Keller Williams Realty Atlanta – Peachtree Road

What Is Changing in the FHA World?
 
Effective October 4, 2010, FHA will be making changes to their Mortgage Insurance Premiums.  As you know, borrowers currently pay 1.75% of their loan amount upfront which is called Upfront MIP.  Additionally they pay .50% to .55% of their loan amount annually (actually paid in 12 installments with their monthly payment).
 
The new MIP structure will require an Upfront MIP of only 1% of their loan amount.  The downside is that their annual MIP will increase to .50% to .90% paid on a monthly basis.
 
Give Me An Example of How This Impacts The Wallet
 
Here is an example of how the changes will impact FHA borrowers:
 
Loan Amount:  $250,000
 
Upfront MIP:   Currently                     $4,375
                        As of October 9, 2010 $2,500
                        Upfront cost is $1875 less BUT when the homebuyer sells or pays off the loan, part of this cost is refundable to the borrower
 
Monthly MIP:  Currently                     $115 per month
                        As of October 9, 2010 $188 per month
                        Cost is $876 more per year
                        No portion of this monthly MIP is refundable to the borrower
 
What Is The Real Impact?
 
When an FHA homeowner sells their home, they are entitled to a refund of the unused portion of their Upfront MIP.  The borrower is not entitled to any refund from the Monthly MIP they pay to FHA each month.  So shifting the revenue stream paid to FHA from the Upfront MIP to the Monthly MIP is actually a win for FHA as less of the MIP paid by the borrower will be entitled to a refund.
 
The IRS allows homeowners to write-off the cost of mortgage insurance as long as their income is less than $110,000 per year.  Shifting some of the MIP from Upfront to Monthly will actually give the homeowner a greater write-off on their tax return.
 
Higher monthly MIP will increase the borrower’s Debt-To-Income ratio and, in theory, make it slightly more difficult to qualify for the loan.
 
Net Effect:  I believe the net effect to the borrower is negligible.  Basically, these changes shift revenue within the government.  FHA will enjoy higher revenues to offset their tremendous losses while the IRS will decrease their revenues as homeowners have greater mortgage insurance write-offs.

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Keller Williams Realty Atlanta – Peachtree Road

Real Estate Legal Tip

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Quit Claim Deeds & Owner Title Insurance

If you convey a property by Quit Claim Deed, the Owner’s Title Insurance protection may disappear.  Some purchasers/owners like to convey their properties to their own corporations, LLC’s, trusts, spouses, or other parties for liability purposes or estate planning.  If a Quit Claim Deed is used, there are no guarantees or warranties that the title is clear.

 
An Owner’s Title Policy protects the “Insured” listed in the policy, and unless the “Insured” is still an owner, the policy could expire.  However, if the “Insured” is the sole owner or beneficiary of the (new owner) corporation or trust, the policy might stay in force, but claims are still more difficult to make and recover on.  Each claim could be challenged, and many could be rejected.
 
If the “Insured” deeds 100% of the property (by quit claim) to another person or a less-than-100% related corporation or trust, the original Owner’s Title Policy does not provide any protection or recourse for the new owner, even if it is a spouse!
 
Suggestion:  Use a Warranty Deed instead.
 
In a Warranty Deed, the grantor “warrants” good title to the grantee, so if there is a title problem later, the grantee has recourse against the grantor, who can then rely on the original Owner’s Title policy for protection and support.
 

Presented by Leigh Clack, Attorney
Neel & Robinson Attorneys at Law, LLC
22 Lenox Pointe, Atlanta, GA 30324
lenox@neelandrobinson.com
404-705-3690     fax  404-705-3697

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Keller Williams Realty Atlanta’s Legal Tip of the Week

Legal Tip presented by: 

Leigh Clack,  Neel & Robinson, Attorneys at Law LLC

22 Lenox Pointe, Atlanta, GA 30324

lenox@neelandrobinson.com   404-705-3690   fax 404-705-3697

 Atlanta Real Estate Legal Tip: Termite Letters – Still a Good Idea

It seems that termite letters have become optional these days, because most lenders are not requiring them for their borrowers.  This does not change the importance and necessity of guarding a home against termites.

Lenders do not require owner’s title insurance either.  Buyers have learned to protect themselves by still purchasing the owner’s title insurance.

Lenders also do not require surveys.  Although title insurance covers many survey issues for both lenders and buyers, many buyers still want a survey done to know the exact size, shape, and layout of their property. 

There is no title insurance coverage for termites! 
There are no home warranties that cover termites!
Hazard insurance does not pay for termite damage!

It is a good idea to have a termite inspection done during the due diligence period, even if the buyer has to pay for it.  The cost of the inspection is less than $100, but termite damage can be thousands of dollars.

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