JoeTaxpayer

As I mentioned sometime ago, in my article Mortgage 101, the typical limit for a well written new mortgage is 80% of the house’s appraised value, or 80% LTV (loan to value.)

But, what if you come up short, and instead of having a full 20% down, you only have 15%. This is when PMI comes into play. PMI, the initials for private mortgage insurance is the fee you’ll pay each month until your loan is down to the 80% of the initial home value. What I want to look at today is the cost of PMI, with a focus on those loans that are at that 15% down range I suggested.

The FHA has recently announced the PMI rates effective June, 2012. The rate is 1.2% for a loan up to $625,000.

Let’s work out the math here. You wish to buy a home that’s at the median $140K or so. You put down 15% or $21K, and the loan value is $119K. The dollar amount you are short from being at the full 20% down is just $7000, but you will pay 1.2% per year on the $119K mortgage, or $1428 per year until the balance is paid down to $112K. On a 4%, 30 year loan, this will take about 3 years, not too bad, but look at the numbers, an annual cost of $1428 because you needed an extra $7000. Let me do the math for you, this is 20.4%. In addition to the interest on the mortgage.

On the other hand, if you only put 5% down, the PMI rate rises to 1.25%. On that same $140K house, your loan is $133K, and your PMI, $1662.50 per year. But, when you consider that you’re paying $1662.50 for the fact that you are short $21,000, it’s more like a 7.9% adder for that missing $21K. Not a great deal, but a far cry from 20%+.

What do I conclude from these numbers? First, I maintain that 20% down is the right thing to do, but if you are close to having the 20%, avoid the 85% LTV, and raise that extra cash however you can. If a small 401(k) loan can help you avoid PMI, do it. If you need to borrow from friends or family, put a plan together, offer them a decent rate, and take that side loan.

Have you ever taken a mortgage that came with the need for PMI? Did you understand how much it was going to cost you?

Coincidence or conspiracy? (The villain in the latest Batman film is named Bane.)

I saw a few minutes of a speech President Obama recently gave. Here’s the paragraph that seems to be getting the focus:

“If you were successful, somebody along the line gave you some help.  There was a great teacher somewhere in your life.  Somebody helped to create this unbelievable American system that we have that allowed you to thrive.  Somebody invested in roads and bridges.  If you’ve got a business. you didn’t build that.  Somebody else made that happen.  The Internet didn’t get invented on its own.  Government research created the Internet so that all the companies could make money off the Internet.”

While that was what was what the news liked to show, the speech continued:

“The point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together.  There are some things, just like fighting fires, we don’t do on our own.  I mean, imagine if everybody had their own fire service.  That would be a hard way to organize fighting fires.

So we say to ourselves, ever since the founding of this country, you know what, there are some things we do better together.  That’s how we funded the GI Bill.  That’s how we created the middle class.  That’s how we built the Golden Gate Bridge or the Hoover Dam.  That’s how we invented the Internet.  That’s how we sent a man to the moon.  We rise or fall together as one nation and as one people, and that’s the reason I’m running for president – because I still believe in that idea.  You’re not on your own, we’re in this together.”

All in all, this sounded like “we’re all in this together, and even those who are successful had the opportunity and the work of those before them which helped their success.” If you take a step back, this isn’t an insult, it’s a fact. Warren Buffet was a student of Benjamin Graham. Graham authored the bible of investing titled Security Analysis. He also wrote the more easily read The Intelligent Investor. Is Buffet not a self-made man? Of course he is, but he’ll be the first to pay homage to his mentor, Ben Graham. Bill Gates founded Microsoft, but you knew that. A software company can’t exist without hardware, the processor it runs on. Gates is no less a success for this fact, it’s just a truism, he built on what came before him, and he did so very, very successfully. I think it’s fair to say that anyone who is successful would be happy to point to a teacher, a mentor, someone they look up to as a positive influence. The US is a land of opportunity, and to suggest that there was someone before you who literally paved the road so people could drive to your business or bridge so your town is accessible takes nothing away from that success.

Back to the President’s speech. This is the soundbite the media has latched onto – “If you’ve got a business. you didn’t build that.  Somebody else made that happen.” A WTF moment. Parse out the sentence, “You didn’t build that.” “That” refers to the roads and bridges from the prior sentence.

Now, Romney, instead of ignoring an ignorant out of context clip, hops on the bandwagon, “to suggest that Steve Jobs didn’t build Apple……”

Mr Romney, I’d expect more from you, sir. I’d expect you to read the whole Obama speech, understand his message, and not hop on the ignorance train. Because you’ve already stepped on your own feet. You’re not concerned about the poor, but no context changes that. That particular speech you gave made it clear. That speech showed that you are very disconnected from the population you wish to govern. Larry Kudlow (CNBC program host) – I’m surprised at you as well, repeating the out of context few words and ignoring the spirit of the speech.

A guest post from Julia Peterson –

Get your finances in order and keep them that way with these simple tools

It’s amazing how much further your money can go when you plan it out ahead of time. If a smartphone fits in your budget, these apps can help you set firm goals and stick to them. We’ve checked out the cream of the crop, based on price, features, and simplicity; here are the very best budgeting apps on the market today, for iPhone and Android devices.

1. Mint (Android, iOS)

Mint is, in our opinion, the best personal finance app for either iPhone or Android. Like most apps, it allows you to track and categorize your expenses, but the real selling point of this app is the visual aids—progress bars that fill as you approach (or exceed) your budget for various categories, and a pie chart displaying where your money is going—both of which can be a very persuasive argument for sticking to a budget, or reevaluating your expenses. It also compares your monthly budget with how far along you are in the month—so if your fast food budget is almost full, and it’s only the 10^th, it can help you notice the need to reconsider things. You can sync it with your checking, savings, credit cards, investment accounts, and lenders to get a complete picture of your personal finances, as well as setting long-term goals. The only major downside is that the app doesn’t have the full functionality of the Mint.com browser service, and the app offers “advice” (sales pitches) based on your expenses. (Cost: free)

2. Money by Jumsoft (iOS)

This is a somewhat fancier app, with a higher price tag and a more complex interface; but the effort it takes to learn the app is a worthwhile investment. You can make more complex budgets, schedule monthly transactions, and even create business budgets if you’re self-employed. Otherwise, it is very similar to Mint—attractive graphs, trend analysis, and bill scheduling to keep you on top of your expenses. Because of the price, limited availability (you have to buy the app separately for your iPhone and iPad), and confusing user interface, it’s number two on our list; but still a great option for Apple fans. (Cost: $1.99)

3. Pageonce (Android, iOS)

This app is great for managing your bills, because instead of just tracking your expenses and obligations, Pageonce actually allows you to pay your bills through the app itself. Like Mint, it allows you to sync to your banking services, so you don’t have to input all entries yourself. (Some sync errors have been reported on Android devices; HTC users may still have trouble, but the errors are confirmed fixed on LG and Samsung phones). It also shows more specific, narrow breakdowns of the bills you pay each month, so you can see which bills are eating up more than their share of your income. The app is free, and if it weren’t for the $0.30 service fee for each bill you pay through the app, this one might be our #1 or #2 pick. (Cost: free)

4. Moneywise (Android)

This app was rated “The Best Budget-Tracking App for Android” this year by LifeHacker; and while we might not go that far, it’s definitely a contender. One of the advantages it has over Mint is a better ability to visualize changes over time—Mint can do that on its browser service, but not on the app. It also supports multiple currencies, for users outside the US, or those who do a lot of international transactions. It certainly isn’t as pretty as other apps, and requires a great deal more user input than Mint or Jumsoft, but if you like that hands-on experience of balancing your own checkbook, this is a great option. (Cost: free)

Julia Peterson is a writer for AndGeeks.com, a popular website that provides up-to-date news, detailed commentary, and unbiased reviews on cell phones and related topics. Julia resides in Galveston, Texas in a cozy little house in the country with her husband, young son, and their Labrador retriever, Darby.