We’re going to try for two questions today, especially since the first will be relatively easy to answer…
I am a recent subscriber to Money Talks News and love it! I have already followed up on some of your ideas about earning extra money. As a 64-year-old retired senior, living 100 percent on Social Security, I thank you.
You had mentioned in this same column that blogging was a great way to work at home. I am a published writer and editor who would love nothing better than do exactly that. But please excuse the dumb question: How does one earn money from a blog? Also, where/how do I go to set it up? Can you recommend a company or site that could help me?
First let me say, Page, that your name suggests you’d certainly be good at writing. (Bet you’ve never heard that one before!) I’ll also congratulate you on two fronts: first for being able to survive on Social Security, and next for having a highly marketable skill. The Internet can use all the quality writers and editors it can find.
This will be a quick answer because I’ve written about it before in Ask Stacy: How Do You Start a Blog? I just re-read that post, and it’s got lots of information you can use. Check it out.
That article is about launching your own blog, and that’s what Page asked about. But while we’re on the topic, while starting your own blog is one way to make money from writing, it’s not the only way. You can also sell articles to any number of sites. For example, most of the writers you read on Money Talks are freelancers – people like Page who work at home. We give them assignments, or they pitch their own ideas, then we pay them by the article.
Good freelancers can earn anywhere from $50 to $500 and up for an article. The amount depends on how long the article is, how complex it is, how talented the writer is, and most important, who’s paying for it. For example, The New York Times probably pays their freelancers a lot more than we can.
If you decide to go the freelance route, my advice would be to target a few smaller sites, write an article you think might interest them, then send it their way and ask for a critique and perhaps a chance to freelance there. As with most things in life, it’s not easy, so perseverance will pay.
PO’d at PMI
Now here’s our next question. This one is about PMI, or private mortgage insurance. Not familiar with it? If you financed a home with less than 20 percent down, you should be, because you’re probably paying it…
My wife and I are buying our first home. We are able to put 20 percent down to dodge private mortgage insurance (PMI). Should we put the 20 percent down on a home, or keep it invested and pay into the PMI vacuum?
Current investments: $170,000
Can I hedge my investments against PMI? Are there any loopholes so that I don’t have to pay PMI? Do certain banks, or financial institutions offer mortgages free of PMI?
PLEASE HELP!! I have talked to many mortgage bankers and they are NO help! Information regarding this is non-existent on the web!
For the uninitiated, private mortgage insurance is simply insurance your mortgage lender takes out to insure against default. In other words, if your house goes into foreclosure and is sold for less than the mortgage amount. PMI pays the loss suffered by the lender.
What’s interesting (and infuriating) about this special type of insurance is that the mortgage lender is the one who benefits from it – but you pay the premiums. And unlike virtually any other insurance policy you pay for, you don’t get to shop around for the best deal. Your mortgage lender requires it and you pay for it. The cost? Between 0.5 percent and 1 percent of the mortgage annually. So if you finance $100,000, you’re paying between $500 and $1,000 per year in monthly payments of $42 to $83.
PMI is typically required unless you have at least 20 percent equity in your home, also known as an 80 percent loan-to-value (LTV) ratio. For example, if your home is worth $100,000 and you only owe $80,000, you have an 80 percent LTV and 20 percent equity. There are three ways to achieve the magic number…
- put 20 percent down when you buy your home
- make payments until you’ve paid off enough of your mortgage to achieve 20 percent equity
- your house appreciates to the point you have an 80 percent loan-to-value ratio
PMI is typically bundled with your regular monthly mortgage payment, so unless you’re on the ball, you forget you’re paying it. This was pleasant for those collecting the premiums, because until about 10 years ago, they didn’t have to let you know that you’d achieved 20 percent equity and no longer had to pay it. They’d happily collect your PMI premiums every month for 30 years if you let them.
Now the law requires lenders to drop PMI when your loan-to-value ratio reaches 78 percent. You’ll have to prove you’ve got the necessary equity, however, with an appraisal at your expense. (Side note: This wrong wasn’t righted because of bitter complaints from consumer advocates like yours truly. The law requiring PMI elimination was enacted after a Congressman was nailed on his Washington residence.)
Now that we’ve gone through a bit of background, let’s answer Tyler’s questions.
Before we do, however, I’d like to address his closing comment regarding PMI info being nonexistent on the Web. There is virtually nothing that’s nonexistent on the Web, and PMI is no exception. Not that I mind answering the questions. Just sayin’…
I typed “Eliminating PMI” into a search engine and got 417,000 responses in less than a second. Of course, not all the links were useful, but plenty are.
OK, let’s get to the questions…
1. Should we put the 20 percent down on a home, or keep it invested and pay into the PMI vacuum?
Tyler should put 20 percent down on his home. Not only will this eliminate the PMI problem, but it will also mean borrowing less, paying less interest on his mortgage, having fewer worries about qualifying, and having more equity when starting out. I can’t make that answer definitive without first knowing exactly what Tyler’s earning on his investments, as well as what the PMI charge would be, but for most people, that’s the way to go. It’s what I did when I bought my current home.
2. Can I hedge my investments against PMI?
To be honest, I have no idea what Tyler’s talking about. But it’s important that I sound authoritative, so I’ll say, “I’m unaware of a strategy that offers the necessary degree of correlation for a suitable hedge in the typical PMI scenario.” Did that sound good?
3. Are there any loopholes so that I don’t have to pay PMI?
There is one common way to get around PMI, and I’ve used it before: You take out a second mortgage, also known as a piggyback loan, so the first mortgage won’t require PMI.
Example: If you’re buying a $100,000 house, you’d take out an $80,000 first mortgage. Since that mortgage has an 80 percent LTV, no PMI is required. Then you take out a $10,000 second mortgage, and add $10,000 in cash to complete the transaction. Result? You’ve put only 10 percent down and you’ve eliminated PMI.
The problem? Second mortgages nearly always have a higher interest rate. So part of what you save in PMI you lose to a higher rate.
You can read more about this strategy in an article called How to Outsmart Private Mortgage Insurance on Investopedia.
4. Do certain banks, or financial institutions offer mortgages free of PMI?
While anything’s possible, the vast majority of mortgages are packaged and sold as securities on Wall Street. Since those without PMI presumably wouldn’t meet the requirements for securitization, it’s not likely you’ll find a lender that would waive that requirement, at least not without a higher rate or an upfront fee.
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