Do You Have Enough Homeowners Insurance?

Homeowners insurance is not required by law, however, when you finance your home through a mortgage lender, they will most likely require you to take out a homeowners insurance policy. Paying into such an insurance policy each month assures that the necessary funds will be there for repairs and other issues should the need arise.

Of course how much insurance you need is one of those “it depends” situations.

The Federal Reserve Board estimates that most American homeowners spend anywhere from $300 to $1,300 annually on insurance policies for their homes. However, it definitely depends on where you live. For example, coastal homeowners pay significantly more because of the risks associated with storms, wind and flooding as opposed to those in rural areas who pay much less.

Another factor that determines how much is put into homeowners insurance is that of property values. This can become very tricky because of the wide disparity in home values throughout various regions of the country. Homes in many metro areas are much more expensive, such as in New York, NY, where the median home value is $571,700.

The other point to consider is income. In areas where folks are making substantially more, they are also buying much more expensive homes which necessitates insuring them for more than the national average.

So, if we are not all paying the same for our homeowners insurance, how can we know if we have enough?

The basics should take care of the replacement cost of your home, excluding the land. Of course, the contents of your home should also be covered.

Beyond that, it is advisable to consider “worst case scenario” coverage, especially if you live in an area prone to natural disasters. For example, the cost of relocating should your home suffer damage, plus meals and living expenses should also be included. Yet another concern for homeowners is the prospect of someone being injured on your property, such as a pool accident or falling down the stairs.

If you purchased your policy in a rush and are not really sure as to what it covers, go over it with your insurance agent. Keep in mind that a standard policy may be on the minimalistic side and you may not know what it actually covers.

Here is a look at the most common issues that insurance adjustors deal with:

Water Damage

Common claims includes problems caused by burst pipes, leaky roofs, overflows from bathtubs, and faulty appliances. When undetected these in turn lead to the even bigger and more costly issue of toxic mold, which can be hidden for months.

Accidents

A homeowner is the responsible party if any one is injured on their property. Play it safe by taking all of the necessary precautions that pertain to your property, such as fences around pools and ponds, sturdy handrails, secure steps and so on.

Animal Attacks

Dog bites are the main issue here, and the statistics are alarming. According to insurance information website, NetQuote.com, “the average dog-bite cost per claim in 2012 was $29,752. Dog breeds frequently excluded by carriers include pit bulls, Akitas and German shepherds.”

Don’t think that signs such as “Beware of Dog” will free you of responsibility should your pet attack someone. Even if you live on a private road, you are responsible if your pet bites someone who steps onto your property. It is recommended that pet owners include $100,000 additional personal liability coverage on their policies.

Fire Claims

In order to recover losses from a fire, the only way to ensure that it happens is through what’s known as “proof of inventory.” Make a comprehensive inventory of the contents of your home and document it with photos and video. Other considerations are fire policies that cover the expenses of housing, meals, clothing, and other daily essentials that would be impacted should you lose everything in a fire.

Before running out and tripling your homeowners coverage, a little DIY boo-boo proofing may be in order. You could hire a home inspector or do it on your own, but the first task is to make sure that each of your home’s systems are up to code. Next, take steps to bolster your home against weather and natural disasters. Along with the usual safety measures of storm shutters and smoke alarms, consider upgrading your roof, alarms and deadbolt locks. Believe it or not, making your home more secure can also potentially save you money on your homeowners insurance!

Other helpful resources:

Ways to Save Money on Homeowners Insurance – eLEND.com

Home Insurance FAQs – Allstate.com

Credit Scores and Home Insurance – LibertyMutual.com

Easy Ways to Get Cheap Home Insurance – Bankrate.com

 

 

When Can an HOA Raise Dues? By How Much and How Often?

About 20 to 30 years ago, residents of condo and townhome complexes were the predominant group of homeowners who were faced with the ins and outs of HOAs, or home owners associations. These days, they are par for the course in the majority of neighborhoods, subdivisions and planned communities. However, always knowing what to expect from an HOA can be murky territory.

Of course, the HOA operations are straightforward enough. The monthly or annual dues are collected for ongoing maintenance, repairs and often insurance. Then, as the needs arise, there may be special assessments for upgrades or improvements, such as new landscaping, resurfacing tennis courts, or sprucing up common areas such as the clubhouse or swimming pool facility.

Sometimes, when a prospective buyer discovers the price of the monthly HOA dues, which will be on top of the mortgage payment, it causes them to reconsider. Then there is the fear that the dues will continue to rise and costly assessments will continue.

Just what are the rules when it comes to HOAs and what they can and can not do?

Here’s a look at a few scenarios and explanations:

Do HOAs have a limit for how high they can raise the annual dues?

The bottom line is that there is no limit and dues can be raised as high as necessary in order to meet the community’s annual budget.

Most HOAs are designated as nonprofit corporations. Homeowners automatically become members when they buy property. Board members are selected from within the group of property owners and they in turn are in charge of running the show. The HOA’s responsibilities will entail obtaining estimates and paying for the community’s routine maintenance, repair, upgrades and utilities for common areas. Please note, that according to legal information website, NOLO.com, “In a brand new development, until a certain percent of the property is sold, the board of directors will likely comprise of the developer and its representatives.”

After reviewing the projected costs for maintenance, repairs and upgrades, the HOA will create an annual budget. This budget is what determines how much each property owner will need to contribute. Special assessments are additional charges that come up for extras or emergency items not already included in the original budget.

How often can the dues increase?

Of course because of inflation, HOA’s annual budgets often require yearly increases. This issue leads to homeowners paying more than the original price they were quoted for their monthly dues. This can happen for a variety of reasons such as damage from natural disasters or unexpected repairs that can crop up such as undetected water damage and subsequent rot and mold.

Although the increases are usually for the common good, it can also make a homeowner feel as though they are being taken advantage of.

How can I know what to expect before I buy?

Before taking the plunge and committing to a home purchase that will include HOA dues, make sure to obtain a copy of the community’s “Declaration of Covenants, Conditions, Restrictions, and Easements” or CC&Rs. This is considered the fundamental operations manual for governing an HOA. The CC&Rs should spell out vital points including how much the HOA can increase dues and assessments. NOLO’s example states, “the CC&Rs might limit increases in periodic dues to 2% per year, or assessments to a maximum annual dollar amount.”

This is also a case of getting what you pay for. Beware of HOAs with rock bottom dues because when the time comes, the funds may not be in place for serious needs. Subsequently, the place gets in a state of disrepair and your property values suffer.

Some states have laws in place that govern the percentage that annual HOA dues are allowed to go up along with provisions that regulate caps on assessments. The best way to find out this information is to contact a real estate attorney in your state.

Here are a few helpful resources where you can learn more about HOAs:

HOA Dues and Chapter 7 Bankruptcy – NOLO.com

FAQs About Buying a Condo – eLEND.com

Search for Real Estate Lawyers – Lawyers.com

Finally, remember that you are not at the mercy of your HOA. Everyone has one vote and an equal say, regardless of whether you are on the board or not! Stay on top of things by regularly attending meetings, reading e-mails and newsletters and of course discussing issues with your neighbors.

Are Conforming Loan Limits Higher for Multi-Family Properties?

Any discussion regarding “conforming loan limits” should include an explanation as to what they are. Conforming loan limits are the guidelines that were established to determine the reasonable and allowable size of a loan. Those loan limits apply directly to the average prices for residential properties within a given geographic area. Currently, the majority of U.S. counties have a conforming loan limit of $417,000 for a one-unit property. In locations where real estate prices tend to be quite a bit higher than the U.S. average, such as in larger metros and coastal areas, loan limits can reach up to $721,050.

Along with the cost of real estate, conforming loans include evaluations to decide if a borrower is a good risk. Other considerations are the prospective borrower’s loan-to-value ratio or LTV, debt-to-income ratio, credit score and history, and other documentation requirements such as employment verification and tax information. As the entity that oversees Freddie Mac and Fannie Mae, the Federal Housing Finance Agency, or FHFA is the one that sets the conforming loan limits.

In the case of multi-family properties, the conforming loan limits are generally higher. It stands to reason that such properties will be more expensive due to their size alone. The limit tends to increase based on the number of units in the building. Of course, like with any financing program, a number of factors are taken into account, including the prospective borrower’s LTV, outstanding debt, employment history and credit score.

Other Resources You Might Find Helpful

What is a 203(k) Streamlined Loan?

Hammer and ToolsSometimes all a house needs is some simple TLC to make it a home – but it’s not always easy for buyers to come up with the extra cash for repairs, even if it’s a fairly minor project.  That’s where an FHA 203(k) Streamline Loan can help.  This program differs from a regular 203(k) in that it simplifies borrowing for minor improvements without the extra cost or details, and doesn’t require a write up of plans from consultants, engineers or architects.   The following information is provided by the Department of Housing and Urban Development and the HUD guys.

203(k) Streamlined Limited Repair Program Basics

  • No minimum repair costs
  • Allows for renovations of up to $35,000
  • One loans covers purchase and repairs

A 203(k) Streamlined Loan does have one important similarity to a traditional 203(k) rehabilitation loan in that it covers a vast range of improvements.  These include:

The repair or replacement of:

  • Roofs, gutters and downspouts
  • HVAC systems
  • Flooring
  • Exterior decks, patios and porches
  • Windows, doors and exterior siding
  • Septic systems

Other eligible improvements include:

  • Basement waterproofing
  • Painting
  • Weatherization
  • Remodeling projects that don’t involve structural changes
  • Appliance purchase and installation
  • Disability accessibility

Choosing a Lender

There are many options when it comes home renovation lending. Here are some some popular providers:

Who is eligible for a 203(k) Streamlined Loan?

The Department of Housing and Urban Development makes the FHA Streamline Loan available to certain lenders to help borrowers of all income levels make repairs on a home they wish to buy or that they already live in.  The owner must plan to occupy the dwelling, which can consist of up to 4 units. Eligible properties include single-family dwellings, condos, townhouses, and mixed use structures.  Nonprofit organizations may also qualify for a 203(k) Streamline, but investors are not eligible. Other terms and conditions may apply.

There are certain circumstances where a streamlined is not appropriate.  These may include:

  • Work that takes more than 6 months to complete
  • Renovations that require plans or architectural exhibits
  • Work that causes the homeowner to be displaced for more than 30 days
  • Improvements that are considered amenities or luxuries, like landscaping, pools and gazebos

Deciding Whether or Not to Pay Points on a Mortgage

When a homebuyer pays for “points”, he or she is paying a portion of the loan’s interest up front. Points are paid for in a lump sum that will reduce the interest rate on a fixed mortgage. Each mortgage loan point costs the buyer 1 percent of the total mortgage amount. So, for a home with a price tag of $100,000, one mortgage point would cost $1000. The interest rate on a 30-year fixed mortgage is generally reduced by 0.125 percent for each discount point. The more points the buyer purchases, the lower their final mortgage rate will be. Most lenders offer up to three points.

In choosing whether or not buying mortgage points in beneficial, it is necessary to ask yourself a few questions:

Can you afford to pay for the points up front? Would it be better to save any extra cash for other expenses that a home purchase will undoubtedly necessitate?

How long do you plan to keep the home and this mortgage? Those in it for the long term could stand to gain more from lowering their interest rate.

calculationsOne helpful tool to use when making this choice is a mortgage calculator. It will help you determine the amount of the monthly house payment at the interest rate you will lock into without buying points. Then, calculate the price with points. To see how much buying the points would save you, subtract the lower payment from the higher payment. Finally, divide the cost of the points by the monthly about that could be saved. That answer is also the number of months that you would need to keep the loan in order to reach the “break even” level on paying for points.

Here is an example:

  • For a 30-year fixed rate loan of $100,000 with a 6 percent interest rate, the monthly payment for the principal and interest would be $599.55.
  • Buying 3 mortgage points for a total cost of $3000, would trim the interest rate down to 5.25 percent. That would lower the monthly payment to $552.20 and save $47.35 a month.
  • The cost of the points ($3,000) divided by the monthly savings ($47.35) determines the length of the loan. So for this example: 3,000 divided by 47.35=63

So the break-even point would be 63 months or just over 5 years. If you plan to remain in the house for at least that long, then purchasing points might make sense.

Other things to consider when deciding if buying mortgage points is a smart move are:

  • In some cases, the seller agrees to pay for the discount points. Discuss this with your lender to find out if the guidelines for your loan allow this. Typically, the seller would negotiate a higher price in return, however, you would have a little extra cash at closing.
  • Another matter to take into account are that points for residential real estate may be tax deductible. Talk to a tax professional to see how this could affect your situation.

Portfolio Mortgage Loans

couple in front of house Soon after closing many loans are packaged together with others with similar characteristics and sold on the secondary market. The lender that made the loan may still handle the day to day management or “servicing” of the loan, but they transfer the ownership of the loan to investors who hope to make a profit as the mortgage is repaid with interest, over time. This frees up funds for the lender to make new loans.

In order to be saleable mortgage loans have to follow specific guidelines which make them attractive to investors on the secondary market. In some cases lenders choose to offer loans with different characteristics knowing they won’t be able to sell them, and instead retain ownership of these “portfolio loans.”

Why do investors offer portfolio loans?

It might be because they believe they can make a profit on a specific type of niche financing. They might also want to attract a certain type of valuable client who they hope will continue to do business with them for many years to come.

We spoke with Brent Eckhardt of SunTrust Mortgage in Wilmington, NC who specializes in doctor loans for new physicians. “Doctors come out of school with a lot of debt and often can’t come up with a large down payment. Because of their job stability and high earning potential we’re able to offer a portfolio loan program that allows 100% financing or very low money down options even for jumbo loan amounts,” said Eckhardt.

Some of the highlights of this program include:

  • No private mortgage insurance required
  • 100% financing for loan amounts up to $650K, 95% up to $1 million, and 89.99% up to $1.5 million
  • For medical residents, interns, fellows, DOs, and licensed medical physicians within 10 years of completing residency (maximum loan amount of $417K for residents, interns, & fellows.)

What types of portfolio loans are available?

In addition to the doctor loan program from SunTrust mentioned above, here are a few other loans available in the marketplace as of the writing of this post that are likely portfolio products:

1st Portfolio Lending Jumbo and Super Jumbo Loans
Program Highlights:

  • Borrow up to $10 Million
  • Interest Only Option
  • Amortized over 40 year loan term
  • Use pledgedstreet with homes asset to satisfy down payment and assets for income requirements
  • Financing available for primary residence, vacation homes, and investment properties

Learn More

Economic Opportunity Mortgage from Union Bank
Program Highlights:

  • Low Fees
  • As little as 5% down payment (80% financing for cash out refinances)
  • Approval possible even with limited credit history
  • No private mortgage insurance
  • Available in Colorado, Oregon, & Washington State

More Info

Why would a borrower want a portfolio loan?

Portfolio loans make up a small percentage of the mortgages originated across the country, but they can open up the possibility of a home purchase or refinance that might not otherwise happen in certain scenarios. If there are characteristics about your situation that mean you might not qualify, or might not be able to obtain good pricing, from typical loan programs, you might want to investigate portfolio loans to see if one might be a good fit for you.

Is An Adjustable Rate Mortgage Right for You?

As prospective homebuyers weigh their financial pros and cons, the subject of adjustable rate mortgages will likely come up. Known as ARMs, they have interest rates that vary, unlike traditional fixed-rate mortgages.

With an ARM, the interest rate begins with a fixed rate for a set time period. It is usually lower than the interest rate for a typical fixed-rate loan, which is a major enticement. These adjustable rate mortgages are referred to by their fixed periods. For example, there are 3, 5, 7, and 10-year ARMs. When the fixed period is up, the interest rate increases.

Even though the rate changes after the introductory period, many borrowers find these loans a good choice because of the lower starting rates. ARMs also come with rate caps that protect the borrower just in case interest rates rise dramatically.

In deciding if an ARM is right for you, there are definite considerations:

  • If your employment situation is less that secure, an ARM could be risky. Could you handle an increase to your monthly mortgage payment should you experience a pay cut or lose your job?
  • An ARM may be ideal for couples or young families just starting out. They can take advantage of a lower interest rate in the short term, reap the rewards of home ownership, and have moved on to the next home long before the rate adjusts. In addition, with the smaller loan amounts typical of “starter homes” a slightly higher payment down the road might still be affordable. Of course it is crucial to be prepared for that scenario.
  • For investors, purchasing a “fixer-upper” property with an ARM could make a lot of sense. They can own the home during the renovation with fewer out of pocket expenses, and potentially sell it before the rates change.
  • Individuals with careers that keep them on a relocation cycle also may favor ARMs. It is a more affordable way to own a home, possibly build a little equity, and still save money during the fixed rate period. If moving for a new position every two to three years the home would most likely be sold before it adjusts if a five year or seven year ARM was selected.

Young couple in their backyard.If selling the property before the end of the introductory period is over is part of your plan be sure to think through what would happen should the home lose value rather than appreciate? Could you afford to sell at a loss if needed, either because you have considerable equity in the home or because you have other assets available?

To decide if securing an ARM is a logical approach to your next home purchase, it is best to review your situation with a qualified experienced lender. That way, you will be able to make an informed decision!

Adjustable Rate Mortgage Lenders

Here are a few National mortgage banks and lenders to consider in your search for adjustable rate financing:

American Bank
National Lending Center
150 E. Campus View Blvd
Suite 200
Columbus, OH 43235
(866) 804-4645

LenderFi
27240 Turnberry Lane
Ste 220
Valencia, California 91355
(888) 342-0000

Roundpoint Mortgage Company
5032 Parkway Plaza Blvd
Charlotte, NC 28217
(866) 559-9846

Calculating Your Home Equity

Calculator for crunching numbers. Examining home equity.Knowing the amount of equity you have in your home can be beneficial, especially if you’re thinking of applying for a mortgage refinance.

Calculating your home equity is fairly easy to do. You simply take the current market value of your home and subtract what you owe. For instance, if you have a home that is currently valued at $200,000 and you owe $80,000 in principal on your home loan, then your equity would total $120,000.

Keep in mind that your equity will not stay constant. As the market shifts, so will your home’s value. Additionally, any improvements you make or damages that occur can consequently add to or deduct from your home’s value.

The simplest way to increase your equity is to pay down your mortgage. It should be noted, however, that paying off your principal balance is what really improves your equity – not paying off the interest. Because most of your beginning payments will go toward paying off interest, your equity will build slowly at first.

There is a way to build equity faster, and that is by shortening the term of your mortgage. Switching from a 30 year home loan to a 15 year fixed rate loan will increase your monthly payment, but a larger amount will also be put toward the principal each month. This is becoming a popular option for people who want to own their homes outright and be mortgage free sooner. [Read more…]

Could Buying a Home with a Stigma Be a Great Deal?

Home in old neighborhood.

Looking for a great deal on your next home? How about buying some old creepy place!

There is a hush-hush phenomenon in real estate that prospective house hunters should be aware of. Although they may not be present in every neighborhood, there are homes to be had for much less than they are worth because they were the scenes of unsavory incidents. In this author’s own neck of the woods, there is a valuable piece of property that has been on the market since 1999. A brutal murder took place there and in spite of the home being demolished and several price reductions, it remains unsold. Given the opportunity, could you take advantage of a set of unfortunate circumstances in order to secure your dream home? Those house hunters willing to let the past die are finding some deals out there.

From homes that once belonged to serial killer Jeffrey Dahmer, O.J. Simpson, or child-killer, Andrea Yates, those buyers willing to forgive and forget are laughing all the way to the bank. Just ask Peter Muller, who purchased the Yates home on Beachcomber Lane in Houston. In 2004, he bought the charming Spanish-style home now thought to be worth $125,000.00 for a mere $87,000.00. “It’s in a good location,” Muller said. “Plus, it’s got a great layout. There’s a living area and combined dining area.” He went on to explain to an AOL Real Estate representative that the home’s history does not bother him, because he does not think about it.

Of course living in a home that is a former CSI site is not for everyone; a few studies show that they can be outstanding bargains. The real estate consultant firm, Bell Anderson and Saunders, specializes in disaster and crime scene properties, such as the Jon-Benet Ramsey home in Colorado. They suggest that a buyer can save as much as 25 percent on a home that carries a stigma. [Read more…]

What’s the Difference Between a Short Sale and a Foreclosure?

House with sold sign in the front yard.

Foreclosure, REO or short sale … What’s the difference?

As a potential home buyer, you’ve probably already come across the terms “short sale,” “foreclosure,” and “REO property.” Although it can be confusing, it’s important to understand the details and differences in these types of properties, especially if you are considering purchasing one. What is a Short Sale?

A short sale is when the lender is willing to take less than the full loan payoff amount for an owner’s property. Generally, short sales are done to avoid foreclosure. Neither the owner nor the lender wants foreclosure, as it can be a very costly and unpleasant process. A home owner who has not been able to make their mortgage payments can apply for a short sale, but lenders are not obligated to accept it. Lenders take each short sale application on a case-by-case basis. Sometimes the loss a bank would take on a short sale is less than the loss they would take if the property went into foreclosure. In a short sale situation, the home owner’s name is still on the title and they are still considered the seller. The bank is simply entering into an agreement to accept less than what is owed on the property.

The term “short sale” can be misleading. The word “short” refers to the amount of money received by the lender, not the amount of time to complete the transaction. It can be a long process with many individuals and departments within the financial institution involved. If you put in an offer to buy a short sale property, it can take months to hear whether or not your offer is accepted. Also, because the lender is already taking a loss, negotiating on things like price, appliances or repairs is generally not an option.

What is Foreclosure?

Foreclosure is when a bank takes full possession of a property and the owner is no longer a party in the sale of the home. Foreclosed properties can be put up for auction at a trustee sale at a county court house. It’s recommended that only seasoned investors should participate in this highly risky purchasing process. When buying a foreclosed home from a trustee sale, you risk encountering serious problems that are ordinarily handled by a real estate agent or other professional. These problems can include title issues, IRS liens, or the property still being occupied. [Read more…]

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