Ask A Realtor

Q: What is PMI and how do I get rid of it?
Jen, South Portland

A: It's Private Mortgage Insurance. Sadly not for your protection, only for the lender. It's a fact of life for homebuyers looking to purchase a home with less than 20% down. Some financing programs such a FHA have means of getting around these monthly payments, but it usually shows up as an upfront fee and / or rolled into the loan. Your PMI won't immediately go away once you achieve 20 percent equity. However, homebuyers who obtained home loans either on or after July 29, 1999, have a loophole: they're entitled to the immediate cancellation of their PMI upon their achievement of 22% equity. As with the real estate market, the rules of the finance world are constantly changing, so I strongly recommend taking with a qualified loan officer for greater details about your particular loan.

Q: What are points?
Pete, Kittery

A: A point is a fee equal to 1% of the loan amount. Note: I said loan amount, not purchase price. So what does this mean? Lenders can sometimes charge "a point" as a fee as a term of the financing. With different purchases it may be advantageous to the burrower to achieve different terms of the loan. For example: a lower interest rate may be desired by the borrower, but this can cost more money. Usually in the form of a fee / point added to the closing costs. Sometimes non-owner occupied investment properties come automatically with 2 points in additional closing costs for the borrower. In each case, different loans come with different circumstances that can be negotiated. The decision whether to pay points or not is usually affected by the length of time the borrower plans on owning the home.

Q: What's the difference between foreclosure, bank owned, REO, and short sale?
Anonymous, Portland

A: This is a question I get at least once a month. People often confuse the terms and use them incorrectly. It goes like this: a homeowner that is behind in their payments and receiving letters from their lender is in-foreclosure. Once the bank takes ownership of the property than it is foreclosed. It is then considered a bank owned property, also known as a REO, which stands for Real Estate Owned. This is how the property is referred to in the industry, especially by asset managers whose responsibility it is to maintain and eventually sell the property. A short sale is when the homeowner still has ownership of the property and is trying to negotiate with their lender/s to be released from the mortgage at a lesser amount than what is currently owed.

Q: I've heard that buying a place at auction is a great way to pick up a property is that true?
Anonymous, Gorham

A: Buying a property at an auction is in my opinion one of the riskiest way to purchase a home. My biggest concerns are as follows. During the viewing period it is difficult to complete a thorough building inspection of the property. Not to mention that other people are also in the home at the same time eliminating any confidentiality. If you fail to purchase the home at the auction, than you have also wasted the cost of having the inspector present. Another problem with buying at auction is that any title defects do not always have to be disclosed by the auction company along with any liens that fall outside of the foreclosing party. Lastly, unless it is an absolute auction than frequently the property is purchased back by the lien holder at a price greater than fair market value. The property is then usually listed later with a broker on the open market to be sold without any liens. I cannot stress enough, that if you are going to try and purchase a property at an auction the importance of doing your homework and knowing the real value of the property.