3 Types of Insurance You Need to Buy a Home (and 4 You Don’t)

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When you buy a home, you will be showered with offers to buy insurance—and not just one type, but many types. Such awesome deals! So which ones do you really need?

There are a few that are downright essential, and others are nice but not necessary. Furthermore, others are total rip-offs to avoid at all costs.

To help you differentiate among them all, here’s a rundown of the types of insurance you’ll likely encounter on your home-buying journey and a reality check on whether you need them.

Title insurance

Do you need it? Absolutely!

Normally, this isn’t even a question because it’s almost always mandatory when you’re getting a mortgage. But if you’re paying all-cash, you have the option of skipping on title insurance. You shouldn’t.

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Title insurance “ensures both the lender and the owner’s financial interests in the home are protected against loss due to title defects, liens, or other matters,” says Liane Jamason, a Realtor® and owner of the Jamason Realty Group at Smith & Associates Real Estate in Tampa, FL.

It’s especially important to get title insurance in transactions like short sales and foreclosures, which often carry the high risk of some kind of tax lien being attached to the property. Title insurance is going to safeguard against your needing to pay for liens, and will ensure the title is clear so no one down the road could claim they own the property and file a lawsuit.

If for some reason you’re dead set against getting title insurance, Jamason suggests you should at least get a lawyer to “thoroughly check the property’s history to ensure there could be no future claims to title.”

Homeowners insurance

Do you need it? You bet

Like title insurance, this is another one that’s not required if you own the house outright (you’ll need to have it with a mortgage), but this is necessary. Homeowners insurance covers you for a variety of things like fires and storms. You’ll want it even if you aren’t legally required to have it.

Eric Kossian, agency principal of InsurePro, a Washington state insurance agency, cites an example of a wealthy homeowner who had paid off his house and “figured since he had never had an insurance claim he would save himself the $700 a year in premium.” Then some kids near his home started a fire, which got out of control and burned down several houses—including his. It cost the homeowner about $450,000 in damages. Consider this a cautionary tale.

Extra moving insurance

Do you need it? Yes, if you’re smart.

Bare-bones, federally mandated moving coverage offers just 60 cents per pound of an item, and is known as “released value protection.” So if something breaks and that’s your only coverage, you won’t get back the full cost of the item, just what’s calculated under the coverage limits.

There’s also “full-value protection,” which can be purchased from the moving company, but you need to specify which items are worth more than $100 per pound. The moving company can opt to repair the item back to its original state, or give you the fair market value of the item—not necessarily what you paid for it. Plus, full-value protection excludes items over $5,000. Opt for this instead of released value protection. (Rates vary by moving company—it’ll be more than released value, but it’s worth it.)

If you’re moving some really valuable stuff, you can purchase extra insurance from a third-party insurance provider. This typically costs $100 per $10,000 of coverage.

Flood insurance

Do you need it? It depends on where you live and how lucky you feel.

Flood insurance is a tricky one. Requirement for flood insurance can be mandatory for homes in flood-prone areas. Otherwise, it’s optional. The biggest problem with flood insurance is you don’t know you need it until it’s too late. Last year, flash floods in Texas and Oklahoma washed homes away. In 2012, Hurricane Sandy hit the Northeast and left thousands in low- or moderate-risk flood zones with water-damaged homes.

Torrential rain and freak storms can happen anywhere.

“If you are not in a designated flooding area, it is still a wise idea to get flood insurance, and typically it is very affordable if you are not in a low-lying area,” Jamason says.

So this one’s sort of a toss-up. If you have it, you may never need it. But it’s worse to really need it, and then not have it. A similar argument can be made for earthquake insurance.

Private mortgage insurance

Do you need it? Hopefully no.

For most loans, private mortgage insurance is mandatory if you don’t have a 20% down payment. But if you can put down at least that amount, it’s well worth doing to avoid PMI. The reason: Mortgage insurance benefits only the lender—it does nothing for you, so get rid of it as quickly and cheaply as possible. Some options to avoid PMI include piggyback loans, lender-paid PMI, and single-payment PMI.

Mortgage protection life insurance

Do you need it? Not really.

In case you die while you’re still paying off a mortgage (bummer, we know), this insurance is supposed to make sure your family is financially covered when it comes to paying your mortgage. But it’s basically pointless.

“I would say as a general rule that mortgage life insurance or mortgage protection insurance is unnecessary,” says David Reiss, a law professor specializing in real estate at Brooklyn Law School. Reiss says consumers “are generally better served by a cheap term insurance policy from a well-rated insurance company,” and “you will generally get more protection per premium dollar with a term life insurance policy.”

Umbrella insurance

Do you need it? Usually not.

Umbrella insurance is basically insurance for your insurance. It vastly expands the amount of damages your insurance will cover. But it’s not necessarily worth it.

“One common rule of thumb is that an umbrella insurance policy should equal the net worth of the insured,” Reiss says. So for the average middle-class American homeowner, Reiss notes that an umbrella policy is generally “less relevant,” probably because your regular insurance covers enough. For the rich, or those who are “reasonably expecting” a rise in income, Reiss says it can be a good idea and worth researching further.

 

Posted by Craig Donofrio on realtor.com

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Planning for the Hidden Costs of Buying Your First Home

There’s only one way to be totally prepared for all the costs of buying a home.

You’re excited because you just found the perfect home. The neighborhood is great, the house is charming, and the price is right.

But if you’re a first-time home buyer, you might find out that the price is pretty far from perfect.

If you’re shopping for your first home, additional — and often unexpected — home-buying costs should be top of mind. These costs catch many home buyers unaware, and can quickly leave you underwater on your new home.

The best way to deal with this is by preparing yourself and making sure you have enough cash tucked away for a rainy day.

Costs coming out of the woodwork

For almost every person who buys a home, the spending doesn’t stop with the down payment. Homeowners insurance and closing costs, like appraisal and lender fees, are typically easy to plan for because they are lumped into the home-buying process, but most costs beyond those vary.

The previous owners of your home are the biggest factor that goes into your move-in costs. If they take their refrigerator when they move out, you’ll have to buy one to replace it. The same goes for any large appliance.

And while these may seem like a small purchase compared to buying a home, a few thousand-dollar appliances quickly add up — especially if you just spent most of your cash on a down payment.

Similarly, unless you negotiate it as part of your home purchase agreement, you’ll also be on the hook for any immediate improvements the home needs.

Unfortunately, these costs are the least hidden you may encounter.

When purchasing a home, it’s strongly recommended that you hire a home inspector(this costs money, too!) to ensure the home isn’t going to collapse the next time it rains. Inspectors look for bad electrical wiring, weak foundations, wood rot, and countless other problems.

Worse still, these problems are rarely covered by home insurance. If an inspector discovers a serious problem, you’ll then have to decide if you still want to purchase the home. Either way, you’ll be out the cost of hiring the inspector.

Creature comforts

Another cost is your own comfort. It’s easy to not think fully about what you are expecting from your new home until after you move in.

Are you used to having cable television? If so, is your new home wired for cable? It’s much harder to watch a technician crawling around punching holes in your walls when you own those walls.

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Because you’re likely moving from the world of renting to the world of homeownership, you’ll probably be faced with much higher utility bills. Further, you could find yourself paying for utilities once covered by a landlord, like water and garbage pickup.

Plan ahead

The only way to face the unexpected and unknowns of home buying is with research and planning. This starts with budgeting before house hunting, and should continue throughout your search.

Look at homes in your budget that need improvements, then research how much those improvements could cost.

Nothing is worse than buying a home thinking you can fix the yard for a few hundred dollars and then realizing it will cost thousands.

There is really no upper limit to how prepared you can be. Say you find a nice home that’s priced lower than others in the area because of its age. You may save money on the list price, but with an older house you could be slapped with a much higher home insurance payment, effectively making the house more expensive in the long run.

This is where preparation comes in. Research home insurance and property prices in the areas you’re house-hunting to make more educated decisions before you ever make that first offer.

Clearly define how much you intend to put toward your down payment, then look at how much cash that leaves you with for improvements and even minor costs, like changing the locks. That way when you find a house at the high end of your range, you’ll know to walk away if it requires you to buy a new washer and dryer or upgrade the HVAC system.

Establish a rough estimate for as many costs as you can think of, and be extremely critical of homes at the top of your budget, or you could easily end up being house poor.

Know your budget and plan ahead. Buying a home is a lot less scary when you know what you’re getting into.

Posted by Jonathan Deesing on Zillow

12 Tips for Cutting Costs at Home

Understanding the details about your home can help you find some hidden savings that can help you cut costs at home. Learn from these 12 tips in this infographic on how save at home.  Many of these tips are great savings and simple tasks that you can do on your own.

SimpliSafe is a simple installation, no hassle wireless security system that protects your home in a user-friendly way with their easy-to-use, fee free system. A security system can not only save you the average 20% insurance discount but with the SimpliSafe system, you can save up to $624 yearly.

Posted in HomeZada

5 Mortgage Misconceptions Set Straight

Looking for a home loan? Make sure you’ve got the facts, then proceed with confidence.

Shutterstock ID 219582628; PO: Cat Overman

Shutterstock ID 219582628; PO: Cat Overman

Getting a mortgage can be a breeze or a slog, depending on what you know about the process. To get organized and set your expectations properly, let’s debunk some common mortgage myths.

Your best credit scores are used in your loan approval

If you’re applying for a mortgage jointly with a co-borrower, logic suggests that your lender would use the highest credit score between both of you.

However, lenders take the middle of three credit scores (from Equifax, TransUnion, and Experian) for each borrower, then use the lowest score between both borrowers’ “middle scores.” So if you had a middle score of 780 and your co-borrower had a middle score of 660, most lenders would qualify and approve you using the 660 credit score.

Rates are tied to credit scores, so in this example, your rate would be based on the 660 credit score, which would push your rate up significantly — or potentially even make you ineligible for the loan.

There are exceptions to this lowest-case-credit-score rule. Most notably, if you have the higher credit score and are also the higher earner, some lenders will allow your higher credit score on the file — but this is mostly for jumbo loans above $417,000.

Ask your lender about exceptions if you have credit score disparity between co-borrowers, but know that these exceptions are rare.

The rate you’re quoted is the rate you’ll get

Unless you’re locking in a rate at the moment it’s quoted, that rate quote can change. Rates are tied to daily trading of mortgage bonds, so most lenders’ rates change throughout each day.

Refinancers can often lock a rate when it’s quoted — as long as you’ve given your lender enough information and documentation to determine if you qualify for the quoted rate.

Homebuyers will often be quoted a rate when you’re beginning your pre-approval process, but a rate lock runs with a borrower and a property. So until you’ve found a home to buy, you can’t lock your rate. And while you’re home shopping, rates will be changing daily, so you’ll need updated quotes from your lender throughout your home shopping process.

Rate quotes also come with an annual percentage rate (APR), which is a federally required disclosure that shows what your rate would be if all loan fees are incorporated into the rate.

This can make you think that APR is the rate you’ll get, but your loan payment will always be based on your locked rate, and the APR is just a disclosure to help you understand fees.

Fixed rate mortgages are always better than adjustable rate mortgages

Many borrowers became conservative in the recessionary years that followed the 2008 financial crisis, and strongly prefer 30-year fixed loans.

For good reason, too: The rate and payment on a 30-year fixed loan can never change. But the longer the rate is fixed for, the higher the rate. So before settling on a 30-year fixed, ask yourself this question: How long am I going to own this home (or keep the loan) for?

Suppose the answer is five years. If you got a 5-year adjustable rate mortgage (ARM) instead of a 30-year fixed, your rate would be about .875 percent lower. On a $200,000 loan, you’d save $146 per month in interest by taking the 5-year ARM. On a $600,000 loan, the monthly interest cost savings is $438.

To optimize your home financing, you want to peg the loan term as closely as you can to your expected time horizon in the home.

Real estate agents don’t care which lender you use

A federal law enacted in 1974 called the Real Estate Settlement Procedures Act (RESPA) prohibits lenders and real estate agents from paying each other fees to refer customers to each other. So as a mortgage shopper, you’re always free to use any lender you choose.

But real estate agents who would represent you as a buyer do care which lender you use. They’ll often suggest that you use a local lender who’s experienced with nuances of your area, such as local taxation rules, settlement procedures, and appraisal methodologies. Each of these areas are part of the loan process, and can delay or kill deals if a non-local lender isn’t experienced enough to handle them.

Likewise, real estate agents representing sellers on homes you’re interested in will often prioritize purchase offers based on the quality of loan approvals. Local lenders who are known and respected by listing agents give your purchase offers more credibility.

Mortgage insurance is always required if you buy with less than 20 percent down

Mortgage insurance is a lender risk premium placed on many home loans when you’re putting less than 20 percent down. In short, it means your total monthly housing cost is higher. But you can buy a home with less than 20 percent down and avoid mortgage insurance.

The most common way to do this is with a combination first and second mortgage — often called a piggyback — where the first mortgage is capped at 80 percent of the home’s value, and the second mortgage is for the balance of what you want to finance.

Comparisons of mortgage insurance vs. piggyback loans that simplify the math can help you make decisions.

Posted by Julian Hebron on Zillow

Year-End Home Insurance Checklist

Wind down the holiday season with assurances that your home is ready to start the new year right.

Shutterstock ID 58862720; PO: Cat Overman; Job: blog post

Shutterstock ID 58862720; PO: Cat Overman; Job: blog post

Soon, colorful ornaments and Christmas carols will be replaced by confetti, noisemakers and the strains of Auld Lang Syne.

As 2015 draws to a close, home maintenance can easily take a back seat during the excitement of the holidays.

Much of the country has experienced an unseasonably warm December, but January and February could unfold much differently. That means your home may be subject to cold weather damage. To prevent that, follow this home maintenance checklist to ensure your residence is prepared for the big chill ahead.

Test your alarms

You should do this several times throughout the year, but it’s worth a reminder. Test smoke and carbon monoxide detectors, and fire and burglar alarms. Make sure the batteries are full of life, and that everything functions properly so you’ll be alerted if disaster strikes.

If you have children, it’s also a great time to revisit your emergency evacuation plan to ensure they know what to do if a fire, tornado or other devastating peril strikes too close to home.

Gutters and roof

In some parts of the country, the leaves are still falling from trees and covering lawns of residential neighborhoods. No matter if the leaves are just falling or if tree branches have been bare for months, if leaves are piled or packed in your gutters, they need to be removed sooner rather than later.

When leaves accumulate, it causes drainage problems. This means that when it rains, water won’t be able to go down the spout and away from your home, which could lead to it forcing its way into your home’s walls and ceilings.

While you’re at it, inspect your roof. Make sure no shingles are damaged or ruined, and confirm that there aren’t any leaks. Roofs must be strong and functional to withstand the weight of snow in the winter, so it’s important to make necessary repairs or replacements now. Just remember that it’s probably best to leave these fixes to the pros.

Inspect your foundation

The last thing you want to deal with during the winter months is ice seeping into a crack in your foundation, widening it and causing structural problems with your home.

Take a walk around your home and keep an eye out for cracks. Though small cracks are completely normal, it’s best to seal them with caulk to prevent further damage.

Seal windows and doors

Letting air escape through gaps around window and doorframes could mean an exceptionally high heating or cooling bill.

While you’re sealing cracks in your foundation, seal the spaces around your windows and doors, too. Keep warm air inside the house and cool air outside, and vice versa.

Maintain heating and cooling systems

Speaking of your heating and cooling bills, it’s wise to inspect and maintain these systems.

Ensuring that heating and cooling systems are in good working condition and tackling repairs are more tasks you may want to leave to professionals. Just make sure your vents are clean, and that no spaces are obstructed by dirt, debris or other types of buildup.

Create a home inventory and review your policy

With a new year on the horizon, most of us make resolutions to be better versions of ourselves. Some changes such as being more responsible and more aware can apply to your home insurance.

Making a home inventory — a complete list of everything you own and the value of each item — can help better prepare you for the unknown. If a disaster such as fire strikes, destroying your home and all your belongings, you may be in too much distress to remember everything you own (and certainly not how much each item cost).

Do yourself a favor and tackle creating this type of list in the New Year, and store it in a safe place. This act could save you stress and time down the road, as it’ll make the claims process significantly easier.

Understanding your policy and being aware of every facet listed will greatly benefit you. Insurance can be tricky, so go over your policy with an agent so that you’ll understand every provision in it. Reviewing your policy can alert you to the fact that you may need more coverage than last year, or that you could qualify for new discounts.

Posted by Shannon Ireland on Zillow