If you’re in the process of purchasing a new home, on your bank paperwork, you may have noticed something called “mortgage insurance.” Not sure what it is? There are several different types of insurance that homeowners should be familiar with. Here, I will explain the basics.
Title insurance from the seller comes from the title company. It protects home owners and lenders from damage or property loss that may happen because of liens or other defects in the title to the property. Each title insurance policy is subject to specific terms, exclusions, and conditions.
Homeowner’s insurance/hazard insurance/fire insurance is a policy issued from an insurance company and it protects your property as well as the contents and possessions inside. It also provides liability coverage against accidents in the home or on the property. At closing, homeowners will pay for the first year’s policy in full.
This type of insurance is not a benefit to a homebuyer. When a lender provides a loan and the buyer puts less than 20% down on the purchase, the lender takes a bigger risk. If the buyer ends up defaulting on the loan and they don’t have much “skin” in the game, it’s possible that the lender won’t cover their loan amount when it comes time to liquidate the property. This cost can be paid within your monthly mortgage payment or up front and it will cover the lender’s loss if something were to happen. For some types of loans, particularly FHA loans, the premium will last for the life of the loan, even though your equity position might get you above the 20% mark. Conventional financing will typically have a provision for mortgage insurance that can be removed once the homeowner has 20% equity in the home.
Buying a home requires many different steps and there is a lot of research that is required. The insurance process can be complex and sometimes confusing, especially if you haven’t gone through the home buying process before, and that’s one of the many reasons why it is important to work with a well-qualified, experienced, hands-on Realtor. If you have questions about it, I’m happy to sit down and talk with you about any questions you may have!
Last week we discussed the basic steps in the mortgage process. There is a lot of complicated detail in a new home loan. Reading the fine print can be overwhelming if you’re not sure what it all means. Here are a few things to de-mystify the information coming your way.
#1: Choosing a good mortgage company and experienced loan officer.
An experienced loan officer will sort through all the financial complexities: the mortgage type of mortgage, closing costs, and monthly payment requirements. It’s in your best interest to meet with your loan officer before you make an offer—the purchase contract requires you declare your mortgage company within five days of agreement.
#2: Reviewing loan documents.
The multitude of documents you’ll be reviewing is quite daunting, but your loan officer will wade through them with you. At the onset, your loan disclosure will lay out all the details, and keep you from being surprised with closing costs. These costs generally include lender fees, closing fees, prepaid interest/insurance, prorated taxes, and HOA dues. There is a lot to create confusion! This is why a good working relationship with a lender is essential.
#3: Lock in your interest rate.
It’s important when your loan professional advises you to commit, that you lock in your rate ASAP—they can change by the hour! Most lending institutions are bound by the same guidelines, meaning that though one lender might offer a better rate, the quote can be manipulated by changing fees, especially the “loan origination fee.” If you want to shop around for rates, be sure that you’re comparing apples to apples. Rates are constantly in flux, so what might look good from one lender today could change tomorrow.
#4: Understand the terminology.
Feel free to ask your loan officer to define specific terminology that you should know. For example, what is APR? This is a universally term that defines the actual cost of your loan. It rolls lender fees into the cost, then recalculates the annual percentage rate—not to be confused with the “note rate” on which your payments are based. The general rule of thumb: the greater difference between the APR and the note rate, the more the lender is charging you for services.
Feeling confused? You’re not alone. You can see that a trusted mortgage professional is essential to understanding what you’re committing to. I have long-standing recommendations for competent, accessible, trustworthy mortgage professionals—seeing firsthand how they have worked with clients’ best interest in mind. Choosing one will serve as a major ally as you navigate financial details, paperwork, and terminology.
Well, the holidays are over, the dinner parties are done, and your company has left for a time. And have you noticed that the stores around town have moved all of the storage boxes, Rubbermaid containers, and organizational planners up to the front of the store so they are in your line of vision as soon as you enter the doors? The beginning of a new year is a great time to do some reorganization and rethinking of goals and priorities in your life. Have you thought about rethinking how you can get the most out of your living area, while making the most out of your finances? Are you tired of spending your money every month on rent, or are you done with living in a space that is clearly too small for you or your family? Or maybe your kids have moved out and it’s time to downsize? There are a variety of reasons why 2015 is a good year to make a move.
Listen up, buyers! Lending is loosening up and rates are low but may be on the rise in the near future, so getting the ball rolling on a new home purchase is important to do quickly. In addition, prices are still low but are steadily on the rise. So, getting into a home that works for your budget before prices go up too much is important.
Sellers, inventory is low! That means that if you choose to list your home, you will be able to get top dollar and have less competition. Selling prices have risen nicely, so that means that crunching the numbers on what you can get for your home is certainly worth looking at.
A new year means lots of open doors and opportunities. So, whether it’s buying or selling, if you’ve been debating on how you can make a move in the real estate market this year, it’s time to get a real estate review going. Perhaps 2015 will be a great real estate year for you!