Dear Edith: Years ago when we bought our home, we didn't have enough down payment so we have to pay for mortgage insurance that doesn't protect us, it protects the bank. We were told that wouldn't be forever. How many years do we have to carry mortgage insurance? How do we apply to have it taken off? — H. W.
Answer: We'll assume you're paying for private mortgage insurance on a conventional loan. Federal Housing Administration mortgage insurance has different rules, and a Veterans Affairs loan does not charge for its guarantee.
If your mortgage has run half its life (after 15 years of a 30-year loan, for example) PMI coverage is supposed to drop off automatically. Or — and this is more usual — it must end when the debt has been paid down to 78 percent of original value. Again, you shouldn't have to ask. If you're still being charged halfway through the loan, or after "remaining principal" reaches 78 percent, get in touch with your lender.
Where sale prices have been going up, you can sometimes stop paying PMI premiums even earlier. If you think you're now borrowing 80 percent or less of current market value, you can apply to have insurance coverage dropped. You'll be asked to prove what your home is now worth by providing a new appraisal, at the cost of a few hundred dollars.
Flood Zone Problems
Dear Mrs. Lank: We have our house on the market and have had LOTS of interest. The problem we have is that our house is in a flood zone, even though it hasn't flooded (since being built in 1991. Apparently, the mortgage rules were changed with FEMA a few years ago. We are inches from NOT being in a flood zone. The cost of flood insurance is ridiculously high, thus scaring off potential buyers who want our home. We have never had any water problems, even after bad storms.
Do you have any ideas on what we can do? It seems really unfair that we can't sell our house for this reason. — askedith.com
Answer: Of course you can sell your house. Properties located in FEMA's current flood maps are selling every day. Yes, a mortgage lender will require your buyers to carry flood insurance. You'll just have to accept that. You can wait around for an all-cash buyer who won't need to meet the requirement, or else adjust your asking price to reflect the situation.
Resale with Solar
Dear Edith: We are thinking of installing solar panels on the roof of our ranch in the city. Even with incentives, it will be expensive. What can you say about value/resale of our home? — J. H.
Answer: I took your question to my favorite appraiser, and he confirms what I suspected — there just isn't enough data on solar panels yet to give you a firm answer. Right now, even with those tax incentives, he suspects you might not recoup more than half your outlay if you sold. But that, he emphasizes, is pretty much a guess.
New Cost Basis
Dear Edith: We were gifted a family home with a remaining small mortgage. When we sell the house after living in it and maintaining and remodeling it, what do we use as the cost to calculate any possible taxes due? — askedith.com
Answer: When you receive property as a gift, you take over the donor's cost basis along with it. The mortgage doesn't enter into the calculations. Any amount later spent on permanent improvements can be added to the basis.
You mention "living in it." It's worth remembering that if the property is occupied as a principal residence for at least two of the five years before the sale, the sellers can then claim a home sellers' tax exclusion on their gain. That would allow them a tax-free profit of as much as $500,000 for a married couple filing jointly, half that for a single taxpayer.
Can Landlord Ask
Dear Mrs. Lank: My question is on a clause in a residential lease. Is the following notation enforceable? I understand you can put about anything in a lease but it may not be enforceable.
If, after the beginning date of the term of this lease, the cost of utilities supplied by Landlord to the apartment, or the real estate taxes on Landlord's property are increased for any reason whatsoever, then the Resident agrees to pay as additional rent his pro rata share of such increases."
— F. C.
Answer: A few cities have some sort of rent control in effect. Outside of that, I'm not a lawyer, but I believe that if you sign the lease, you've accepted its terms and can be held to them.
Edith Lank will respond personally to any question sent to www.askedith.com, to [email protected], or to 240 Hemingway Drive, Rochester NY 14620