Obviously, mortgages, large house deposits and jobs are currently hard to get, but if you really want a house or apartment of your own in the future, no matter how long it takes to get it, now is the time to think ahead and to put yourself in the best position to obtain a home mortgage when the economy improves.

Are Your Income and Expenditure Claims Realistic?

Do your homework before meeting with the bank or mortgage lender regarding how much monthly income you expect to receive in the future. If you intend to rent out a room in your new house, make sure you know what the current monthly rent is in your area. How much will you need to spend in order to make the house or room rentable? First time buyers are allowed to receive a maximum of 10,000 euros per year tax-free as income from renting out a room.

Can You Manage Money?

Nowadays the banks will want to know that you are a trustworthy person to loan money to. Keeping good records of your rent as well as your other major repayments such as car loans will reassure the bank that you can manage money.

Do You Need Money For Other Payments?

In the past the banks were happy to lend money for the fitting out of a house, as well as the mortgage needed to buy it. Today, if you are lucky enough to obtain mortgage approval, the banks will try to reduce the amount loaned to you as much as possible. It will help your mortgage application if you have no other major repayments to make, so defer any ideas you have about a new car or other big spend until after you receive your mortgage.

Do You Smoke?

Non smokers can make significant savings on the life assurance cover that will be needed in association with your mortgage.

Have You A Bad or Inaccurate Credit Rating?

Bad credit ratings can happen to good people. It may be due to an unpaid or lost bill, whilst it can also be due to inaccuracies in the credit report itself. It is better to find out your credit rating yourself, rather than waiting for a lender to inform you of your credit rating. This will give you an opportunity to address any inaccuracies and perhaps settle any outstanding debts. The more ‘blemishes’ you have on your credit report, the more likely it is that your lender will charge you a higher interest rate to protect themselves against a potentially bad loan.

Do You Expect Higher Interest Rates?

Are you assuming that you can repay your mortgage on the basis of current interest rates or have you calculated what it would cost based on interest rates that are two, three or four percent higher than current rates? Ask yourself if you could afford to pay a higher monthly payment without infringing on other payment commitments you may have.

This article is only intended as a basic general summary and you should always seek professional advice where necessary.

Private mortgage insurance or PMI as is known is a form of insurance new homeowners are required to purchase. This is particularly so if their down payment is 20 percent or less of the property’s valued price or sale price. The main reason for private mortgage insurance is to protect lenders in the case the new homeowner defaults on their home loan.

Although private mortgage insurance has a bad reputation since it only protects lenders, it is actually a good thing. Reason is it has allowed millions of people to be able to buy homes with smaller down payments. Previously, these people would not have been able to afford a home had the down payment remain the same. Another important reason is private mortgage insurance can help you qualify for home loans.

Cost of Private Mortgage Insurance

The cost actually varies depending on the mortgage loan and the monthly down payment. Usually, it is half a percent. To calculate your private mortgage insurance, you can use this estimated formula:

Annual private mortgage insurance = 100 – (percentage of down payment paid) * (sale price of house) * 0.05

Let’s take an example. Suppose you brought a $500,000 house. You pay a 20 per cent down payment. So using the formula as above:

Annual private mortgage insurance = (100 – 20) * $500000 * 0.005 = $2000

Your monthly mortgage insurance will be around $167.

One important point to note is you should always keep track of your payments and notify your lender when you have reached 80 percent equity of your house. Even though the Homeowner Protection Act requires lenders to notify you of how long it will take you to pay, it is still better to keep track of it yourself.

There are some cases where lenders make homeowners continue their private mortgage insurance all the way through the lifetime of the loan. This usually applies to high risk borrowers. Therefore your payment history and credit rating such as your FICO score plays an important part as well.

Some people hate paying private mortgage insurance for years. There are some ways around it.

One way is to pay more interest on your home loan. Some lenders will waive the private mortgage insurance requirement if you agree to pay a higher interest rate. Since mortgage interest is tax deductible, it can be a good idea to go ahead.

Another way to avoid paying private mortgage insurance is to prove to the lender that the value of your home has risen. If the value of your home has risen significantly, your home have already have the 20 percent or more equity you need to cancel the mortgage insurance. However, it does take time for the lender to verify your claim, sometimes as long as a year.

Watch the video related to mortgage insurance

Genworth Mortgage Insurance Spokesman Terry Souer speaks with Cathleen Jeffrey regarding South Shore communities on their distress list.

Help answer the question about mortgage insurance

About Author

Dan Lim works in a finance company specialising in home loans consulting. Get more information, tools and resources on home loans, visit his site: http://about-homeloan.com

Article Source: ArticlesBase.com – What Is Private Mortgage Insurance?