DEAR BOB: I’ve owned my home almost 20 years, but the neighborhood is steadily declining. Close to 60 percent of the homes have become rentals. If I list my home for sale with a Realtor, can I specify in the listing contract that the home cannot be purchased for rental? If so, could a prospective owner-occupant buyer somehow legally wrangle around their promise and rent the house? I don’t want my home to become yet another unkempt rental house like so many around me – Brenda G.
DEAR BRENDA: If you add a clause to your listing contract, such as “Seller will not sell to a rental investor,” that would be unenforceable if a buyer says he wants to live in the home but then rents the house to tenants instead.
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A better alternative is to say nothing in your listing about your preference. However, when a purchase offer is received, you can then decide if the buyer is likely to be a landlord rather than an owner-occupant.
Of course, be very careful that you don’t illegally discriminate against your buyer based on the prospective buyer’s race, religion, national origin, family status, etc. For more details, please consult a local real estate attorney.
CAN MORTGAGE BORROWER CANCEL PMI AFTER LESS THAN TWO YEARS?
DEAR BOB: My mortgage lender says I must continue paying PMI (private mortgage insurance) for at least two years although my loan-to-value ratio is now less than 80 percent. Is this the law? – Mark A.
DEAR MARK: No. There is no law requiring homeowners to pay PMI for at least two years. However, if your mortgage has been sold in the secondary mortgage market to Fannie Mae or Freddie Mac, their guidelines say the loan should be seasoned for at least two years with on-time monthly payments before PMI will be canceled.
But there are exceptions to every rule. If you can prove you have more than 20 percent equity in your home, dropping PMI will save you a substantial sum each month.
You have several alternatives. The first is to phone your loan servicer, request to speak with a supervisor, and ask for the names of local approved appraisers. Then hire one of those appraisers to prove you have enough equity to drop the PMI premiums. Your appraisal cost will be around $350.
Based on this evidence, again ask your loan servicer to cancel the PMI.
If you are denied, your second alternative is to refinance with another lender who doesn’t require PMI.
However, if you have a bargain interest rate you want to keep, you can play a dirty trick on your loan servicer, which readers tell me causes most lenders to give up and cancel PMI. After you make each month’s on-time payment, file a local Small Claims Court action for refund of your monthly PMI premium.
The loan servicer probably won’t show up. After a few months of default judgments, the lender will probably give up and drop your PMI when you try to collect those judgments from the loan servicer. For more details, please consult a local real estate attorney.
ARE “INTEREST-ONLY” MORTGAGES A GOOD DEAL?
DEAR BOB: What do you think of interest-only mortgages? My wife and I are trying to reduce our mortgage payments to the rock-bottom minimum. The mortgage broker suggests an interest-only mortgage. Your opinion please? – Hamilton R.
DEAR HAMILTON: If you plan to stay in your home less than 10 years, an interest-only mortgage can be a “good deal.” The primary reasons are (1) your monthly payment will be as low as you can go, and (2) all your monthly payment will be tax deductible itemized home mortgage interest.
But the obvious disadvantage is you won’t be building any home equity from mortgage principal reduction. However, if you expect to keep your home less than 10 years, the mortgage principal reduction doesn’t matter much so you might as well benefit from an interest only mortgage. For more details, please consult your tax adviser.
The new Robert Bruss special report, “Secrets of Real Estate Leverage to Buy Your Home or Investment Property for Virtually No Cash,” is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com. Questions for this column are welcome at either address.
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