Friday, October 20, 2006

FICO and Private Mortgage Insurance 101

Okay, let's use the fictitious Ed and Edna James again to help with this explanation. Ed and Edna are at the closing table on their new house. For the sake of this discussion, let's say their FICO score is 590 and they are only eligle for a sub-prime 2/28 adjustable rate mortgage; but, they are estatic at having succeeded in getting the mortgage and consider themselves one step closer to moving into the home of their dreams.

They do not really think about anything, other than leaving the table with the keys. They eagerly glance over and sign papers (planning to give them a more careful read in their new home), and only half listen to the talk that is going on around them until the talk turns to their total monthly payments. The payment is much higher than they expected. It is at the closing table that they learn their FICO score and their inability to pay a twenty percent (20%) or higher down payment on the property has increased the private insurance rate. The couple leave the table stunned but with the keys.

Private mortgage insurance (PMI) unlike any other insurance pays a third party, the lender, in the event the homeowner defaults on the loan; but, the homeowner pays the premium on the insurance. This insurance is required for loans. The borrower's FICO score helps determine the premium. While Ed and Edna should have gotten a good faith estimate of the cost of their anticipated mortgage and the PMI monthly payments, it does not always happen before closing. It is something every buyer with a mortgage should look for or ask about before going to closing and signing anything. Knowing the total monthly costs is something every buyer should know and consider before the going to closing.
Read more about FICO scores effect on PMI here.


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Wednesday, October 18, 2006

In Today, Out Tomorrow?

The next two years will tell the tale of what will happen with homeowners with adjustable rate mortgages (ARM). To understand the problem here’s a scenario: Ed and Edna James purchased a 180,000 dollar house an financed it with a 2/28 ARM. The couple has a combined income of $30,354. Right now they pay $1265 dollars monthly. When the loan is fully indexed the couple will pay a whooping $1990 dollars a month leaving them about $125 dollars for food, utilities, fuel, etc. Hopefully, the fictitious Ed and Edna spent the two years of the low rate getting their credit in order and are now able to get a fixed rate mortgage loan otherwise they will be unable to pay their mortgage and will have to move.
Read Sam Ali's story

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Tuesday, October 17, 2006

Kara Homes Gets $5 Million Operating Loan

Kara Homes based in East Brunwick, NJ filed for Chapter 11 bankruptcy on October 5th. Today the builder has lined up a high interest loan that would allow it to continue operating if the bankruptcy judge grants approval. The hearing with Judge Michael Kaplan is on Thursday in Trenton.

Medical Capital Group loaned the builder 5 millions with a 18 percent interest rate over a six month term.
Read the entire story here.

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