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.

Older Americans Driving Commercial Real Estate & Other Industry News

Commercial buildings in HoustonRecent reports in the real estate world have given valuable insight into what the industry’s future may hold.

According to information from industry professionals, Americans age 65 and older are thought to be major drivers of the commercial real estate industry, particularly in the medical sector. With the baby boomer generation advancing in age and reaching their retirement years, the need for senior-related services has grown. It makes sense that one of the biggest demands for this age group is access to quality medical services.

“Savvy marketing execs and investors are hungrily eyeing which of the nation’s medical meccas will benefit the most from the excess of senior dollars that will inevitably be thrown their way,” AFR Mortgage writes.

According to information from a recent article by commercial real estate company CoStar Group, hospitals are one of the main medical facilities that are benefiting from this boom in healthcare demand. Major cities like Boston, San Francisco and Chicago were mentioned as among the prime locations for strong demand in medical facilities. Other high-population metros will likely begin to see a greater demand in medical services, and not just in hospitals. Private practice offices, medical supply stores, senior care facilities and specialist offices are likely to see an increase in demand in these areas, especially within neighborhoods that are more senior-oriented.

Real estate investors would be wise to take note of this trend and consider shifting their focus from the traditional single-family residential market to the commercial sector. Or, at the very least, residential real estate investors may want to pay close attention to development opportunities in 55+ communities, or multi-family housing in areas with high populations of retirees.

Condo Market Loses Momentum

Unlike the need for senior housing and medical services, the demand for rental homes in the U.S. seems to be waning. Despite the huge surge in rental demand after the housing bust, builders have expressed a slightly lower level of confidence when it comes to the development of new apartment and condominium complexes.

Through the National Association of Home Builders’ Multifamily Production Index (MPI), builders are asked to rate their perceptions of certain aspects of the market. The three main segments evaluated in the index are units for sale (such as condos), low rent units and market rental units. While the majority of builder responses indicated positive perceptions, the index measuring builder perceptions on condo and apartment complexes decreased slightly.

The condominium and apartment complex index fell two points to 52, which is still considered on the positive side of the index, as any score over 50 reflects that more respondents view the aspect as favorable.

Of the three multi-family housing units reviewed, for sale units fell the most, losing 4 points and bringing the score to an average of 42. By contrast, the index for low rent units increased 2 points to 55.

While the slight shift in confidence for the multi-family market may have something to do with lower demand, NAHB’s chief economist, David Crowe, noted that there are likely other factors that are contributing to the change. The need for skilled construction workers and higher prices for building materials are two factors that have surely made an impact on the market.

The good news is that despite these challenges, the overall housing market has made great strides in recovery. As home values increase and foreclosure rates decline across the nation, the U.S. is once again reaching a period where homeownership is not only more accessible, but more valuable.

Banks facing new stress tests while limited inventory poses real estate challenges

Next month, the results of bank “stress tests” will be revealed, showing just how well major financial institutions would handle significant economic changes. Whether it’s a spike in interest rates or another economic downturn, the Federal Reserve wants to know how banks are likely to perform in the event of major shifts in the economy. The deadline for responses was July 5 and the results are said to be made public by September.

Earlier this year, the Federal Reserve released the results of its own stress test. According to the results, another recession would likely cause the 18 major banks to lose $462 billion. While that figure represents quite a significant loss, Federal Reserve governor Daniel Tarullo remarked that the banks could still survive.

“Even with the possibility of losing half a trillion dollars, the country’s 18 largest banks could survive a severe economic meltdown,” Tarullo said.

It should be noted that the stress tests the 18 major banks are subject to are not exactly the same as the Fed’s assessment process. And while both the Fed and the banks plan to review their respective results, because there are differences in the risk assessment processes, some folks are skeptical of the tests’ accuracy.

Last year, 19 banks were subject to the Fed’s stress tests. Only 15 passed. To view a video explaining the process and results of 2012’s tests, click here: http://afrmortgage.com/blog/banks-face-new-stress-tests-as-interest-rates-rise/

While banks are continuing to be put under the microscope, the real estate landscape is continuing to shift. With economic recovery underway, there have been many improvements in the mortgage and real estate world; however, there’s one big issue that seems to be holding up progress. That issue is limited inventory.

According to another blog post from American Financial Resources, sales figures from the past few months have been less-than-spectacular, showing that the tight supply is likely to be the key factor in the decrease of pending home sales. Pending home sales can be a helpful market indicator for industry pros, showing just how much activity is happening in certain areas. However, when pending home sales figures drops, it doesn’t necessarily mean there is a decrease in demand. In this case, according to the National Association of Realtors (NAR), the weak pending home sales are due to a lack of available homes on the market.

Lawrence Yun, chief economist for the NAR, the only viable solution for this problem is to increase new construction. After a recent pending home sales report, in which is was revealed that the figure dropped 17 percent in April from the year prior, Yun stated that he believed housing starts would need to increase 50% above current levels to get the market running. While new construction would surely be helpful, there are other setbacks. The National Association of Home Builders has reported increases in material costs, lack of labor resources and land shortages.

According to American Financial Resources, industry experts acknowledge that construction levels are far from hitting their peak, making it tough for developers to attract investors. Hopefully this will change as the overall economy continues to improve. In the meantime, mortgage interest rates are remaining relatively low, despite recent increases, and home prices have also remained fairly affordable in much of the country. This has definitely helped the U.S. market climb out of the housing crisis, but most experts say that more improvements are needed before we can experience another boom.

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…]

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