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Aug. 11, 2010 - Getting Rid of PMI (MIP) - Mortgage Insurance

Mortgage Insurance is typically required unless you have 20% or more down payment at time of purchase. The "1st mortgage" is for 80% of the value of the home. Any additional amount financed is covered via mortgage insurance. This insurance protects the lender who financed any portion of the amount over the 80% loan to value, in the event the homeowner defaults on the loan and the home is sold at less than the original purchase price. You can get more detail on what mortgage insurance is and why it is required HERE.

There are several ways to get rid of MI. On conventional loans MI (Mortgage Insurance) is commonly referred to as PMI (Private Mortgage Insurance) and on FHA loans it is known as MIP (Mortgage Insurance Premium). On Conventional Loans it is most often a monthly payment and on FHA loans it is a combination of an upfront (most often financed) payment plus a monthly payment. 

The purpose of this post is to point out that at time of purchase, the Mortgage Insurance is determined by the Purchase Price AND NOT THE APPRAISED VALUE of the home. The VALUE for mortgage insurance purposes is either the purchase price OR the appraised value...whichever is LESS.

So if you purchase a home for $300,000 with 5% down and it appraises for $340,000, the mortgage insurance is based on the $300,000 and not the appraised value. BUT after a short time, usually a minimum of six months, IF you refinance the property you can often get the mortgage insurance eliminated.

At the time of the refinance, the Loan to Value is no longer based on the Purchase Price. If the home appraises for an amount that causes the NEW LOAN to be 80% or less of the home's value, mortgage insurance will likely not be required on the new loan and you can save a bundle.

See details on one young man's success story in Truliaboy Refinances His Short Sale Purchase.


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Jul. 24, 2006 - Caveat Emptor II - Buyer Beware


Client calls me and wants to buy a condo across from Microsoft in the value deficient complex (versus the higher inherent value complex).  They almost look like one complex, but are in fact two separate ones.

One bedroom condo (last summer) priced at $119,999.  They are looking at the crown molding, I'm crawling under the bed and pulling out the sofa trying to figure out what the seller did with the baseboard heaters that appear to be missing.  The client is looking at the crown molding, I'm looking at the kitchen cabinets and seeing originals from the seventies with new knobs and handles that make them "look updated".  Buyer starts catching on and saying, hey, why are the indents in the rug from the coffee table not where the coffee table now is?  They pick up the little area rug and see a huge red ink stain on the wall to wall carpet.  (seller's agent said that was "staging"...I said it was concealment of a defect.  Seller's agent said they were waiting for the home inspector to see it...I said home inspectors don't move furniture and area rugs, by and large, to find concealed defects.)

I take the buyer client over to the "better" complex to an almost identical unit priced at $101,000...that's  $19,000 less than the one the buyer had picked out from the internet because of the crown molding.  The doors are not painted white and the wood trim is not painted white and it has no crown molding, so doesn't "feel" as good to the buyer.  But I know that the HOA requires that the old and ugly sliding door they are looking at, be replaced with a brand new pretty white framed one before closing.  The HOA also requires that the seller replace that old window in the bedroom with a brand new white framed one before closing.  So "what you see is lesser than what you actually get on this one."

They buy this one for $100,000 vs. the other one, which did sell to someone else for $119,000.  While we were in escrow, another condo in the same complex and the same building as our $101,000, identical unit with about $1,500 worth of improvements, sold for $122,000! Yes, I'm still damned proud and excited about this one.  Not often you can get $20,000 of built in equity before closing...and roll out of bed distance to Microsoft to boot!  Sorry for crowing...one of my most favorite transactions.  No commission concessions on this one...clearly the buyer received "value" for the $3,000 I made on it :-)  And they are now great friends who call me before making a move in any real estate transaction.  Great people; happy clients for life.

When a property has been on the market for some time with no offers, the risk to the buyer is less. The entire marketplace has "noticed" that the asking price does not fit this house.  The marketplace may not be able to put their finger on exactly why that is,  the way I can.  But the public can inherently perceive, that the price the seller wants, does not seem to fit the "value".

The greatest risk to my buyer client is when there is a lot of attention on the property on day one.  Everyone running around looking at the "staging" of the house that is WOWing everyone in town and putting upward pressure on the pricing.  While the buyers are going from room to room "LIKEing" the place, which is great and their part of the job at hand, I am looking way past that.  This happens most often at an open house where five to ten sets of potential buyers are liking this house all at once.

Sometimes I am actually standing in the corner, scratching my head, saying don't all of these people see that those cabinets, while freshly painted with new handles and looking very nice, represent about fifty bucks worth of cost and that 1977 kitchen still needs a $20,000 remodel?  Don't they see that all of this light, bright and airy is "flip camouflage"?  Someone just popped off the doorhandle of the cheapo 1977 doors to the bedrooms, painted them white and stuck the same old handle back on.  Wa la!  Fifty cents worth of paint and now this condo is $5,000 higher than the one next door with the brown doors and brown baseboards? 

Perhaps every buyer would see what I am seeing, if they had the time.  But multiple offers on first day can push a buyer into a situation they haven't had time to evaluate thoroughly.  So my being able to see these things in a nano-second, is of value.  Not because I am "smarter" than my buyer client, or because my "buyer client" is stoopid...just because I do this day in and day out for 16 years and can spot things much more quickly as a result.


"Risk" to the buyer comes in many forms. 
My perspective is always on the resale value of the property my buyer client likes.  While the buyer is looking at all of the things that they like, I am looking for functional obsolescence and other things, both fixable and not fixable, that affect value. 
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Jul. 23, 2006 - Caveat Emptor - Buyer Beware

Question asked on RCG: "Does the buyer take on appreciably more risk? Ignoring any issues that would be discovered during an inspection, do buyer’s agents, in practice, actually help buyers from getting screwed (for things sellers should, but don’t, disclose)? "

It is sometimes difficult to answer a question like this, because the question skews the answer to one specific, and not necessarily true and relevant, response.  The question assumes that the "value" of a Buyer's Agent has to do with home inspection items and Seller Disclosure items.  As promised to the questioner, I will do a string on different topics related to the issue of the question.  Here's the first. 


Buyer purchases house at $25,000 less than asking and under appraised value. In this case what I noticed were several things. 

1.The home was overpriced.  Because it was overpriced, the client had not noticed the property in his online search.  Also, because it was overpriced, it was getting stale on market and ripe for an offer lower than fair market value.

2. The home had aesthetic issues, but was a home inspector's dream.  Great new roof, top of the line, not a cheap "looks new but cheapest roof available" type roof.  It  was built in the age range when construction was better than the period before it and after it.  Newer is not always better if newer falls in a "weak construction material" period of time.  The heater was not only newer, but also top of the line Trane.  The fireplace had never, ever been used in the many years since the home was built..."like new".

3. We did do an inspection during escrow, but we did not make the offer "subject to" the inspection.  Based on my visual inspection, we used the "no inspection contingency" a point of negotiation to get the lowest price possible.  We then did an inspection to prove out our suspected "good inspection" evaluation, and there were no surprises from the home inspection.  It's a bit of a risk, and I have a better than average eye for these things, but well worth the risk at a $25,000 savings from ask price and $10,000 under appraised value and no competition or price war, even though it was one of the most sought after neighborhoods.  The houses selling were the inferior ones priced $25,000 less...this was the diamond in the rough...the needle in the haystack...the one overlooked by most. 

That is not to say that "no inspection contingency" should always or often be used to get best price.  You have to evaluate the most expensive items that could come up in the inspection:  Site issues like drainage, foundation issues, roof, siding, heater somewhat in that order.  The risk is not in buying a house with problems, as you DO still do an inspection, you simply do not make the seller responsible for the result of the inspection.  The risk is not the potential defect ,as you will know all defects prior to close.  The risk is the Earnest Money deposit, and not necessarily.  If what you find during inspection is something that should have been in the Seller Disclosure Statement, you can still back away without losing the Earnest Money Deposit, even without the protection of an inspection contingency. 

That's an example of Buyer Agent advices with regard to home inspection and seller disclosure...have to go now.  Will do more later.

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Mar. 6, 2006 - Goodnight and Goodbye Mrs X


There are a thousand stories in the Naked City.  This is just one of them. 

I was working on my computer one day when I saw some emails coming from Realtor.com 

I stopped what I was doing and opened the emails. The emails were from clients of mine whose son purchased a condo from me several months ago. The emails had no messages, just property. Vacant lots out on the coast in Washington that were really cheap $25,000 to $90,000.  

I called the clients and arranged for an agent on the coast to take them out to look at those lots and others. They returned here having found a fabulous lot that backed to a canal, one house from the ocean, with an easement access to the ocean directly across the street. It already had septic, water and electric hooked up. 

The owners were a couple who owned it for many years and enjoyed it and needed to sell it because the wife was dying of cancer. To make a long story short, the woman left her hospital bed and her husband drove her two hours and the listing agent drove two hours and they met at midnight under the bridge to sign the offer. The woman felt a huge weight lifitng knowing that her husband would have this money toward her hospital bills. She died before it closed with that peace of mind. 

It is closing today and I received this message from the listing agent Mr X says he hopes they find as much happiness there as he and his wife had throughout the years.

This area was never on the mls, and so not on the internet, until they joined NWMLS this summer. Had the area not joined the mls, my clients would never have seen the lots on Realtor.com and emailed me. A chain of events started and ends today when it closes. 

We are in a business of people. Buyer people and Seller people. We do not sell property, we help people buy and sell property. The people are important. Lets not forget that.

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ARDELL DellaLoggia of Sound Realty on Seattle Real Estate process and market including Kirkland, Bellevue, Redmond, Green Lake and most areas around the top of Lake Washington North of Downtown Seattle. Phone: 206-910-1000 - Mailto:ARDELLd@gmail.com

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