(BPT) - Owning your own home comes with many advantages, including escaping rising rents and the personal and financial stability associated with homeownership. Fortunately, millions of Americans, with less than 20 percent down, have been able to buy a home sooner thanks to mortgage insurance (MI). If you don’t put down 20 percent of the mortgage cost, you will likely be required to purchase MI, which enables low-down-payment borrowers to qualify for home financing from lenders.
While homeownership has many benefits and continues to be part of the American Dream, it is not without costs. Several surveys have found that the majority of first-time homebuyers — over 80 percent according to one study — put less than 20 percent down. For these borrowers, there is usually the added expense of MI, which may give some of these borrowers pause.
But there is good news: the monthly private mortgage insurance premiums do not last forever on most conventional loans. And when private MI (PMI) cancels, homeowners will have more cash in their pockets each month — money that is available for home improvements or other goals. It is important to understand, however, that not all MI is the same, and not all MI can be canceled.
There are numerous low-down-payment mortgage options available that include MI. The two most common are: (1) home loans backed 100 percent by the government through the Federal Housing Administration (FHA) that include both an upfront and annual mortgage insurance premium (MIP); and (2) conventional loans, which are typically backed at least in part by private sources of capital, such as private MI. The key difference is that one form can be canceled (PMI) while the other (FHA) typically cannot be canceled.
An FHA loan can be obtained with a down payment as low as 3.5 percent. However, be aware that you will typically have to pay a mortgage insurance premium (MIP) of 1.75 percent of the total loan amount at closing or have it financed into the mortgage. In addition to your regular monthly mortgage payments on your FHA loan, you will also pay a fixed monthly MIP fee for the life of the loan. This means you could pay hundreds of dollars extra every month — thousands over the life of the loan — until you pay off the entirety of the loan.
If you obtain a conventional loan with PMI, you can put as little as 3 percent down. Like an FHA loan, PMI fees are generally factored into your monthly mortgage payment. However, PMI can often be canceled once you have established 20 percent equity in the home and/or the principal balance of the mortgage is scheduled to reach 78 percent of the home’s original value. This means that the rest of your mortgage payments will not include any extra fees, so that your payments go down in time, saving you money each month. What you save in the long run can then be put toward expenses like home renovations, which can further increase your home’s value.
MI is a good thing because it bridges the divide between a low down payment and mortgage approval. But not all MI is created equal. If you want to buy a home but still save in the long run, PMI might be the right option for you. Check out lowdownpaymentfacts.org to learn more.
(BPT) - Thinking about combining finances with your significant other? Whether you're getting married or just thinking about getting serious, talking about money can help couples understand each other and avoid unhappy surprises down the road. Here are five reasons why talking about money can enhance a relationship.
It makes couples happier.
Talking about things like spending, saving and debt may sound business-like and unromantic, but financial experts agree that money is a frequent topic of arguments in many relationships. In fact, according to a survey by the American Psychological Association, almost a third of adults with partners reported that money is a major source of conflict in their relationship.
"What I see when talking with couples is that learning how to resolve money disagreements - and there will be disagreements - helps build important relationship skills," says Daniel Prebish, director of Life Event Services with Wells Fargo Advisors. "Those skills will be valuable both at the beginning of a relationship and likely for a couple's entire time together."
It helps couples connect by understanding what's going on.
Couples should discuss pros and cons of combining finances versus keeping finances separate. According to research by Wells Fargo & Company, about half of couples choose to combine accounts, while the other half prefers separate accounts. Regardless of where you and your significant other fall in this spectrum, both people in a relationship should understand how their financial habits impact - positively or negatively - the life they are building together.
It helps couples track their short and long term financial goals.
Be open with your significant other about your full financial picture. Questions that can help open the door to meaningful conversations include:
1. Are we paying ourselves first?
2. Do we have a safety net?
3. Are we paying all our bills on time, every time?
4. Have we reviewed our insurance needs in the last year?
5. Do we track our spending to know where our money is going every month?
6. Are we paying down high-interest-rate debt first?
7. Do we know where our credit stands?
8. Are we saving for retirement?
It helps couples afford the "extras" that make life fun.
Building a solid financial future shouldn't mean forsaking enjoying life. When couples have a common understanding of how they'll prioritize and manage their day-to-day finances like housing costs, grocery and utility bills, it's easier to figure out where splurges fit in.
It helps avoid financial surprises.
Hearing your friends shout, "happy birthday" is a welcome surprise. What's not welcome is suddenly discovering you can't afford to pay this month's bills or that retirement is farther away than a pot of gold at the end of the rainbow. Being up front about money issues and sharing complete financial information with your significant other helps avoid financial surprises that can add unnecessary stress to a relationship.
While discussing money may not feel romantic, it certainly is emotional. So how do you get started? Here are tips:
1. Admit the conversation can feel awkward, but commit to having it anyway.
2. Pick a mutually agreeable time. Your candle-lit Valentine's dinner may not be the right setting. Pre-arranging the conversation will help ensure both people are mentally prepared.
3. Be open with your significant other. Share your values and opinions about spending and savings habits and goals you would like to achieve together.
4. Work at it. Commit to an annual meeting to talk about money, credit and whether you're on track to achieve your financial goals.
By opening the lines of communication, you can get on the same financial page before joining financial forces.
(This article was written by Wells Fargo Advisors and Consumer Lending)
Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company. Wells Fargo Consumer Lending Group provides products and services through Wells Fargo Bank, N.A. and its various affiliates and subsidiaries. Wells Fargo Bank, N.A. is a bank affiliate of Wells Fargo & Company.
Findings were a part of the 2016 Wells Fargo & Company's "How American Buys and Borrows" survey. Over 2000 American adults ages 18 and older were surveyed. Survey results were not published in their entirety.
Interested in Publishing on The Money Idea?
Send your query to the Publisher today!
Get this money content for your website with our RSS Feed below!