Tips

How Can I Avoid Paying Private Mortgage Insurance?

 

What in the World is Private Mortgage Insurance (PMI)?

Private mortgage insurance, or PMI, occurs when a home buyer is not able to put at least 20% of the sale price of a home as a down payment.

Putting a 20% down payment on a new home through a conventional loan may not be a financially feasible option for you. Lenders will usually require you to pay PMI (The borrower typically pays this through monthly premium payments as well as other payment methods).  

If you are not able to make at least a 20% down payment, lenders and insurance companies are going to want to minimize their risk when lending their money to you.

Home buyers generally want to avoid paying PMI as it means you’ll be spending more each month due to the premium insurance fees.

Paying over at least 20% as a down payment can significantly reduce your monthly payments and leave you affordable rates. So, you don’t have to squeeze out every penny and dime to make payments on time.

Use Your Cash Equity As A Down Payment

If you are thinking about moving to another home or thinking about downsizing, in particular, you may want to consider leveraging the equity you received from the sale of your house towards the down payment on your new home to obtain affordable rates.

Cash is King

If you’ve sold your home to an all-cash buyer, this might be an excellent opportunity for you. There are advantages to paying for a new home with cash. That’s right; cash is still king amongst home buyers and sellers alike.

Sellers will find a cash offer much more appealing versus a loan or mortgage. Often times, a seller will even be willing to lower the price for you if you pay in cash.

Many home buyers opt to go through home equity loans or home equity line of credit or HELOC to finance their down payments. However, financing down payments through loans take time, and there’s always the chance that you don’t get approved for a loan. Plus, you have interest rates on top of the loans to consider.

If you can leverage the cash equity you’ve acquired from the sale to an all-cash buyer towards the down payment of a new home and that payment is over 20% of the entire sale price of the house, you can save a ton of money in the long run.

Cash also gives you the opportunity to bypass tons of paperwork involved with lenders.

Usually, this is an excellent option for those looking to downsize or looking for a less expensive home in general. Since the house will be smaller in scale relative to your previous home, it’s likely to be more financially beneficial for you since you’ll be paying for less square footage.

As a result, it will make it much more viable to cover at least 20% as a down payment or an even bigger down payment.

So, if you’ve got cash on hand, consider setting at least some of it aside to go towards your new home, and your future self will thank you later.

What’s Mine is Yours: 5 Questions to Ask When Inheriting a House

 

What is the best course of action when you inherit a house from a loved one after their passing? This question can be incredibly difficult to answer for the majority of people who need to ask it. Overall, inheriting a house can be a stressful, yet rewarding experience for those involved.

But it is important to thoroughly examine the situation before deciding on the best option for you. Read on to learn five essential questions to ask yourself and professionals once you have inherited a house.

Five Questions to Ask on Inheriting a House

The individual situation will greatly influence how the process moves forward when you’ve inherited a home. For example, if you jointly inherited with a sibling or other relative, there are going to further steps you may need to take. Here are some factors and questions to consider during your decision-making process.

1. What Is the Local Probate Policy?

The first step for any inheritance process is to understand how the will works, and finding a probate attorney is generally the best way to do so.

Probate will be the initial phase of a will, as it involves the judicial process it has to go through in order to move forward as a legal, binding document of the deceased’s wishes.

Once you become appointed as the executor of the will once probate is complete, the attorney will be able to advise you on moving forward with it.

2. What Are the Home’s Expenses?

Immediately after inheriting a house, you should look into what the expenses associated with it are.

Some examples could include a mortgage, home association fee’s, and utilities. Regardless of whether you intend to do with the property, you should keep these up to date to avoid issues in the near future once you reach a decision.

3. What Is the Home’s Value?

If you are thinking about selling the inherited home, you should reach out to a real estate agent about the home’s market value.

Essential factors on the value could include the age of the home, the neighborhood, nearby properties, and updates on it.

4. What Are My Options?

Overall, there are three main options when inheriting a home. You could sell it, live in it, or rent it out.

The best decision depends on if you are the sole owner of the home.
Furthermore, if you do want to sell the home, it is usually best to do it as quickly as possible as specific tax implications can complicate holding on to it for a long time.

That said because inheriting a home can come with many emotional and personal complications, it can be hard to rush it.

5. What Tax Implications Will It Have?

Regardless of what you choose to do with the home, there will be some tax implications for the decision.

When you inherit a house, it experiences what is called a stepped-up cost basis.  This means that the property’s market value will be based on the date of the former owner’s passing.

If you sell the home, if the property has appreciated since it was purchased, you will only have to pay the long-term capital gains on the sale price exceeding that stepped-up basis.

If you live in the home, there is the potential for higher property tax due to the stepped-up basis. That said, living in the house for a few years can help you avoid capital gains that you would typically have to pay when selling immediately.

Finally, if you rent the home out, you can use the taxable income from the home towards depreciation and improvements. That said, the IRS will have to be reimbursed if you eventually sell the house.

Make the Best Choice for You

Ultimately, there is no right or wrong thing to do when inheriting a house. But, always make sure you reach out to a few professionals who have experience in the area so they can give you their input from a third-party viewpoint.

As well, if things get messy with others involved in the will, the best option is usually in civil court to ensure everyone gets their share.

Thinking about selling the home for cash? Check out our recent post on all the benefits of selling a house for cold-hard cash.