What is PMI? PMI, or private mortgage insurance, is an insurance that home buyers are required to purchase if their down payment is low. Private mortgage insurance is usually required of home buyers whose down payment is 20 percent or less of the property’s sale price or appraised value. This insurance was created by private mortgage insurers, and was created to provide protection for the lender in the case that the home buyer should default on the loan.

Private mortgage insurance has helped create millions of new homeowners by allowing people to buy homes with much smaller down payments than had previously been accepted. As home prices continue to soar, the ability to purchase a home with a small down payment has become even more important. Private mortgage insurance allows potential homeowners to buy a home sooner, with even just a 5 percent down payment. Also, private mortgage insurance can help you qualify for a greater number of home loans.

The cost of private mortgage insurance varies according to the down payment and mortgage loan, but it typically equals approximately one half of one percent of the total amount of the loan. But how exactly is private mortgage insurance calculated? Let’s assume you bought a house for $100,000, for which you put set down a 10 percent down payment. Your lender will multiply the remaining 90 percent by .005 percent. The result, $450, is your annual private mortgage insurance, which is divided into monthly payments.

After a few years of paying down your mortgage loan, you should be able to stop paying private mortgage insurance. You should keep track of your payments and contact your lender when you reach 80 percent equity so that your private mortgage insurance can be cancelled. In 1999, a new law, the Homeowner’s Protection Act, was passed that requires lenders to notify you, the buyer, how many months and years it will take for you to pay the 20 percent of your principal. However, it is still a good idea to keep track of it on your own.

This same law also allows lenders to make certain buyers continue their private mortgage insurance, all the way to 50 percent equity. This requirement applies to buyers classified as high risk borrowers. Some Federal Housing Administration loans may even require that home buyers acquire Private mortgage insurance through the lifetime of the loan.

If the idea of paying private mortgage insurance for years sounds unappealing, you’re not alone. Over the years, new ways of avoiding payment of the private mortgage insurance—even when you don’t have the 20 percent down payment available—have emerged. One strategy commonly employed to avoid paying private mortgage insurance is to pay more interest on your mortgage loan. Some lenders will waive the private mortgage insurance requirement if the home buyer agrees to pay a higher interest rate on their mortgage loan. One advantage to this strategy is that mortgage interest becomes tax deductible.

Another way to avoid paying private mortgage insurance is by using the ’80-10-10’ loan strategy. This strategy involves taking on two loans and putting down a 10 percent down payment to purchase a home. One loan finances 80 percent of the mortgage, while the second loan finances the remaining 10 percent of the sales price. The second mortgage—the one that covers the 10 percent—has a higher interest rate. But since the amount of the loan is low, the interest charges are relatively easy to pay off. Under this plan, the mortgage interest is also tax deductible.

You may also be able to cancel your private mortgage insurance if you can prove that your home has increased significantly in value. If the value of your home has gone up, you may already have 20 percent (or more) of the equity you need to cancel your private mortgage insurance. You can submit evidence of this to your lender, but the process is slow. Expect to wait up to two years for the lender to make a decision.

You may be required to continue paying private mortgage insurance, however, if you have a poor payment history, or if your credit record reflects any liens placed against your property. You should speak to your lender to see how any changes in your credit record may affect your use of private mortgage insurance.

Buying a home is a significant investment. A title insurance policy helps you protect that investment against potential losses that may occur after your house deal closes and you discover that someone else has an ownership claim to the property.

It may seem unlikely that such a scenario could play out, but it is a surprisingly common occurrence – frequent enough to make purchasing a title insurance policy a good idea to safeguard your investment.

When you buy a home, your lawyer or legal representative will conduct a title search (also called a title examination) to determine ownership of the property in question. A title search involves collecting and examining, in detail, all of the public records that involve the title to the property you are purchasing. The search may include past deeds, wills, trusts or other liens against the property to ensure that it has passed properly from owner to owner. The person conducting the search will also attempt to confirm that all previous mortgages and judgements involving the property have been fully paid.

Most times, your title search will come back clear. On occasion, however, a ‘cloud’ or ‘defect’ such as a missing signature will be detected, and while the defect is likely the result of an administrative error, it should be cleared before your deal is completed. A thorough title search should also reveal nuisance issues such as easements that may affect your interest in purchasing the property. Easements or right of ways may not present an immediate problem, but could adversely affect the property in the future.

Title searches are helpful in identifying any potential title-related issues relating to your property, but mistakes happen (in the public records themselves, as opposed to just mistakes on the part of your examiner), and you may find yourself involved in a legal battle in the future if a title conflict does come to light after the close of your house deal. That’s where title insurance comes into play; if you have a title insurance policy, your legal fees will be paid if you are forced to go to court, and if you lose the property as a result of a title dispute, you will be reimbursed up to the limit of your policy.

Similar to other types of insurance, title insurance policies do have certain exclusions, so it is important to clarify what your policy covers and what it does not. Some title insurance policies, for example, do not cover, or have limited coverage of problems related to easements, liens or mineral rights. Shop around if you want greater coverage and are willing to pay extra for it. No matter which policy you purchase, defects that occurred after you bought the property are not covered by title insurance.

Now that you have a better idea of what title insurance is and how it is used, do you need it? Maybe. If you pay cash for your property and do not require a mortgage, you may choose whether or not you want to purchase title insurance for your own protection. If, however, you are obtaining a mortgage to finance your house purchase your lender will likely insist on title insurance coverage to protect its own interests in the event of a title dispute. Your lender may also stipulate additional coverage to guard your portion of the home’s value. Policies vary by insurance carrier, but generally, a lender’s policy is for the amount of the mortgage and is payable to the lender in the event of a lost dispute while an owner’s policy covers the full cost of the property plus legal fees. An issue to consider when purchasing title insurance is whether your policy includes inflation riders that will increase the amount of your coverage as your property value rises. You may pay a premium for this service.

Home buyers are usually responsible for the cost of title insurance, but may defray the charge by including title coverage as a condition of sale or by having the seller’s policy adjusted and transferred to the buyer’s name. Additionally, some states may require the seller to pay some or all of the title insurance costs, which are typically paid in full as part of your property’s closing costs. Ask your legal representative to outline your responsibilities and the seller’s responsibilities.

Closing costs can often add up when you have taken out a mortgage. By knowing what closing costs and fees will apply, you will be prepared for closing and owning your home. Closing costs include things such as real estate transactions, attorney fees, appraisals, credit reports, prepaid interest, homeowner’s insurance, title insurance and reserves that the lender collects for future taxes and insurance. Each of these different aspects of closing costs can add up when you have made all of the payments towards your home or loan that you think is necessary. It is estimated that closing costs will be an average of $3,000 to $4,000, depending on the types of inspections, insurance and documentation that needs to be prepared and finished before you can own your own home.

The first fee which will be a part of closing costs is the appraisal. This will give you an estimate of how much your home is worth at the time of closing. It includes giving you information and documentation on what will be the highest and best use for your property. These usually cost an estimated $200-$450, depending on the area in which you live and the value of real estate at that time. A second type of fee is the commitment fee. These fees are charged by investors or lenders have committed to your loan. A third documentation fee is the application fee. This is taken at the time of closing if your loan closes.

Another type of fee to keep in mind with the closing costs is attorney fees. Attorneys are used for the loan closing of the mortgage and usually review all of the documentation available for the closing costs. Another cost will be for a broker. This will be for the administrative, processing and transaction fees that take place between the broker and mortgagee. If document preparation is performed by a third party, other than the broker, there will be another charge for this. This may include documentation such as deed of trust, warranty deed, housing authority addendum, release of trust and power of attorney. It may also include other closing loan contracts or documentation such as processing costs. There is also a closing fee which is charged. If the closing fee is closed by a third person, such as a real estate person, there may be a customary cost.

Other costs will come from inspection of the home and insurance. The most common type of insurance that you will need is home owners insurance. This type of insurance is required to get at least one year in advance to protect the assets in your home as well as your home. Title insurance is also required to buy once your home is off of the mortgage. This will insure a lender of any liens on the property. Loans will not be closed until inspections are made and this type of inspection and insurance is resolved. Another possible type of insurance is those used for a flood plan. If you are living in a flood zone, you must pay for flood insurance at the time of the loan closing. There is also a possibility of getting a flood certification. This will allow you to continue have flood zone status during and after the mortgage. It will be paid at the time of closing. Another type of insurance is hazard insurance premium which will be added in closing costs. There are also inspection fees at the time of closing. This includes a home inspection service fee, which usually is around $300. Pest inspection may also be a separate fee which is included in the closing costs. A third type of inspection that may be included is a well and septic fee, if this is part of your home.

Another kind of cost which will be added during closing costs includes property taxes and assessments. The most well known deposit for taxes is known as an escrow. This is set up so that your taxes will continue to be paid after the loan and begin with a deposit at the time of closing. Transfer taxes are the other type of taxes available at the time of closing.

When looking into closing your mortgage, it is important to find the lowest fees and best way to get the documentation without having too much hassle. There are several ways to get free quotes and to find the proper tools in order to keep closing costs down and make the process of owning your own home as simple as possible.

Disasters or natural calamities are both unforeseen and unpredictable. If you live in Illinois, you’re most likely to be affected by tornados, floods and earthquakes. And if this means your property is damaged or destroyed, you will have many concerns: concerns about where to stay temporarily, emergency repairs and how much it will cost you to rebuild your house.

Before calamity is king: Your protection against a disaster is, as you know, homeowners or renter’s insurance. Whether you own property or rent it, you must have appropriate insurance coverage for yourself, your property and your personal belongings. Check to see if your landlord has any protection against damage in such situations, though his insurance won’t cover your personal precious things.

Here’s what you can do before disaster strikes and damages your property:

Make an inventory of all your personal property. Make a list of all model and serial numbers of expensive products such as a TV, VCR, computer, etc. Maintain receipts of these items as they prove your ownership. You can also take videos of the inside of your home to show which products you owned before disaster struck and damaged your home.

Do you have photocopies of your insurance policies kept in a safe location before disaster could strike? Important papers must be kept away from the site of damage so that you can use them to save your property.

Keep your insurance person’s name and telephone numbers handy and away from the scene of disaster. Also, familiarize yourself with the details of your insurance policy. When it comes to your property, ensure you understand the difference between actual cash value (ACV) and replacement cost coverage for your damaged contents.

After disaster, deluge and damage: Contact your insurance company once disaster has struck. Supply as much detailed information as you can about the damage to your property. Your insurance company may put out the procedures for filing a claim on the radio, TV or in the newspapers.

If no one from the company comes to you once you have made initial contact after the disaster, claiming damage to your property, ask to speak to the claims department. To be in the thick of things, you need to fully understand your rights and duties. First, accept that you will be emotionally spent, so ask a friend to help you out with routine household chores.

Makeshift arrangements: In order to save your property from any further damage, make temporary repairs such as patching holes in the walls or roofs as soon as you can. Here’s a little friendly help on how to make temporary repairs to your property after the disaster:

Get in touch with your insurance company for emergency money for temporary repairs to cover all damage to your property.

Take photographs of the disaster and the extent of damage to your property before you began cleaning up and repairing it.

As a property owner, it is your duty to safeguard your property against damage and disaster.

Keep all bills pertaining to the expenses incurred due to the disaster? Don’t dispose of items relevant to your damaged property.

Before you give out your house for damaged property, ensure you get prior agreement from your insurance adjuster on the disaster.

If your house is so badly damaged after the disaster that there is too much water all over your home, try to sweep it out and air out your property to dry.

Take an inventory round your property to see the extent of damage after the disaster. Look for metal objects that might have rusted by spraying them with oil. Call in an electrician to check all electrical equipment.

Call in an adjuster from your insurance company to come to your home, examine your property and write out a report of all that is damaged or a written damage estimate for the company. Get his name and telephone number in case you need to contact him. Be sure to get a copy of the estimate report and keep it safely. Also, do not hesitate to ask questions if you don’t understand anything. For further questions, contact the Division of Insurance.

Mortgage escrow accounts were developed more than fifty years ago when many Americans started losing their homes to foreclosures, mostly due to late tax payments. Homeowners were burdened to come up with large, lump sums of money at tax time that was often too difficult to pay. To ease the burden, lenders agreed to collect the taxes in small monthly payments made along with the mortgage payment. In 1934, this became standard procedure when the government stepped in and made it mandatory that lenders manage escrow accounts on all Federal Housing Administration (FHA) mortgages.

Mortgage escrow accounts are made to protect the homeowner by making sure that all insurance premiums and property taxes are paid in a timely manner. Escrow guarantees that there will always be enough money available to pay these bills on time. This way, the homeowner can avoid overdue taxes and insurance.

The U.S. Department of Urban Development (HUD) has administered the Real Estate Settlement Procedure Act (RESPA) to regulate all escrows and include laws for all lenders to follow when managing and funding the borrower’s escrow account. All lenders must maintain their escrow accounts and comply with federal law, with the interpretations set by HUD. Lenders are required to release itemized statements of escrow accounts to all borrowers yearly. While most lenders already issue these statements, the 1990 Housing Bill will ensure this practice.

Although borrowers are not required to maintain an escrow account with their lender, the lender may require it of the borrower. Escrows are made to protect the lender and as well as the borrower. Borrowers who do not understand the purpose of the escrow account, or those who have questions or other concerns, should consult with their lenders right away. It’s important for the borrower to understand escrow completely in order to be aware of all the benefits.

Escrows reassure homeowners that their mortgage related bills will be paid on time by automatically budgeting the borrowers insurance and tax obligations over a years time. This way homeowners can rest assured that their obligations are taken care of without having the burden of coming up with several large, lump sums of cash each year. In addition, it’s comforting that homeowners don’t have to calculate any unexpected increases in their insurance premiums or taxes. It is the lender’s responsibility to allow any potential increases in the payments, therefore covering the bill, without charge to the borrower, if there are not enough funds in the mortgage escrow to pay the increased bill. Many lenders will pay for the insurance and taxes when the payments are due regardless if the money has been collected by the homeowner at that time. In 1989, lenders advanced an estimated $600 million to homeowners to avoid penalties and any risk of not paying their insurance and taxes on time.

Escrow accounts have made it possible for mortgages to lower their rates and have lower down payments while protecting the interests of the investors. This has made the home mortgages more attractive as a secure investment, allowing escrow to lead the way to a stronger home mortgage market. Escrow accounts also prove beneficial to local governments by saving them money by using a less expensive and more efficient way of collecting taxes. Municipalities will only need to collect from a few hundred lenders instead of millions of homeowners.

For borrowers who decide to refinance or transfer their loan to another lender, the new lender will take on the responsibility of managing that borrower’s escrow account. The new lender may review the borrower’s escrow account to be certain that the funds are being collected sufficiently enough to cover all payments. Should the collected amount need readjustment, the new lender will notify the borrower of the change in monthly payments. Lenders in some states may pay interest on the money held in an escrow account although the RESPA does not require it.

Some lenders may ask borrowers to keep an excess balance that is often called a cushion, in their escrow account to cover potential increases in the borrowers insurance and tax bills. Many lenders may ask that the borrowers fund their cushion to the maximum amount of one-sixth of the total amount paid each year. If for some reason a lender asks the borrower to keep more than one-sixth in the escrow cushion, the borrower has the right for an explanation. If the borrower is not satisfied with the explanation, then they may file a complaint with HUD.