What
to expect once you move in to your new home?
If
you properly figured out your finances before buying your new home
you should be able to meet your monthly housing obligations. Most
people will have higher costs now then they did before, whether or
not they rented. You will feel even more stretched if you go out and
buy all the things you feel that you must have for your new home.
Do not succumb to this temptation. It is important enough for now
that you have a roof over your head. There are several things you
need to keep in mind after you move into your dream home.
Make timely payments
If
you continuously make your mortgage payments late you will be sorry.
There are two main reasons why this could be a costly mistake. Late
payments incur terribly high late charges. The typical late charge
is around 5% of the monthly payment. In addition to that, late payments
on a mortgage loan really hurt your credit. A lender may forgive an
occasional late payment on a credit card here and there, but make
a late mortgage payment and it sends up a red flag. Make more then
a couple of payments late and you could have a difficult time trying
to refinance or obtain a mortgage loan for another home.
You
might want to consider having your mortgage payment automatically
deducted from your checking account and paid directly to the lender.
Continue
saving
Most
people deplete a large portion of their savings when buying a home.
You should have made sure you would have emergency money available
after close. If you don’t have at least 3 months worth of living
expenses after you move into your home, you will need to build up
your savings again. This should be done
before you buy anything for the house. It is almost impossible to
save when you keep thinking of new things you need. There will be
time later to think of slowly buying things for the house after you
have your savings in order.
Keep
those receipts
When
you do start to buy things for the home, start a file for all your
receipts. All capital improvements can be used to lower the capital
gain you will pay when you sell your home. A Capital improvement is
an improvement that actually added to the value of your property,
such as a new roof.
Beware of insurance solicitations
You
will receive solicitations to purchase disability insurance, life
insurance, and mortgage payment protection insurance. The problem
is that the protection usually being offered is not a very good value.
Most people need only term life insurance and disability protection.
The payments on these should not be very high. Check into this yourself
before just allowing anyone who offers you insurance to sign you up.
Also
beware of companies offering to set you up on a bi-monthly
payment system. For a fee they will set you up to pay 13 payments
each year rather then the standard 12. Over the life of a 30-year
loan you would pay your mortgage off 8 years faster. The problem with
this is you pay them a fee for doing something that you can easily
do yourself. You can always pay extra to your principal as long as
you do not have a mortgage with any prepayment penalties.
Keep watch of your property value
Property
tax assessments are based on the value of your home. When you bought
your home the property tax was reevaluated based on the new sales
price. If values go down in your area it might be a good idea to appeal
your assessment and lower your property taxes. Contact the Assessors
Office and find out about the procedure for appealing your property
tax. If the assessor requires recent sales data it might be a good
idea to contact the Realtor who sold you the home. Be sure to explain
why you need this information. Your agent may be hesitant to offer
information showing a decrease in value.
Keep tract of mortgage rates
Once
you've done everything recommended here and you now have the best
mortgage available, don’t forget that things are constantly
changing. If rates go down after you buy your home you may be in a
position to refinance. It is very important that you keep up with
what interest rates are doing (you can track this on Allie Mae's home
page). If you think you are in a position to refinance, you can fill
out an application here.
Homeowners
insurance
The
lender will require it anyway so there is no getting around paying
for insurance. Even if you were paying for your home with cash, you
would want to carry insurance. Not to insure such a large investment
would be foolish. Another major consideration is possible legal action
that could occur if someone were to injure themselves on your property.
The
insurance will cover the cost of rebuilding the home. It is based
on the square footage of your home. The lender might only require
that you cover the amount of the loan. You will need to make sure
that you have a policy that covers guaranteed replacement. This guarantees
that your home will be rebuilt even if the cost to rebuild exceeds
the amount of your insurance. Guaranteed replacement does not always
mean guaranteed replacement. Ask any insurance company you are considering
exactly what they mean. Some companies guarantee no matter what the
cost. Others guarantee up to a certain percentage (such as 120%) of
the policies total dwelling coverage.
You
should carry as much liability insurance that would cover at least
two times the value of your assets. If you have substantial assets
you might want to look into additional umbrella coverage.
The
coverage for personal property is usually set at around 50 to 75 percent
of the dwelling coverage. That would not usually apply to condominium
owners. In that case you will need to select a dollar figure of coverage
you require. It is a good idea to obtain coverage that guarantees
the replacement of a personal item not just the value at the time
of damage or loss. If you ever need to make a personal property claim
it is a good idea to offer some proof of your personal belongings.
A good way to do this is to use videotape. You can also maintain a
file folder of receipts of major purchases and keep a written account
of your possessions. Make sure you hold your inventory somewhere other
then your residence.
You
may want to look at other types of hazard coverage depending upon
the geographical location of your property. Your home could be subject
to earthquakes, flood, hurricanes, mud slides, tornadoes, and wildfires.
If you are located in a flood zone, your lender will probably require
you to carry flood insurance. The U.S. Geologic Survey and the Federal
Emergency Management Agency (800-358-9516) offer maps showing earthquake
and flood risks. If you decide to purchase an additional rider to
cover another possible disaster, consider carrying a large deductible.
That will lower your costs.
When
you shop for insurance, make sure you ask if there is a lower cost
for having an alarm system or smoke detection system. There also may
be discounts if you carry several different policies with the same
insurer or there may be a senior discount. It never hurts to ask.
Holding title
There
are all kinds of risks that can occur and has occurred when taking
title to a property. If the seller was dishonest and provided false
information you could be in for a lot of trouble. What if they said
they were single, and they were really married? It is not so far fetched
to find a spouse that no one ever knew about show up and claim title
to someone’s house.
What
if a property owner dies without a will? Probate courts must decide
who the legal heirs are. If a relative who was unaware of the proceeding
should show up, the court decision may not be binding.
Someone
who is mentally incompetent or a minor can not enter into binding
contracts. Clerks may overlook something when they are checking the
title. Surveyors may have incorrectly established property boundaries.
Sellers can be fraudulently impersonated. Signatures can be forged.
When
you purchase title insurance (which the lender requires) you should
know what you are paying for. The insurance covers the marketable
title of the property. This protects both you and the lender. If someone
comes along saying the property belongs to him or her, you are covered
against loss.
Because
your policy covers all past occurrences of title and is not concerned
with the future, you are required to purchase the insurance only one
time and will not pay any additional premiums unless you refinance
the property.
Two
Kinds of policies
There
are two different types of title insurance policies that you can purchase.
You can get either a standard-coverage policy or an extended –coverage
policy.
A
standard policy is less expensive then an extended policy. The risks
they cover are more limited. They cover items such as fraud, competency,
and defective recordings. They also cover mechanics liens, tax assessments,
and judgments that can be uncovered by checking public records.
Extended
coverage covers everything previously mentioned as well as items you
might discover by actually inspecting the property. It also covers
things that went unrecorded and therefore are not part of a public
record.
Taking
title
One
of the most important considerations when buying a home is how to
take title. Each type of co-ownership is different and each has it’s
own advantages and disadvantages.
Joint
tenancy
This
is a common form of title if you buy a house together with your spouse.
But you do not have to be married to the other party you are buying
the house with to take title in this way. If either party dies, the
title to the house will automatically transfer to the other living
party without going through probate. Joint Tenancy also helps when
calculating capital gains tax should you sell the home after the death
of the other party you bought the house with.
Community
property
Only
married people can take title as community property. The best advantage
to community property is even bigger tax savings after the death of
a spouse. Under this form of title, one of the parties involved can
also will their share of the house to party other then the other spouse.
Tenants-in-common
or partnerships
Taking
title in this manner eliminates the tax advantages you might be able
to receive by taking title in either of the other forms. There are
some legal advantages however. One of the parties can will or sell
their share of the property to someone else without getting permission
from the other owner. Another advantage is that each owner can have
a different share of ownership in the property. This can really be
advantages if a party just wants to own a small piece of the property.
Smart
buyers will also have a separate written agreement drawn up between
the parties involved that provides provisions for possible occurrences
that may happen. It should include the following:
Provisions to buy out a co-owner who wants to sell if others do not.
Provisions on prorating the maintenance and repair between parties
who own different percentages in the property
Provisions
to resolve disputes. This can include something as seemingly simple
as what color of paint to use.
Provisions
for penalties if one of the owners can’t come up with the cost
of their share of property taxes or mortgage payment.
There
are other legal issues involved with the purchase of a property and
taking tile. Consult a good real estate attorney if you have any confusion
or questions at all.
Property
taxes
If
you buy and own a home you will be paying property taxes. They are
typically paid through a county tax collectors office and due twice
a year. Because they are semiannual payments they can be quite high.
If you make a down payment on your property of less then 20 percent
many lenders require an impound account. These accounts require you
to pay your property taxes and insurance costs each month along with
your mortgage payment.
Property
taxes are typically based on the value of your property. The average
tax rate is about 1.5% of the value. You should contact the County
Tax Collectors office and check what the tax rate is in the county
you wish to buy a home in. When looking into the tax rate for the
county also ask about any extra assessments for services. Some counties
charge additional assessment charges where other counties may include
them in the standard property tax. Do not rely on the real estate
listing to provide you with this information. What the current owner
may be paying for taxes is not necessarily what you will be paying.
Insurance
Your
mortgage lender will require that you have sufficient homeowners insurance
to protect their investment. In most states your home is the lenders
security for the loan and they will want this security protected.
You will want to insure not only the property, but the personal items
within the home from being damaged or stolen.
Before
you even buy a home you should already have sufficient insurance to
prevent financial catastrophe. Make sure that you have long term disability
insurance through your employer. In smaller companies, or if you are
self-employed you may not have this protection. This insurance will
replace part of your income if you are disabled. Not to have this
coverage is to risk everything should you no longer be able to work.
If
your family is dependent upon your income it is also important that
you have life insurance.
Term
Life insurance is pure insurance protection, and is the best kind
for the majority of people. You should buy coverage dependent on how
many years worth of income you wish your dependents to have after
you are gone.
Insurance
brokers usually love to sell whole life. This is insurance with a
cash value attached. Mortgage holders also love to sell special mortgage
insurance that pays off your real estate loan in the event of your
death. You are usually better of passing on both of these offers.
The extra money spent on whole life insurance can usually be invested
in other savings much more profitably. Mortgage insurance is nothing
more then more expensive term insurance. You can obtain your own term
policy and use the funds to pay off the loan yourself if that’s
what you choose to do.
In
addition to disability and life insurance everyone needs to have comprehensive
medical insurance coverage. Medical bills can quickly total beyond
the financial reach of most people in the event of a medical problem.
Without coverage you risk losing everything.
No
matter what insurance you obtain, it is a good idea to always try
and take the highest deductible plan that you can possibly afford.
High deductibles keep the cost of coverage low and also reduce the
hassle associated with filing small claims.
Be
sure that the liability coverage for your auto and homeowners insurance
policies covers at least twice the value of your net worth. If needed,
it is usually possible to purchase an umbrella to your existing policy
to increase your liability coverage.
When
you buy insurance, you should buy the most comprehensive coverage
that you can, and take the highest deductible that you can afford.
