My OperaMaster cleanse When I Purchase Boise Real Estate, Why Do I Have To Have PMI?
Tuesday, June 22, 2010 5:42:49 AM
If you own your own home, the term "PMI" should not have you scratching your head in confusion. To help guard against loss, banks require a home buyer to acquire Primary Mortgage Insurance, or PMI, just in case things do not work out and you cannot pay for your mortgage. It would make sense if you had to pay for insurance that helped you when you could not pay for your home loan, but in this case the bank gets the protection.
Banks are somewhat smart in that they will not fund Boise real estate loans which may be risky, so to buffer them from loss, they require a homeowner to purchase PMI as part of the loan contract. Any buyer can bring in an additional minority note in the sum of 20% of the purchase price or more, and get the primary note to drop the requirement for the PMI policy in the first place.
As the market headed downward into depreciation, including the Boise real estate market, banks had a hard time finding mortgage insurance firms that would willingly take the risk of insuring loans when values were on the way down. Whenever property owners owe more than the property is worth, the incidence of them walking away from their responsibilities are dramatically higher. The two means that primary mortgage insurance companies have determined help these factors is to simply lower the number of mortgage insurance policies they are willing to accept, or to increase the price of the policies to such a level not many people are willing to buy them.
With the most frequently used methods waning, what are prospective real estate buyers supposed to do? This is where the federal governments first time home buyer tax credit, that just expired, comes into the equation.
By granting buyers who were waiting on the sidelines, the program added some much needed energy and confidence to the national market. The government decided that instead of waiting until prices adjusted naturally to where the market wanted them to be, they would make it by issuing buyers a tax credit. Eager to collect some cash and benefit from the lower rates too, many home buyers jumped at the chance to get both in one act.
You can bet that after the tax credit expires and the pace of the market is not stimulated any longer, we will most likely see a reduction in sales numbers and maybe prices too. If were are not careful we may see ourselves right back in that spot where PMI is no longer easily obtained and we will be searching for another remedy.
I know this may seem like a grim report given all of the talk about an economic recovery, but real estate is still an excellent investment, given you acquire it correctly. Being able to retire from wise investments is the goal, so putting your investment dollars into a place that you know you can afford is always the wisest of choices, and planning your investment is very important.
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