PROPERTY MANAGERS: READ WHAT WALLACE SAYS
WALLACE'S COLUMN
August 4,1999
Wallace S. GIBSON, CPM*PPM, a leading property manager, writes for www.RentConnection.com, a rental property site, where property managers and individuals list their rental properties.
ARTICLE ONE:
HOMEOWNERS(Investors) MAY BE ABLE to SAVE MORE THAN $1,000 a YEAR in PMI PAYMENTS....HOW?........
July 29th, 1998, in the midst of all the “Monicagate” hoopla, President Clinton signed the Homeowners Protection Act of 1997 and while Realtors and lenders are touting its benefits for future homeowners, it also holds good news for investor or rental property owners. Rental property owners who once lived in their single family homes or who bought them highly leveraged, should find good news in this legislation.
PMI - private mortgage insurance - is the financial tool that helps people get into homes years sooner by allowing higher loan to value ratios. Usually, PMI is not required on loans where the borrower/buyer put at least 20% cash down on the purchase. However, with investor owners who want the highest possible leverage, PMI is a factor that can add between $35 to $85 to each monthly mortgage payment.
Under the new law which takes effect one year after the President signed - July 29, 1999 - lenders will automatically have to cancel PMI when the property owner pays his/her mortgage balance down to 78% or less of the home’s original purchase price. Owners may apply to have the insurance removed when the mortgage amount drops to 80% of the original value. Each of these provisions are predicated upon the property owner being current with their mortgage payments.
The “cancellation date” under the automatic termination provision is defined as the date when the loan is “first scheduled to reach 78% of the original value of the property securing the loan”. The optional “cancellation date” triggers when the amortization schedule requires the loan balance to be “80% of the original value of the property security the loan” -- or sooner, if a borrower has made extra payments ro reach the 80% level.
With current or older loans, property owners will need to weigh the costs and benefits of seeking an end to PMI once they have paid down a loan by 20%. As an example, is it better to pay for an appraisal and seek to end the PMI at 20%, or is it cheaper to continue PMI payments a little longer and let coverage automatically lapse when the loan balance is reduced to 22%?
New guidelines require lenders to provide extensive disclosure information:
Fixed-rate borrowers will receive an amortization schedule showing exactly when PMI can be canceled.
The requirements for a “good payment” history are loosely defined as a property owner who has not had one payment 30 days late within the last 12 months of the cancellation request, or one payment 60 days late within the last 24 months of seeking the end of the PMI.
A “Original value” is either the purchase price or the appraised value at the time of purchase whichever is less.
Property owners must show that the property’s value has not declined when seeking to end PMI at the optional 20% level.
Also, under this legislation, lenders can continue PMI up to 15 years for so-called “high risk” loans with no concern for the equity buildup. FHA legislation is not covered and the new law does not exempt stronger state laws currently in effect in Connecticut, Maryland, Massachusetts, Minnesota, Missouri, New York, Texas and California.
In any event, property owners who have had their property longer than 3 years with PMI in effect should check with their lender for their guidelines for canceling the PMI coverage. It could mean a significant savings in mortgage payments over a 12 month period.
END OF ARTICLE ONE
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ARTICLE TWO:
“Every Tenant’s Legal Guide” is a MUST HAVE...
Why a book report?......because in 30 years of property management, I have never found a better, more comprehensive book outlining the ins and outs of the renting process from the resident’s perspective.
If you have a June “graduate” on your gift giving list, or a “hard-to-buy-for-birthday”, be sure to check out “Every Tenant’s Legal Guide”. It is an excellent practical guide for “before the fact” legal knowledge and “after the fact” common sense.
The book is by the Nolo Press people who brought us easy to understand explanations of Small Claims Court procedures as well as neighborhoods, fences and dogs. Sprinkled with cute cartoons, it covers everything from finding the right place to rent, to basic rent rules, to how to get repairs done or do them yourself. More importantly, it contains common sense advice so that an inexperienced renter may avoid some of the perilous situations that could ruin their credit rating and follow them for the remainder of their life or until they declare bankruptcy. It outlines alternatives other than running to an attorney whereby if the resident follows the advice and solves the problem without parent intervention or attorney heavy handedness, they obtain a “life lesson” that will benefit them forever.
While the common sense aspect is excellent, it also contains easy to follow tear-out forms to use when requesting repairs, terminating the tenancy and a sample rental application that can be executed and presented when the right rental property is located. The best form, is not a rental form but rather, it is a “Rental Priorities Worksheet” that when used faithfully, will allow the prospective rental resident to avoid some of the frustrations of spinning their wheels and being disappointed when the property they really wanted has been taken because of their inability to make a choice. In the current “hot” rental markets being enjoyed by most of the country, residents need to understand that “time is of the essence” and that doing some homework before they let their fingers do their walking might solve some of their problems.
As rental residents become more mobile, the book can become the renters” best friend” by offering outlines of the various differences between renting in large cities, through rental agents, property managers or rental locators. It also contains an easy to follow guide of the various Landlord-Tenant Statutes of individual states which can be used to research a specific issue either in a local library or the internet.
Lastly, since it is a Nolo Press offering, book owners can get updated books at a 25% discount as well as have continual support from their web site.
END OF ARTICLE TWO
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***Wallace S. Gibson, CPM*PPM, is the owner of Landlord Tenant Services and Gibson Management Group, Ltd. in Charlottesville, VA. She has over 30 years of residential and commercial property management experience. She holds the professional designations of Certified Property Manager (CPM) from the Institute of Real Estate Management (IREM) and the Professional Property Manager (PPM) designation awarded by the National Association of Residential Property Managers (NARPM). She is the 1999 Chairperson of the Virginia Association of Realtors Property Management Advisory Council and is a member of the National Association of Real Estate Editors.
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