 – Automatic PMI Cancellation: Better news …. Even if you don’t ever ask, your servicer still must automatically terminate PMI on the date when your principal balance is scheduled to reach 78 percent of the original value of your home. For your PMI to be cancelled on that date, you need to be current on your payments on the anticipated termination date. Otherwise, PMI will not be terminated until shortly after your payments are brought up to date. “Good payment history” means no payments 60 or more days past due within 2 years and no payments 30 or more days past due within 1 year of the later of the cancellation date or the date you submit a request for cancellation. To determine the “automatic” cancellation date ask for an amortization schedule and then see when the loan balance will reach 78% of the original purchase price.

Option 3 – Final Termination at the Mid-Point: If all else fails you can still drop PMI on most conforming loans. This “final termination” is at the midpoint of the amortization period. For example, on a 30 Year loan the PMI must terminate after 180 payments (as long as the Borrower is current).

Outside the Box …..

There are a few instances when Option 1 and 2 do not apply. These include when PMI was required and the loan was either a second home or investment purchase or the property type was a 2-4 unit. These types of loans are considered “high risk” and are not subject to the HPA rules. However, as long as the Borrower is current, PMI must still be terminated under Option 3. The other category is for Lender defined High Risk Non-conforming loans (better known as Jumbo loans). This loan type is also not subject to the HPA Borrower requested or Automatic termination features. Nevertheless, PMI for these loans is required to be dropped when the loan is scheduled to reach a 77% LTV based on the lower of the original value or original loan balance (and you are current on your mortgage payments).

Out of luck if …..

It’s important to note that Private Mortgage Insurance (PMI) is for conventional loans, not Government-backed loans such as FHA, VA or USDA. But let’s still give you a run-down on these loan types.

FHA – In addition to the upfront MI you paid (or most likely financed) when you took out the loan, FHA charges a monthly MI fee. The majority of FHA Borrowers fall into one of two scenarios. Scenario A – Sorry, but if you put down less than a 10% down payment than this monthly MI fee will continue for as long as you have the loan. The annual MI fee percentage (currently 0.85%) on FHA Loans remains in place for the entire 30-year term but because it is based on the remaining mortgage balance, the dollar amount decreases slightly each year as your loan balance amortizes down. Scenario B – If you did put 10% or more down as the down payment than the monthly MI will be eliminated after 11 years.

USDA – Similar to FHA, this loan type also has an upfront and monthly MI fee. The annual fee (currently 0.35% X the loan balance) is recalculated each year based on the new balance of the mortgage. The annual fee percentage on USDA loans remains in place for the entire 30-year term but because it is based on the remaining mortgage balance, the dollar amount decreases slightly each year as your loan balance amortizes down.

VA – Thankfully, VA loans do not require monthly PMI so you don’t have to worry whether it falls off or not. However, like all government-insured loans, VA loans do have a funding fee which is an up-front fee that is customarily financed on top of the loan amount.

Written by Michael Scott

michael.scott@capstarlending.com

Grant funds available thru Capstar Lending in Texas

Todd Kurio is pleased to announce another Down Payment Assistance offering via Capstar Lending’s participation in the SETH GoldStar Program. This program provides assistance in the form of a forgivable 2nd lien. The maximum amount of Assistance to be provided is 7% and is based on the final loan amount. The Assistance is forgiven equally each month and is considered completely forgiven after 7 years. Funds can be used toward your down payment and closing costs. The program also provides a 30 year fixed rate mortgage. Mortgage options are FHA, VA, and Conventional. There is no pre-payment penalty or federal recapture tax for the mortgage loan. You can own other property if you are doing an FHA or VA loan but can’t own any other residential property for a conventional loan. Effective 4/1/18, the income limits for a conventional loan in Travis County was $137,600. Minimum FICO Score of 620 and maximum sales price of $453,100 on conventional. This program is available in Texas but outside of Travis County.

For more information please call Todd Kurio, Residential Mortgage Loan Originator. 512 459 2405, NMLS #214411/216616, todd.kurio@capstarlending.com. Capstar Lending, Equal Housing Lender.

This is not a commitment to lend or extend credit. Restrictions may apply. Information and/or data is subject to change without notice. All loans are subject to credit approval.

How To Protest Property Tax Values

Have you protested to lower your property taxes? I just filed to protest mine. There is a good chance you should. There are several services that will do this for you. Usually they charge a percentage of the tax savings, so if they wind up being unsuccessful you will not owe them anything. However, I prefer to protest my own taxes. It doesn’t cost anything and I feel I know my neighborhood best. Below is a very detailed step by step guide I put together several years ago.

  1. As quickly as you can, send in the form on the back of the county’s appraised value notice to protest the property taxes. There is a deadline, you don’t want to miss your opportunity. If you request a protest, you don’t have to follow through with it if for some reason you change your mind.
  2. If you purchased your home in 2017 and it appraised higher than the price you paid, make a note of this. With a copy of the settlement statement, they’ll usually simply lower it to the price you paid. You are not obligated to provide them with any information, so if the appraised value is lower than the sales price it is a good time to stay quiet. If you have owned your house a few years you may discover the county has it appraised for less than it is worth, so you may not want to protest at this time.
  3. When sending in the protest form, make sure to request the data the county appraisal district used to assess your home. They are required to provide it if you ask for it. This will be important in step 6.
  4. After a long time, the county will reply with a notice of a date for an informal protest and a formal protest. They will also include a packet with their details about your home as well as a spreadsheet of the comparison homes they used to arrive at their data.
  5. Make sure the data they have for your home is accurate. I’ve had properties where the square footage in the county records was larger than the actual square footage. Simply showing the square footage calculations from the appraisal lowered the appraised value not only for that year, but going forward. Other inaccuracies might include the condition of the property or structures that are no longer there. This also can go the other way, which you may not want to bring the assessor’s attention with a protest.
  6. Make sure the properties they are using for comparison are actually similar to your property. The comps should be of the same type and within the same neighborhood. I’ve had single family houses incorrectly compared to commercial property, much larger properties, duplexes and properties in other non-comparable neighborhoods. More commonly, houses that may look similar from the data on their spreadsheet are different in real life. For example, if you have a 20 year old kitchen and all the properties they are comparing your home to have been fully updated.
  7. Find properties that are more comparable and support a lower value. The best data is closed MLS listings from your immediate neighborhood. Most real estate agents are more than happy to help with locating these. Of course, these listings must support a lower value. It is very possible that the values in your neighborhood have gone up and the tax assessor is correct.
  8. Make notes of all items with your property that may negatively affect your home’s value compared to any higher valued properties, especially items that won’t show up on their spreadsheet. For example, do the comparable properties have similar-sized lots but your lot has a portion that is not buildable due to a flood plain, terrain or irregular shape? Is your lot on a busy road or adjacent to commercial buildings? Does it lack the view that other nearby properties might have? Have the comparable properties been updated and remodeled or expanded while your house has not? If your house needs foundation work or a new roof, bring in bids, photos or other documentation.
  9. By state law, the value the appraisal district is considering is as of January 1 of this year, so what is important is the condition of the property at that time. Comparable properties from the previous year can be used.
  10. Attend the informal hearing with your data. This hearing is a meeting with a county appraiser in his or her cubicle. Usually there will be an unhappy property owner with no data ranting at the appraiser in the adjacent cubicle. That approach will not be successful, and the appraiser will be happy to have someone in front of them not doing that. Show the appraiser everything to support your claims. He or she will want copies of anything that they use to update your file. Photographs are helpful, as are documentation of closed sales and maps. I have found the county appraisers very reasonable when they have data to review. However, they will never take your word for it that you think your house isn’t worth that much and they should just lower that value right now.
  11. If you are not successful and still feel you have a good case and good data, you can move on to the formal protest. This is a hearing with a county appraiser on one side and you on the other. Three paid, citizen appointees listen to documentation from both sides and vote on an outcome. I’ve had four formal hearings. Three were successful, with the appointees asking relevant questions of both sides and considering the documentation. The third was unsuccessful and featured one of the appointees who couldn’t do simple math and one who fell asleep during the hearing.

It doesn’t cost anything other than time to protest, and a successful protest may lower your taxes this year and in future years if there is incorrect information in the county records. If you do not want to spend the time to protest, there are services that will protest your taxes and their fee is a portion of the savings.