Explaining the Basics of Mortgage Insurance

Explaining the Basics of Mortgage Insurance

There are two basic types of mortgage insurance - private mortgage insurance and mortgage life insurance. But do you know which one is right for your financial needs?

Taking advantage of low mortgage rates attracts many first-time home buyers to the real estate market. However, you may forget some aspects of home ownership in your rush to jump into the market. One of the essential aspects of buying a new home is the mortgage insurance. Unfortunately, many inexperienced home buyers are not familiar with the two main types of mortgage insurance or the type that they need. Private mortgage insurance is ideal for some home buyers while Mortgage Life Insurance may be better suited for a different type of homeowner. Following is a brief description of each type of mortgage insurance and they mean to you.

Mortgage Life Insurance
Mortgage life insurance is a type of insurance that is available to home buyers if they want their mortgage paid off in the event that the person making the payments suffers a debilitating injury, incapacitating disease or death. At first, buying this type of mortgage insurance may seem helpful. However, these incidents occur so rarely that it may not be the best option for your financial needs. This type of policy may come in handy, however, if you are already in poor health because your premiums on a mortgage insurance policy are typically much lower than on a normal life insurance policy.

Private Mortgage Insurance
This type of insurance is more suited for the lender's protection. However, it may be required if you are buying a house and you cannot put a down payment of at least 20 percent. If you default on your mortgage and the lender is unable to sell your home for the amount of money needed to pay it off, your private mortgage insurance policy comes into effect.

A private mortgage insurance policy premium is based on the value of your loan. It is usually about one-half of one percent of the total money that you borrow. For instance, if you finance a home that costs $150,000 and you put a 10 percent down payment towards the price, you would finance $135,000. Your private mortgage insurance (or PMI) annual payments would be about $675.00. That comes out to about $56.25 per month. Fortunately, once you have paid down your mortgage to less than 80 percent of the home's original market value, you can usually cancel the PMI and save that money.

If you want to cancel your PMI, you must call the lender and ask to cancel it. They will not do it unless you ask. There may be some rare cases in which you are not allowed to cancel, too. You can get more information about the reasons by speaking with your realtor or your lender.

Although both of these mortgage insurance policies protect different parties, they are both designed to protect an investment. With PMI, the mortgage company offers it to protect the money they have invested by loaning to you. With mortgage life insurance, you can feel better knowing that your mortgage is taken care of in case you die or suffer some other major catastrophe. You never know what's going to happen in life and taking a few simple precautions can help you prepare for those bad events.

Four Ways to Save Money on Closing Costs

Four Ways to Save Money on Closing Costs

Closing costs are often the most forgotten part of buying a house. With the following tips, however, you can save money on closing costs and put more money towards your new home.

Buying a new home with today's mortgage rates can be one of the most exciting things you do in your life. If you have done your homework, you have calculated the cost of mortgage payments, insurance and taxes to make sure you can afford to pay for it. But did you consider paying the closing costs? Depending on your individual purchasing situation, closing costs can cost anywhere from hundreds to thousands of dollars that you may not have expected. Fortunately, you can do some things to save money on your closing costs. Follow the tips below so you can leave the deal with more money in your pocket.

Negotiate with your lenders. Many lending institutions are willing to negotiate the prices of many of their fees. If they won't negotiate, you may want to consider finding a different lending company. Find a lender who is willing to explain the various fees to you so you know exactly what you are paying for.

Ask for a Good Faith Estimate. A Good Faith Estimate, or GFE, is an estimate about how much you will be charged when closing on your new house. Rates vary between mortgage companies so you can do some research and find a company that charges lower closing costs. You can get a complete list of fees from most lenders. If they will not provide you with this, choose a different lender. With all of the competition in the mortgage industry these days, it is easy to move on to another company and still that is just as good as the last one.

Decide on a mortgage lender. You may have a long list of possible lenders and you will probably be tempted to choose the company with the lowest closing costs. However, you must also consider the company's background, longevity, reputation and its willingness to negotiate and spend time explaining the process to you. Paying a little extra will likely give you a company with better customer service and it will make you more comfortable as you go through the home buying process.

Ask sellers to share the closing costs. With the problems in the mortgage industry, it is not difficult to find someone who wants to sell their home as quickly as possible. With this type of mentality, it may be easy to find a seller who is willing to share or even pay all of the closing costs just to get out from under their mortgage. Sellers who have had their home for sale for a long period of time are often willing to pay at least some of the closing costs so they can move on and be rid of their house. Even if they are unwilling to share the costs, it never hurts to ask!

Few things can burst the excitement of buying a home more than finding out that you have to pay closing costs that you did not consider. If you are not prepared, you may not even have the money at the time to cover the fees. This may even prevent the deal from being finalized and you might have to start all over. Make sure you know how much you need at the time of closing to ensure that this does not happen to you.



Five Tips for Raising Your Credit Score

Five Tips for Raising Your Credit Score

Your credit score is the best way a bank can tell if you are worthy of a loan or credit. There are several things you can do to maintain a decent and respectable credit score.

Your credit score is one of the most important numbers attached to your identity. In some cases, it is even more important than your social security number. Unfortunately, many people have a low credit score because of late payments, too much debt, or simply because of inaccurate information on their credit reports. Here are five tips you can use to raise your credit score for better mortgage rates and a better chance of getting approved for loans.

1.       Check for Inaccuracies
One of the quickest ways to boost up your credit score quickly is to scrutinize your credit reports and look for inaccuracies. There are three main credit reporting bureaus – TransUnion, Experian and Equifax – and they often have different information. Get a copy of all three and go through each of them a couple times a year them to see if there are negative marks that don't belong there. If you see something that doesn't belong, contact the bureau immediately and have any inaccuracies removed.

2.       Avoid Late Payments
Late payments can bring down a credit score quickly and significantly. In fact, your payment history accounts for about 35 percent of your overall credit score. That's fairly significant! Making your payments on time is also the best and quickest way to begin building up your credit again if you have damaged it. Information about late payments can stay on your credit report for up to seven years, but a track record of 12 months of on-time payments can increase your score with noticeable results.

3.       Reduce Your Debt Ratio
If you can pay off some of your debt, you can raise your credit score significantly. This is especially true if your credit cards are near the "maxed out" limits. Ideally, you should keep about 60 percent of your available credit free on each card. If this means spreading your debt among several cards, then do it. The amount of outstanding debt accounts for about 30 percent of your credit score.

4.       Keep Old Accounts Open
Part of your credit score is based on the average length of time that you have had open accounts. As a result, keeping your older accounts open increases that average and boosts your credit score in the short run. The length of time that you have had credit accounts for about 15 percent of your score. If you want better mortgage rates and higher approval rates for credit, don't close those old accounts unless it is absolutely necessary.

5.       Plan Ahead
When applying for credit or loans, the lenders will undoubtedly check your credit score. Unfortunately, this can ding your score if it happens too often. When considering a mortgage or some other type of loan, do your research before applying with different companies. If you have to apply with more than one company, try to complete your applications within the same month. For purposes of auto loans and mortgages, inquiries are only counted as one if they are all done within the same 45-day time period.