Homeowners Insurance
SG • July 1, 2024
Is Home Insurance Required to Buy a Home?
Proof of homeowners insurance will often be required by your lender before they fund the home loan and turn over the property to the buyer. A lien will be held on the property by the lender until the home is fully paid off. Because of this, it is likely that the lender will ensure that the property is insured while the buyer is paying down their mortgage.
Shopping for a Policy
Certain things may not be covered in a standard policy, such as earthquakes, floods, or landslides, depending on where you are shopping for home insurance. Your home insurance agent will be able to tell you if there’s an option to purchase protection from any incidents that aren’t included that you may be at risk of encountering.
It's beneficial to compare homeowners insurance quotes and pricing for best options. Another helpful tip would be bundling homeowners and auto insurance with the same insurer, as it often helps you save money.
Your loan specialist will let you know when to buy homeowners insurance during the mortgage approval process.
Important Factors: Mortgage, Insurance, and Escrow
Escrow accounts hold funds that are designated for your home insurance and property taxes and are recommended as they ensure that you stay up to date with these fees as your lender pays on your behalf when they are due.
For this process, each month, you will pay a specific amount, which is typically a few hundred dollars, above your normal mortgage payment. These extra funds will be kept in the escrow account by your lender or mortgage servicer.
Most lenders will require you to obtain mortgage insurance if your down payment is less than 20%. If you have a conventional loan, your mortgage insurance is called Private Mortgage Insurance (PMI). If you have a loan backed by the Federal Housing Administration (FHA), your mortgage insurance is known as mortgage insurance premium (MIP).
Closing Cost Process
The first term of your homeowner’s insurance may be required to be paid at closing by your lender, as well as the funds deposited into your escrow account for the next billing cycle. If you don’t have escrow, however, the entire first year’s home insurance premium will likely have to be paid at closing. In some cases, a lender may charge a nominal fee to waive your escrow requirement. Homeowners have the option of using escrow to pay for home insurance and property taxes in installments rather than annually or biannually.
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Buying a home is an exciting milestone, but the work doesn’t stop once the papers are signed. Moving into your new space can feel overwhelming without a plan in place. To help you navigate this transition, here are practical tips for a smooth and stress-free move after buying your ideal home.
Things Not to Do When Applying for a Mortgage Purchasing a house is an intense and lengthy process that can take several months. It's crucial to keep an eye on your finances and wait to make any significant adjustments until closing on your home. Consider the below-mentioned tips to minimize any detours, or worst, derailments during the home buying process. Don't lie about your income on your loan application or ignore any obligations or debts – your lender will discover hidden information during the underwriting process or sooner. Don’t waste your time or theirs. Don't switch jobs , leave your current employer, or start working for yourself. – your lender needs to trust that you will have stable and consistent income. If you are changing your job and/or position, let the lender know in advance. Typically, if your income is increasing and/or you are remaining within the same job field, your application is less likely to be an issue. Double check with your lender to confirm that this is the case for you and your situation. Don't switch financial providers. Make sure to maintain a history of consistent banking – needless to say, you are proving your whole financial picture at this time. Lenders want see what is included in your financial profile and how much of a risk it will be to loan you money. After all, would you loan someone money that is unwilling or unable to repay you? Don’t co-sign for anything – you can’t control what someone else decides to do. If your name is on a shared account, and the account goes late or worse, this can hurt your credit score. You should never co-sign for anyone, especially during a mortgage process. Don't deplete your investments and/or savings accounts – it’s good for lenders to see that you have financial resources if needed for unforeseen issues such as loss of employment or other unexpected financial hardships. Don't make disproportionately big deposits into your accounts. You should have at least two months' or more worth of funds in your account before making your down payment – lenders like to make sure all funds are accounted for when processing your application. If it is determined that large amounts deposited in your account will not be a reoccurring transaction, lenders question what will happen when you no longer have those funds deposited in your account in the future? It is presumed that you won’t be able to afford payments. If you are expecting large deposits, talk to your lender as soon as possible. Don't take on more long-term debt for big ticket items like new furniture for your home or a car purchase. Taking on more financial responsibility will result in a higher debt-to-income ratio. This says to the lender, that you have more expenses (debt) which means you have more going out then coming in (income). Bottom line, this compromises your income health that was planned for loan repayment at time of loan application and loan commitment. Remember, you are being approved for what you said and what you can prove. Don't use credit cards more frequently or fall behind on your payments – late payments can hurt your credit score and make you seem financially irresponsible. A score decrease can change the offered loan product, program eligibility, even increase your interest rate and down payment. Don't open new credit accounts or close accounts – a no-brainer. A new credit line means that you have taken on more debt risks. Your lender is processing your application based on the financial picture that you initially presented to them via respective documents. If you take on more credit, it is presumed that you are going to take on more debt which inevitably changes what your initially submitted to the lender. This is true for closing accounts because your lender will base eligibility on your credit information. If this situation changes, it can affect your credit score. Yes, closing an account can hurt your credit, especially if it's an old account with good standing. Closing this type of account will decrease your score because it is no longer counted in your scoring model. Takeaway: Always get advice from your mortgage loan officer before making any decisions that could materially affect your credit score or finances. It's crucial to maintain consistent financial circumstances throughout the house-buying process, matching the information you provided on your application. Positive or negative adjustments have the potential to prolong the mortgage process and prevent you from closing on your ideal house. In Short … when in doubt, do without and contact your lender. Just accept the fact that you must make careful financial decisions after completing your mortgage application (pre-approval process).
To Cover or Not To Cover Your Major Appliances or Home Systems... When buying a home, it could be beneficial to have a home warranty to assist with the cost of repair, replacement, and service of major appliances and systems. A home warranty can be purchased by anyone. Anyone, be it a homebuyer, seller, or renter, regardless of the home's age or condition, can directly purchase a policy from a home warranty company. It’s just a matter of incentive, why might a seller or buyer want to purchase a home warranty? A Seller's Incentive A seller may purchase a home warranty as an incentive for a buyer or to ensure coverage is provided if a major appliance or home system breaks before closing on the house. It’s important to note that less expensive appliances like (countertop microwaves and ice machines) are not covered under these warranties. In the case of a sellers’ market, the buyer will typically pay for the home warranty and choose what type of plan they desire and whether it will cover both large and small appliances and major home systems. It’s important to note that coverage is limited to what is listed in the contract, different plans cover different appliances and systems. It is vital to pay close attention to what’s covered when deciding whether to buy a home warranty. A Buyer's Incentive Buyers will sometimes ask the seller to pay for the first year of home warranty. For sellers, this is beneficial as the buyer will likely be less concerned about the condition of major appliances and systems, which increases the chance of closing the deal. Meanwhile for buyers, the benefit lies in the peace of mind given, knowing that expensive service or repair costs for major appliances and systems are unlikely. The buyer will also be able to access the home warranty company’s pre-vetted contractors. This is very beneficial for moving to a new area or if the buyer does not already have a group of trusted contractors. Ultimately, a buyer may want to purchase a home warranty if they’re not prepared to spend thousands in the event of a major break down or would like the peace of mind knowing they’re protected as well as the repair process being simplified with the home warranty company involved. Need help finding a reputable home warranty provider, contact me!
What is a House Title? A house title is the ownership record of a property. This title contains information such as the physical description of the property, who has previously owned the property, and if there are any legal claims, also known as liens, on the property. Title Companies The title company, as well as the title insurance policy, work in unison to protect the buyer from any liability Title companies are hired with the purpose of researching and insuring the title of the home being purchased isn’t claimed by another owner along with free of liens Title companies are third parties that work on behalf of both the buyer and the lender and is a critical part of the settlement process Who Picks the Title Company? Both the buyer and seller have representation from a title company, but neither are obligated to use a specific title company. If you’re unsure which company to use, you may ask for recommendations from your real estate agent or lender. Title Company’s Steps During the Home Buying Process: Research a Chain of Title - Title companies are going to investigate a "chain of title,” which is the full history of who owned the home, as well as any existing liens on the home. Property Survey – A property survey will be conducted to certify that the home solely takes up the space specified in the title. A title abstract will then be provided for both the buyer and lender to review. Title Insurance - Two kinds of title insurance policies will be provided: one for the buyer and one for the lender. Title insurance protects both buyer and lender financially and legally. Usually, the seller of the house pays for the buyer’s title insurance policy, and the buyer, in turn, pays for the lender’s policy. This will be a one-time payment when the property is closed on, and the buyer will be covered for as long as they own the property. Determine Who Is the Title Holder – It’s vital to work with the title company to ensure that the wording on the title accurately describes who has the right to transfer ownership. How property taxes and fees are paid, if the buyer sells the home in the future, could also be affected by the wording on the title. Settlement – Sometimes, the title company will oftentimes manage closing on the home. Depending on the state requirement, a signing agent or a real estate attorney will be appointed to review all closing documents and finalize the deed and title transfer. Hold and Manage Money in Escrow - An escrow account is a savings account managed by a third party that distributes payouts under certain conditions. These accounts are commonly used in real estate so mortgage lenders can ensure that the buyer can afford certain expenses. Issues a Title Company May Be Able to Find: If the title company finds any issues with the property, both the buyer and the seller will be notified. Some examples include: Income and Property tax and other judgment liens Outstanding loans on the home Claims to property by other owners or heirs Mechanic’s lien for work performed and unpaid Special assessments on the property Contact me for further information.
Homes That May Cost You More in the Long Run! Old Homes (Over 100 years old): Electrical and plumbing will likely be an issue that needs addressing Rewiring may be required to replace Knob-and-tube (K&T) wiring and insulation standards that are not up to code Unsafe features such as steep staircases, low ceilings, old laundry chute, etc. Professional removal of Asbestos found in the house Flipped Houses: Inexperienced contractors can cause hazardous and/or unsafe conditions Rushed job increases the chance of latent or unseen potential problems by the naked eye Homes with Oil Tanks: Potential taint to nearby water, soil, and vegetation Soil Remediation will be costly Homes in Flood Zones: According to Federal Emergency Management Agency (FEMA), the national average of $800 or more per year Marginal floodwater can cause upwards $20,000 in damages Houses with Over-the-Top Custom Features: Features could hurt resale values as it may only be appealing to a niche selection of buyers If you no longer like the feature, it will likely be costly to get changed, removed, or otherwise modified Takeaway: Considering the areas discussed can save you time, headache and money. Work with your agent to get property history and disclosures, hire an inspector, and investigate any permits and receipts.
FHA vs. Conventional Loans FHA Loans Mortgages insured by the U.S Government’s Federal Housing Administration are known as FHA loans. These loans were implemented with the intention of helping lower- to middle-income buyers become homeowners. Eligibility Requirements (Lender Specific): Minimum credit score of 500-579 3.5% down payment; credit score of 580 or higher for best loan and terms Typically, Debt-to-Income ratio of 50% or less less Pros: Buyer minimum credit score that are lower than required by conventional mortgages Lower down payments Higher Debt-to-Income ratio than allowed by conventional mortgages Cons: Higher interest rates than conventional loans Upfront mortgage insurance premium FHA sets home price qualifying maximums Conventional Mortgage Conventional mortgages are known as established financial vehicles for purchasing a home with a down payment and an amortized home loan. These loans are held by banks, credit unions, and saving loan associations. It’s important to note these mortgages aren’t backed by the government like FHA loans are, which leads to stricter eligibility requirements than FHA loans. These requirements allow private mortgage owners to protect their investments. Eligibility Requirements (Lender Specific): Proof of cash available for down payment Typically, Debt-to-Income ratio below 36% (higher for some lenders) Minimum credit score of 620; a credit score of 740 or higher needed for best loan terms Pros: Flexible Interest Rates Loan term flexibility No PMI with a 20% or more down payment Cons: PMI insurance with less than 20% down payment Higher credit score required Higher credit score threshold to meet than FHA loan
A Mortgage Contingency: What Is It? A mortgage contingency, also known as a financial contingency or loan contingency, is a condition written into a contract that ensures home buyers aren’t bound to a home sale until a concrete approval letter from a mortgage company is received. Typical Scenarios Include: If the loan cannot be approved, the buyer can leave without facing any legal consequences and receive their earnest money deposit back Both the buyer and seller must agree on the mortgage contingency in a purchase contract Mortgage contingency period usually last 30 – 60 days Either party can back out of the home sale agreement during the contingency period with no penalties Generally, the expectation is for the buyer to gain approval for a mortgage and secure financing before closing on the house can begin How a Mortgage Contingency Works The buyer submits a purchase offer to the seller If preapproval hasn’t been obtained for a mortgage, a mortgage contingency can be added to the offer The buyer will then submit an earnest money deposit and the seller will take the property off the market once both parties sign the purchase agreement Once mortgage is approved, the buyer will provide the seller with a mortgage commitment letter from their lender The contract may be terminated if the buyer is unable to qualify for the loan or cannot secure financing in time In the event of a contract termination, the seller will be free to pursue other offers, and the buyer will receive their earnest money deposit back What is Included in a Mortgage Contingency Clause? Mortgage Contingency Deadline Amount Of Money Needed Maximum Interest Rate Type Of Mortgages Closing Or Origination Fees In Short A mortgage contingency is a safety measure to help guard home buyers and sellers against unforeseen changes that may occur during the home buying process. Side note: Carefully consider the pros and cons of using a mortgage contingency with your agent to avoid financial risks.
Typical Maryland Inspections When buying a house in Maryland, it’s the buyer’s right to request inspections. It’s important to note that the buyer pays for most, if not all, of these inspections. There are many inspections that a buyer may request, but this list will focus on the most common ones in Maryland. The Whole-House Inspection: A whole-home inspection typically includes the interior and exterior of the home including all home systems such as the HVAC, plumbing, and electrical. This is a visual inspection, which means while everything might be visually functional, yet there may be problems not visible to the naked eye. Such issues may whether be behind the walls or within home systems. Homebuyers will receive an inspection report upon completion Buyers will be educated by home inspectors. Tips may range from how home systems work, to maintenance of the house, or simple home ownership tips Positives and negatives will both be pointed out in this inspection Well and Septic Tests: Wells supply water and a septic system, also known as water and sewage handles sanitation. For this inspection a visual inspection of the tank and distribution box needs to be performed, to accomplish this, the system is pumped out and the inspector will look for things such as missing or broken parts, or any other signs of decay. Lenders often require the water quality to be tested Problems with both water and septic systems are almost impossible to determine without a proper inspection Pest Inspection: This inspection is to ensure that there are no pests that can cause damage to the house and that there are no existing structural threats to the house. A wood-destroying insect inspection or WDI is required by most lenders for approval of a loan to buy a house For Maryland, if the buyer is using a VA loan, an inspection is typically required by This inspection is often paid for at settlement rather than in advance Radon Testing: Radon is a radioactive, carcinogenic gas that is tasteless, colorless and odorless. In testing, either two charcoal containers or a digital device will be placed in the basement. Over a period of several days, air samples will be collected and evaluated. There are reported to be elevated radon levels in certain areas in Maryland Readings above 4.0 are considered elevated Most home inspectors also perform the radon testing According to the National Cancer Institute, Radon is the second leading cause of cancer in the country Chimney Inspection: For this inspection, a camera is placed down the chimney in efforts to find any evidence of damage such as cracks. If there has been a chimney fire, this inspection will find out This inspection will also see if there is a chimney liner, which safeguards the chimney structure How to Request a Home Inspection in Maryland: The Property Inspections Addendum is one of the common forms included in a contract when buying a house. This inspection contingency allows the buyer the option to pay to have the house inspected, and afterwards request any necessary repairs. If any requests cannot be resolved, this contingency allows the buyer to cancel the purchase. Typically, all inspections are required to take place within a specific time frame, often 14 days or sooner after a contract is accepted. The buyer’s real estate agent can provide a list of recommended inspectors. The recommended inspectors should be called and asked about their availability, inspection process, and prices. If the inspection is completed or the report is received after the specified deadline, the buyer will not be able to ask the seller to repair anything. The buyer’s real estate agent should make sure that inspections are scheduled on time to avoid this outcome. What Can be Expected at a Home Inspection: The home inspection can take anywhere from 1-3 hours. The time taken to complete the inspection depends on the size of the house. A good inspector will be as thorough as they possibly can rather than rush through the inspection. While inspecting the house, the inspector will also educate and explain things to the buyer, as well as provide maintenance tips. This will also provide the buyer the opportunity to plan and budget for replacements. The seller will be expected to leave the house during all inspections. As the buyer pays for their inspections, the inspections and their results belong to them. Occasionally, a homeowner may refuse to leave their house during an inspection, it is strongly recommended to avoid doing this as the seller could say something that may scare away the buyer. If there are any concerns, the seller will receive a copy of the report when the buyer submits their list of repairs. Need more information? I’m here to help!
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