April 13, 2015

mortgage insurance rate tables

Understanding Private Mortgage Insurance (PMI) and Mortgage Insurance Premium (MIP)

The language of mortgage lending can be very confusing. There is a multitude of acronyms that make up a sort of mortgage lending alphabet soup. Terms like APR, ARM, COSI, FHA, VA and much more can make the mortgage lending process sound pretty intimidating. Our goal as realtors is to help simplify and streamline the entire home buying process, including obtaining a mortgage loan.

So, in the spirit of simplicity, let’s break down one of the most acronym-laden subjects in the industry, mortgage insurance. There are two primary mortgage types (Conventional and Government), so it makes sense that there are also two types of mortgage insurance. PMI (Private Mortgage Insurance) for Conventional loans and MIP (Mortgage Insurance Premium) for Government or FHA loans. A PMI policy is provided by private insurance companies while MIP is provided by HUD (Housing and Urban Development).

Although these policies are similar, they utilize different procedures and requirements, so we will talk about them separately.

LTV: Loan to Value Ratio

The primary factor that determines if you are going to need mortgage insurance at all is your Loan to Value Ratio (LTV). This is the ratio of the loan amount you are seeking from the lender in relation to the value of the property you are trying to purchase. As an example: the purchaser wants to borrow $180,000 to buy a $200,000 property. The LTV ratio is $180,000/$200,000 or 90% loan to value of the property. This means the lender has 90% of the risk in the deal compared to the borrower’s 10%. This puts the lender at a substantially higher level of risk than the borrower, so in an effort to minimize their risk, the lender will require a mortgage insurance policy.

MIP: Mortgage Insurance Premium

When you apply for an FHA loan, the lender will need to establish your LTV ratio. FHA loans will require the loan be insured by HUD for every loan no matter what the LTV is. If the LTV is higher than 90%, mortgage insurance is required for the life of the loan. If the LTV is 90% or less, the borrower is required to have mortgage insurance for 11 years.

Additionally, the borrower will be required to pay something called an “upfront fee”, as well as the additional monthly premiums. The upfront fee can be added to the loan amount.

The upfront fee, known as the upfront MIP or UFMIP equals 1.75% of your loan amount. The annual premium paid on a monthly basis is paid in one of two ways. If the LTV is higher than 95%, the rate is 1.35% of your loan amount. If your LTV value is less than 95%, the rate is 1.30% of your loan amount.

Please note that if you have been given an approval for an FHA loan, your MIP is also automatically approved.

Removing Your MIP

FHA mortgage insurance is permanent unless you can refinance it away. You will need to discuss this issue with the relevant agency, and they will give you their list of requirements for dropping the premiums. Generally, you need to have a certain amount of equity in your home for this to happen.

Please note that your insurance is discontinued only if the closing date of your loan is after December 31, 2000, and your case number assignment date is before June 3, 2013. If your case number assignment is on or after this date, your MIP cannot be removed from your monthly payments, even if your LTV value is really low. In this case, your insurance is terminated only when you have paid the full mortgage amount prior to the maturity date.

PMI: Private Mortgage Insurance

The conventional loan version of mortgage insurance is referred to as “Private Mortgage Insurance” (PMI). This policy gets its name because the policy is provided by private or non-government sponsored companies.

For conventional loans, your down payment needs to be 20% or more in order to avoid mortgage insurance. If on the other hand, you are putting less than 20% down, your loan can be insured by any private mortgage insurance provider. MGIC and RMIC are primary providers of this type of insurance.

Unlike MIP, in which there is just one approval for the loan, PMI involves two separate approvals. One is given by the lender and the other by the insurance provider. The possibility exists that you may be approved by the lender, but not the insurance provider. For the loan to close, you need both approvals, and until this is done, you will not receive a full loan commitment.

The rates offered for PMI policies vary with your chosen insurance provider but are generally between 0.3% and 1.15% of your loan amount. Please note that just like the interest amount of your mortgage, your mortgage insurance is also tax deductible. If you cancel coverage, you may be refunded a prorated premium amount.

There are two main types of PMI: the borrower paid the annual premium and the lender paid monthly premiums.

Borrower Paid Annual Premiums

In this type, you have to pay the premium amount for the first year after your loan closes. Once a year passes from this date, you will have to renew the premiums. This will be done at the original rate until the 10th year. In the 11th year, the premium rate decreases to 0.20%. If the previous rate was less than this, it will remain the same.

Fixed Rates and Non-Fixed Rates

Fixed rates are applicable when the first five years of the loan term are comprised of level payments only. If the payments are modified during this period, non-fixed rates will be applied.

Table 1 shows the fixed rates for the annual premium program. Table 2 shows non-fixed rates.

 

mortgage insurance rate tables
mortgage insurance rate tables
 

The above rates are based on your FICO scores and LTV ratio. Your LTV is calculated first, and then your credit scores are used to determining your classification.

Lender Paid Monthly Premium

When you take advantage of this program, your insurance premium is not added to your monthly payment. Instead, your lender will just pay it as an upfront fee to the insurance provider. However, this program is offered only with certain loan types. Your lender will be able to tell you if your mortgage falls into this category.

A lender paid monthly premium provides coverage as long as the premium amount is being paid. The renewal policy for this program is the same as the annual premium program.

 

mortgage insurance rate tables
mortgage insurance rate tables
 

Removing Your PMI

You can eliminate the premium amounts from your monthly payments if the equity in your home is more than 80% of the borrowed amount. Usually, this happens after two years. You can prove this in any of the following ways:

  • Your loan is decreased to 78%
  • You get an appraisal that shows the appropriate value of your home.
  • You provide your lender with a Broker’s Price Opinion from a realtor.
  • Refinancing can also help you if you have enough cash to pay a 20% down payment or if your appraisal report proves that you have 20% equity in your home. This option not only cancels your premiums but also provides you with a lower interest rate.

Avoiding Mortgage Insurance Altogether

Mortgage insurance is required only if your down payment is less than 20% of your home value. If you want, you can avoid paying premium amounts altogether. Here are some methods for this.

  • This one is really obvious. A down payment that is 20% or greater means you do not require any insurance.
  • You can apply for a VA loan, but not everyone meets the requirements.
  • Apply for a combination loan of 80/10/10. You have to pay a down payment of 10%. Your first mortgage is equal to 80% of the home value, and the second mortgage amounts to 10%.
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Everything You Need to Know About Mortgages

Over the last few years, 75-80% of American home buyers have required a mortgage to purchase their home. Yet most of us understand very little about the mortgage industry.

This is largely due to the fact that we, as borrowers, actually only see a small portion of the overall mortgage picture. Borrowers are involved in the pre-qualification and application process for a new loan, of course, but after the purchase closes, we simply make our monthly mortgage payments as scheduled, and give very little (if any!) thought to the evolution of our loan.

But it’s important for buyers to understand the basics of the bigger mortgage industry picture, especially how money flows in the mortgage world, where it comes from and where it goes.

Knowing how the money flows through the mortgage industry helps borrowers understand some of the quirks of home loan applications. You’ll be able to better tolerate the paperwork and the aggravation of applying for a mortgage if you can see why the paperwork and documentation are necessary for the lender to approve the loan.

Did you know that much of your mortgage payment could actually end up on Wall Street? For that reason, some of the loan origination paperwork is required specifically to protect investors. It may still be a hassle to provide months of financial documentation to finalize your loan, but it helps to know that there is a reason behind these requirements.

In this article we’ll look at the basics of the mortgage industry, primarily focusing on how the money flows through the mortgage world.

Three Tiers of Mortgage Lending

There are three tiers of mortgage lending: The Loan Origination, The middleman, and The Secondary Market.

The Loan Origination

The loan origination tier is the one most familiar to borrowers because it requires their direct involvement. Loan origination is the process by which a borrower applies for a new home loan, and the lender processes the borrower’s application. The loan origination tier is complete when the lender either declines the application or approves the application and disburses the funds. As a buyer, you can choose one of the four primary types of lenders to work with through the loan origination tier: Correspondent Lenders, Direct Lenders, Mortgage Brokers, and Portfolio Banks.

Correspondent Lenders

Correspondent lenders are smaller companies with some of their own money to lend to buyers. They may be on the small side, but there are many in operation. Correspondent lenders are like the “Mom and Pop Shops” of the mortgage world.

The strength of correspondent lenders lies in their service and their relationships in the community. Their originators or salespeople (aka loan officers) typically provide a personal level of service that larger lenders can’t match. And borrows often choose correspondent lenders based on personal relationships and trust. Good correspondent lenders receive lots of referral work from their satisfied customers in the local community.

But here’s where correspondent lending gets interesting: to make sure they have enough money to originate new loans to new buyers, correspondent lenders will sell most of their loans, through investors, to “mortgage aggregators” like Fannie Mae and Freddie Mac (more on Fannie and Freddie coming up!). This allows correspondent lenders to maintain a high level of liquidity, so they can have cash available to finance more loans.

Here’s an example of how correspondent lending works

Correspondent Lending

Who are Fannie Mae and Freddie Mac?

Fannie Mae and Freddie Mac are government entities that provide liquidity, stability, and affordability to the mortgage market. They exist to act as “mortgage aggregators”, which means they buy loan portfolios from loan originators to replenish the fund’s originators have available to re-loan. Fannie and Freddie may hold these portfolios as-is, or they may package them into “mortgage-backed securities” (MBSs) to sell on Wall Street.

This process serves two main purposes:

  1. It ensures that loan originators have a continuous, stable supply of money to lend to buyers, and
  2. It encourages investors to invest in MBSs by increasing the credibility of the investments through government involvement. Additional MBS investors provide more money to fund real estate loans so the cycle can repeat.

Because of this relatively complex system, correspondent lenders must be very cautious when approving home loans. If a loan was underwritten incorrectly, for example, the lender might be forced to buy it back from the secondary market, which would cut into the amount of money they would have available to originate new loans. So you can expect correspondent lenders to be thorough and ask for more than the minimum requirements during the home loan application process.

You may have noticed that the loans are sold back to Fannie Mae and Freddie Mac through an investor. Who are these investors? They’re typically big players in the mortgage industry (large enough organizations to have accounts with Fannie Mae and Freddie Mac). In fact, many of these investors are Direct Lenders, which is the next option in our list of the four primary types of lenders to work with through the loan origination tier.

Direct Lenders

Direct Lenders are the “Big Guns” of the mortgage industry. Think of the big banks like Chase and Wells Fargo.

Direct lenders will keep some of the loans they originate in-house as part of their portfolio, but they will sell off many of the loans to mortgage aggregators through investors, just like we saw with correspondent lenders.

In fact, direct lenders each have a division which functions as a correspondent lender in the origination tier. But they also each have a department that packages the loans and offers them for sale on the secondary market. Furthermore, they have their own money and underwriters.

Direct lenders process high volumes of loans, so they can often offer the lowest interest rates to borrowers.

One thing direct lenders don’t do is to help you compare interest rates and terms with other direct lenders. Borrowers need to apply with each direct lender individually to see the rates and terms for which they qualify with each direct lender.

This can be a time-consuming process for buyers as home loan applications can be lengthy, and the financial documentation required to officially approve a home loan can be excessive. But, as I mentioned, direct lenders can usually offer the lowest rates, and selecting the right direct lender could potentially save buyers tens of thousands of dollars in interest over the course of the loan.

Here’s an example of how direct lending works

How Direct Lending Works

Mortgage Brokers

For buyers who aren’t willing to invest the time applying to individual direct lenders, there are mortgage brokers. Mortgage brokers shop direct lenders to find you the best mortgage terms available for your unique circumstances.

Mortgage brokers don’t have their own money or their own underwriters; they simply act as a middleman to match borrowers with lenders. Mortgage brokers can compare wholesale mortgage rates from a large number of lenders at once to find the best options for buyers.

As a borrower, your mortgage broker will provide you with offers from various lenders, you can decide which lender you’re interested in dealing with, and your mortgage broker will present your file to the chosen lender and wait for approval. Mortgage brokers do a lot of the legwork for you, working on your behalf with the lender.

You should know that pricing with mortgage brokers can be just as competitive as with direct lenders. This just depends on how much compensation the broker needs to make on the deal.

Mortgage brokers are an especially good option for borrowers who have trouble qualifying for a mortgage from correspondent and direct lenders, or for borrowers who need to finance tricky deals. Brokers have insider knowledge of multiple lending partners, so they can find solutions to some complex qualification and financing issues.

Here’s an example of how a Mortgage Broker works

How a Broker Works

Portfolio Banks

Portfolio Banks are usually credit unions or savings and loan institutions. First Bank or BBVA Compass Bank are two portfolio banks in Colorado.

Unlike correspondent lenders and direct lenders, portfolio banks originate loans for their own portfolio; portfolio banks don’t originate loans to be sold into the secondary market.

Because the loans aren’t originated for sale on the secondary market, portfolio banks have much greater flexibility, which can seriously benefit borrowers. For instance, Portfolio Banks can:

  • Approve borrowers with fewer qualifications
  • Work with smaller down payments
  • Offer higher maximum loan limits
  • Waive requirements on property condition
  • Originate loans on multiple properties (even if the buyer already owns properties with existing mortgages).

There are four main types of portfolio loans: Balance Sheet Loans, Blanket Mortgages, Jumbo Loans, and Cash-Out Refinancing.

Balance Sheet Loans

A balance sheet loan is a loan that a lender keeps on its balance sheet (as opposed to selling the loan). Balance sheet loans don’t comply with Fannie Mae’s loan guidelines, or they may be otherwise unsuitable to sell in the secondary market. They typically have different regulations and requirements, making them comparatively flexible.

Blanket Mortgages

A blanket mortgage is a portfolio loan that finances two or more investment properties under a single mortgage. Blanket mortgages help investors buy, sell, and hold multiple investment properties at a given time.

Jumbo Loans

A jumbo portfolio loan is a portfolio loan that exceeds the maximum loan limits outlined by Fannie Mae.

Cash-Out Refinancing

A cash-out refinance is the act of refinancing an existing investment property with a new long-term loan in order to extract equity in the form of cash from the property. A cash-out refinance loan term is between 15 and 30 years.

The Middleman

After the loan origination tier, where loans are processed and funds are distributed, most loans are passed to the middleman tier.

In the middleman tier, loan originators sell loans to middlemen, who package them into large portfolios to be sold on the secondary market.

Who are these middlemen? In the simplest terms, middlemen are institutions with relationships to mortgage aggregators.

Middlemen are usually (but not always) direct lenders like Chase and Wells Fargo. This can be confusing because direct lenders also originate loans as mentioned previously. But because they are giant firms, they have separate departments available to handle loan originations functions and middleman functions.

There are strict guidelines for the loans that get packaged into portfolios. This is especially true when government agencies like Fannie Mae, Freddie Mac, and Ginnie Mae are involved. I’ve touched on Fannie Mae and Freddie Mac as mortgage aggregators. Ginnie Mae performs the same function as Fannie and Freddie, but specifically for government-guaranteed loans like VA and FHA loans.

Each individual loan’s file is reviewed by a dedicated auditor before the loan is added to a portfolio. If the file doesn’t meet all the guidelines, the originating lender is required to buy back the loan. The originating lender is then holding an “unsellable” loan, restricting their liquidity since their money is tied up in a loan that can’t be sold. This is why mortgage companies rigidly follow all the rules and meet all the requirements during the loan origination tier.

It’s important to note that, while middlemen sell these packaged loans on the secondary market, they retain the servicing of the individual loans (collecting payments, issuing account statements, etc.). This servicing provides another income stream for the middleman.

Now that the middlemen have packaged the loans into portfolios, we can move on to the final tier of mortgage lending: the secondary market.

The Secondary Market

The secondary market is where mortgage loan portfolios and servicing rights are bought and sold between four parties: Mortgage Originators, Mortgage Aggregators, Securities Dealers, and Investors.

Mortgage Originators

Mortgage Originators are the institutions introduced in our discussion of the loan origination tier (correspondent lenders, direct lenders, mortgage brokers, and portfolio banks). They work with borrowers to complete the mortgage application process and distribute the funds.

Mortgage Aggregators

Mortgage Aggregators are the groups that purchase the loan packages from the middlemen and securitize them into mortgage-backed securities (MBSs) I mentioned earlier. This includes Fannie Mae, Freddie Mac, and Ginnie Mae. Aggregators make their money by purchasing individual mortgages at lower prices and then selling the pooled MBSs at a higher premium.

Currently, Fannie Mae and Freddie Mac are both limited to purchasing loans of $424,100 or less. This figure is reevaluated every year to accommodate changes in real estate prices.

Once Fannie Mae, Freddie Mac, and Ginnie Mae have purchased the loans, they are converted into mortgage securities and bonds and offered as trading commodities. It’s interesting to note that, because Ginnie Mae handles government-guaranteed loans, their yield is generally higher than those of Fannie Mae or Freddie Mac.

Securities Dealers

Securities dealers are the Wall Street brokerage firms that offer MBSs on the stock market.

Investors

Investors are those who trade in MBSs. MBSs are a reasonably secure investment simply because people generally pay their mortgages unless there is some extenuating circumstance preventing them from doing so. So MBSs will always be in demand, and there will always be a market for them.

The U.S. government currently holds over a trillion dollars in U.S.-originated MBSs, but it started selling off some of its MBS holdings in 2017. Foreign governments, pension funds, insurance companies, banks, GSEs (Government-Sponsored Enterprises), and hedge funds all invest heavily in mortgages.

The Purpose of the Secondary Market

As I mentioned briefly in the introduction to Fannie Mae and Freddie Mac earlier in this article, the main purpose of the secondary mortgage market is to support originating lenders in lending more money to potential homeowners.

The secondary market serves this purpose by 1) buying the originated loans to provide a continuous, stable supply of money to lenders and 2) lending credibility to the MBSs as investments to encourage stock market investors to invest in MBS’s so more money can be available for lending.

Conclusion

Many buyers are confused and frustrated by the home loan application process and the requirements of mortgage lenders. But a peek behind the curtain at the additional tiers of mortgage lending helps to explain the reasoning behind the process and requirements in place.

Once you understand the flow of money within the mortgage world, and how your personal home loan is only one small piece of a much bigger picture, the strict qualification criteria and documentation requirements make more sense.

So when your loan officer asks you to provide months of bank statements, letters of explanation for the terms of your employment, or proof of residency from two addresses ago, remember that you’re doing it, not just for yourself and your new home, but for Fannie Mae and Freddie Mac and the strength of the American mortgage market.

Additional Resources:

  • Mortgage Overlays-Correspondent lenders are the lifeblood of the mortgage industry. Sometimes they get overly cautious about their ability to sell their loans into the secondary market. Luke Skar over at madisonmortgageguys.com explains what overlays are. Now that you understand where the money flows, I think you’ll find this interesting.
  • Should I go with a mortgage broker or a bank?– Conor MacEvilly over at MySeattleHomeSearch.com looks at the decision to use a Mortgage Broker or a Bank/Direct Lender. This is a more detailed look into the subject than we were able get to here and a great read.
  • Fourteen Ways to Get Your Mortgage Unapproved-Now that you understand the importance of the secondary mortgage market and just how much mortgage lenders depend on it. I think your love this article by Bill Gassett over at MaxRealEstateExposure.com. Bill looks at the classic things homebuyers can do to fumble the ball just before the cross the goal line.
  • Why Can’t I Get a Mortgage?– Kyle Hiscock from the RochesterRealEstateBlog.com looks at the top-5 reasons buyers can’t get a mortgage (hint, they all involve not being able to resell the loan into the “Secondary Mortgage Market).
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Keep Your Eyes Open During the Final Walk-Through

You’ve found your dream home…the offer was accepted…the loan is secured…your inspector has given the thumbs up…and you’re about to sign the closing papers. There’s one more important step we urge you not to overlook before you receive the keys: the final walk-through.

The final walkthrough should be done the day before, or even the day of, your closing. It is a critical part of the home buying process. You and your agent will visit the property to make sure that the home is in good condition and that you are getting everything that was written into the sales agreement. This generally includes all window coverings, attached light fixtures (e.g. chandeliers, track lighting), appliances, area rugs/carpets and spas/pools, unless otherwise indicated in the agreement. You’ll also want to ensure that any previously agreed-upon repairs have been completed. Make sure that the home is clean, the cabinets and garage have been emptied, the toilets, sinks, dishwashers and laundry machines are functional, the heat and air conditioning work and that all trash has been removed. Turn on all the light switches and test the outlets. Other potential surprises include large carpet stains that were hidden by furniture, large wall cracks that were camouflaged under paintings or mirrors, or water stains from leaks that have developed since you last saw the property. If you discover any of these conditions, you have the option of asking the owner to repair them before closing or to provide financial concessions on the selling price.

Once you have closed, the sellers are no longer obligated to make any repairs. If we still haven’t convinced you of the importance of the walk-through, here’s a cautionary tale that we personally experienced. The buyer and agent did a walk-through on a home that was built in 2005. They thought they had done a completely thorough inspection and everything appeared to be in working order, so they proceeded to closing. A few weeks later, the buyer called our company and said that the furnace did not look like it belonged in the house. Sure enough, upon inspection, the furnace was a beat up, rusty model from the 1970s—the owners had swapped out the new furnace after the inspection and replaced it with an old one! You can be sure that from that point on, we included the furnace in our walk-throughs and advise you to do the same.

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Why Does my FICO Score Matter When I’m Buying A House?

If you’re thinking of buying a home in the Colorado Springs area, and you’re not paying cash (and how many of us are doing that?), you will need to know your FICO score.

The FICO score is the most widely used measure of credit worthiness in the U.S. and it is the primary factor lenders consider when you apply for a mortgage. FICO was first introduced in 1989 by the Fair Isaac Corporation—hence the acronym.

FICO scores range from 300 to 850—the higher your score, the more credit worthy you are. Your score is calculated by a mathematical equation that takes into account the weight of many different factors on your credit report. There are actually 27 different scoring models with three main ones used for mortgages, auto loans and credit cards. A median score for a mortgage is 679. The general breakdown is as follows:

  • 50% of your score is based on payment history and length of payment history. This includes loans for cars, homes, tuition and other long-term loans.
  • 30% on the amounts you currently owe
  • 10% on the types of credit you have been extended in the past
  • 10% on new credit.

However, the weight of these factors may vary depending on the length of your credit history.

A sample profile of a high credit score would include at least 2 installment loans with balances (auto, student loans, mortgage); 3 revolving credit cards with balances of less than 30% of the card’s maximum, and no record of collections or late payments. Although it may seem counterintuitive, it is a good idea to keep accounts open, even when you have paid off the balances. Closing accounts tends to negatively affect your score.

The mortgage interest rate for which you qualify is based on your FICO score. Generally, the higher your score, the lower the interest rate and vice versa. Whether or not you are required to have mortgage insurance, the rate may also be based on this score, as well as the amount of your down payment.

If you are applying for a conventional mortgage, the lender will determine what minimum score will make you eligible for the loan, in addition to the price of the home and other financial obligations. Fannie Mae, Freddie Mac, FHA and other government loans have established minimum FICO score requirements.

If you are interested in learning more about FICO scores, visit www.myfico.com.

<<–Back to the Home Buying Process

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How to Improve Your Credit Score and Get the Best Mortgage Rates

As part of your Colorado Springs home buying process, you will likely be applying for a mortgage. And one of the most important components lenders will consider is your FICO credit score. There are many factors that contribute to that score—some of them seemingly counterintuitive. For example, when you open a new account, your score is negatively affected—the same thing also happens when you close an existing, but non-used account. Also, when you apply for credit and the company searches your report, you are negatively affected as well. Here is some helpful information to learn if you are asking yourself “could i buy a house with bad credit?”

So, if you’re thinking of buying a home in the Colorado Springs area, do you need to worry that your credit score will suffer when a mortgage lender pulls up your credit report? The answer, fortunately, is no.

When the mortgage lender pulls your first credit report, there is a 45-day window in which other people can search your report without hurting your score. This is called a “soft pull.” If, however, you apply for 3 credit cards in one month, you will experience 3 “hard pulls” which will cause major “dings” in your report.

However, you can take steps to improve your score. Here are some tips to help you make sure that your credit report is in the best possible condition before you start your home search:

  • Don’t co-sign loans. If your co-signer defaults, you will be responsible for the payments. If you can’t pay, your credit report will show you to be in default.
  • Keep old revolving accounts open, even if you have paid them off or no longer use them.
  • Avoid “same as cash” credit offers (often available at appliance and big box stores). These offers usually give you a credit limit for the amount of purchase, so you will immediately max it out. You will be “dinged” when the store does the credit search and then again when you close the account after payoff.
  • Keep your credit card balances at a maximum of 30% of the total allotted credit.
  • Don’t open new accounts or make large purchases in the six months before you plan to apply for a mortgage, unless absolutely necessary.
  • Monitor your credit report frequently at www.annualcreditreport.com to check for errors.
  • Pay your bills on time. Even one late charge or missed payment can negatively affect your score.
  • If you have not previously established any credit, sign up for a secured credit card. You will prepay a set amount and then receive a card with a spending limit of that same amount—you can then use the card as you would a regular credit card.

For more information, read more at Buying a House with Bad Credit: Essential Tips.

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How Are Title Costs Determined?

The title insurance industry is unique in that regulation by the state serves as a natural check on profits. Rates by title companies are ultimately set in response to competition in the marketplace. However, if the competition does not lead to fair rates, the state steps in stating that rates cannot be “excessive, inadequate, or unfairly discriminatory”.

There are a number of things you can do to monitor the cost of your title insurance. Below are five steps you can take.

Do your research

Title insurance is a two-part transaction. The first part covers the property’s history to determine if there are any unpaid loans or liens. The second part insures you against future discoveries or problems with the property. Insurance companies are allowed to set their own rates, so it pays to spend some time comparing policies to make sure you get the best possible deal. Visit Home Closing 101 to find title insurance companies in Colorado Springs who are members of the American Land Title Association.

Ask about add-on fees

These may include mail and courier charges, copy fees and fees for searches and certificates. You have the right to ask a company to reduce or drop these fees.

Ask about a “reissue rate”

If your home has been refinanced or sold within the last 5 years, you may qualify for discounts up to 50%.

Ask about Endorsements

An endorsement is a rider attached to a Mortgage or an Owner policy to expand or limit the policy coverage. Attaching an endorsement to the policy adapts the coverage to meet the needs of the insured. Examples of common endorsements are: Condominium Endorsement, Mineral Endorsement, Encroachments on Easements, just to mention a few. By issuing an endorsement, the insurer may take on additional risk normally not covered under the policy. A premium is usually charged for issuing an endorsement.

Don’t rely on a single recommendation

Ask for two or three companies that your real estate agent recommends.

For a list of title insurance companies in Colorado and their fee schedules visit DORA or Colorado Department of Regulatory Agencies or Network Closing.

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How Do You Choose a Good Title Company?

When buying or selling your Colorado Springs home you most likely do the appropriate research before choosing your real estate agent, your lender, your moving company and others. But did you know that you also have the right to choose your title company? In other blog posts, we explained the importance of title insurance and how the costs are determined. So, it is critical to choose a reputable, experienced company to ensure that you have a smooth and hassle-free transaction.

Below are 9 questions you should ask when searching for a title company.

Is my Money Safe?

Make sure that the company has a fully staffed escrow and accounting department dedicated to protecting your funds. Ask for a written guarantee that the company does not disclose your personal information to anyone not involved in the transaction and find out if they carry fidelity coverage and errors and omission insurance.

Is the Title Company Financially Stable?

To make sure that the title underwriter is financially stable, check the Demotech website, which issues Financial Stability Ratings (FSRs) for title underwriters.

Is the Title Company a Neutral Third Party?

Some title companies are owned by lenders, real estate firms or builders which may cause a conflict of interest. Your Title Insurance company should be independent and unbiased to ensure that the transaction closes according to the terms of the contract, without any complications.

Is the Rate Quoted Much Lower than What Other Companies are Charging?

Below market premiums may indicate a lack of experience, subpar service or insufficient financial and accounting controls.

In Addition to the Premium, are there Other Fees and Charges?

Ask about fees for electronic delivery, overnight courier, cashier’s check, release tracking, wire transfers and other charges that may add up to be more than the amount charged by reputable title companies. 

Make sure you have all the associated fees in writing before signing any agreement.

Does the Title Company Conduct Thorough Title Searches and Report All Exceptions?

Title companies are required to perform a “reasonable examination” for every transaction, which includes providing you with actual documents for any exceptions (e.g. liens, unpaid taxes). Your title company must identify, disclose and resolve all issues prior to closing.

Is the Title Company Locally Owned and Operated?

Beware of a title company which outsources production of the title commitment and portions of the closing process overseas. A local company will be more knowledgeable about Colorado Springs real estate laws and customs as well as the local real estate market.

Are the Employees of the Title Company Licensed?

In Colorado, title underwriters, agent companies, and agents are licensed through the Colorado Division of Insurance. Any title company employee who provides rate information to the public must have a license. By Colorado law, salespeople, title examiners, and searchers must be licensed. The Division of Insurance also regulates activities and has the right to audit files, impose fines for improper actions, discipline agents and take other corrective action.

Is the Title Company a Member of the American Land Title Association (ALTA)?

The professional/lobbying organization for the title insurance industry is the American Land Title Association (ALTA). In 2007, ALTA launched the “The Title Industry Consumer Initiative” which details the association’s strategy for improving industry oversight and educating and protecting consumers. You can learn more about the Consumer Initiative on the ALTA Web site.

Thank you to Sara Martin of Land Title Guarantee Company for providing the above information.

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Why Do I Need Title Insurance?

Title insurance is just one of the many things that appear on your home buying settlement sheet, but it’s also one of the most important.

The Colorado Springs property you are buying has probably gone through several changes of ownership over the years (unless it’s new construction). One of the necessary procedures during the home buying process is a title search.

The search must be done before any property changes owners in Colorado so that the deed can be recorded and registered to the new homeowner. The search reviews the “chain of title”—the history of everybody who has owned the property through its present owners. What title insurance does is protect you against any expected discoveries that may arise during the title search. For example, there may be unpaid real estate taxes or mortgages, outstanding liens, or errors in the legal description of the property.

Title insurance guarantees that, if any issue in the ownership records arises during the search, the insurer will either fix the problem, compensate you for any potential loss or defend you against any action that may occur as a result. Title insurance protects you against matters that have already occurred and that were not caused by any wrongdoing on your part. It gives you peace of mind knowing that once the buying transaction is complete, you are protected against any claims on your property.

There are two basic forms of title insurance:

Owners’s Title Insurance – 
Owner’s title insurance covers you as owner of the property, and the policy is generally issued for the amount you paid to purchase the property.

Lender’s Title Insurance – Lender’s title Insurance covers your lender’s interests in the property and is usually issued in an amount equal to the loan. In Colorado Springs, the buyer and seller may negotiate who pays for the Owner’s title insurance policy. The buyer generally pays for the Lender’s title insurance policy.

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Credit Dings Might NOT Stop Your Home Buying Dreams

Applying for a mortgage can be one of the more frustrating aspects of buying your Colorado Springs home. And if you’ve suffered a bump in the road credit wise, you may be hesitant even to try to obtain a home loan. But, fear not! Armed with some knowledge and a bit of patience, you can join the ranks of homeowners in the Colorado Springs area.

Credit Disputes

You checked your report at www.annualcreditreport.com and, to your dismay, there is some erroneous information or a negative report based on late or missing payments. Even though you may want to call the company immediately, if you are applying for a mortgage, do not dispute any derogatory information on your credit report. If your report shows that you are in the middle of a dispute, your loan application will be rejected or it will be referred to a person (instead of a computer) for a “manual underwrite,” which can take a very long time to resolve. Wait until your mortgage is approved and then dispute the report.

Bankruptcy

Yes, you can be approved for a mortgage even if you’ve declared bankruptcy. If you have declared a Chapter 7 bankruptcy (one in which all debts are forgiven), you must wait 2 years after the bankruptcy is discharged to qualify for an FHA or VA loan. For a Chapter 13 (when you agree on a repayment plan), if you have been making on-time payments for one year after declaration, you may qualify for an FHA or VA loan. In either case, you must not have a single late or missed payment during the post-bankruptcy waiting periods—if you do, the qualifying period will be reset close to the date of your missed payment.

For conventional (non-government insured) loans, the waiting period is 4 years after the discharge of a Chapter 7 bankruptcy and 2 years after the 1-year payment period for a Chapter 13 bankruptcy. And, as with disputed credit reports, if you dispute a bankruptcy while applying for a home loan, the date of the bankruptcy will be reset close to the date you initiate the dispute.

Loan Modification

If you are having difficulty making mortgage payments for your loan in its current form, you may request a loan modification. When you do so, and if it is approved, make sure that the lender reports this to the credit bureau as “Paid as agreed.” Have the lender put this in writing before you sign off on any loan modification papers. If the lender reports the modification as a “Repayment plan,” your credit report will be dinged.

Short Sale and Foreclosure

If you go through a short sale (selling your home for less than the outstanding debt), your credit score will not be affected if the lender notates it as “Paid as agreed.” If your lender agrees to forgive a portion of your loan, you will most likely sign an unsecured note promising to pay back the agreed-upon amount. As with Loan Modification, have your lender give you written proof that “Paid as agreed” will be reported to the credit bureau. If you don’t take this step, and the lender notates “Settled for less than the full balance,” you will be dinged a whopping 105 points!

If you are experiencing foreclosure, in which the lender takes possession of the property due to non-payment of the loan, you will also want to negotiate with the lender about how he will report it. If the notation “Foreclosure” appears on the report, you will be dinged 110 points.

In both cases, with a potential short sale or foreclosure, speak to your lender as soon as you realize there may be trouble looming. Don’t wait until the situation becomes dire, as many lenders are now much more willing to negotiate help for homeowners than in previous years.

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Homes for Sale in Colorado Springs, Colorado Springs Real Estate

Phone Number:

719.388.4000

Address:

Springs Homes
703 N. Tejon St. Suite E
Colorado Springs, CO 80903

Meet Springs Homes

There is nothing average about Springs Homes. Everything we do crackles with intention and intensity, because we believe that strategy always wins when employed by confident, knowledgeable and trustworthy agents.

We list and sell homes across the entire Pikes Peak region. Additionally, Springs Homes offers property management services. We work with a select few home builders in order to provide our clients with new construction options as well as resale opportunities.

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