Home Buying

American Attitudes About Home Ownership

According to a NATIONAL ASSOCIATION OF REALTORS® survey of 3,793 adults conducted by Harris Interactive and released in January 2011, home owners and renters agree that home ownership benefits individuals and families, strengthens our communities, and is integral to our nation’s economy.

• The vast majority of both home owners and renters say that owning a home is a smart decision over the long term. Even in today’s challenging economy, 95% of owners and 72% of renters believe that over a period of several years, it makes more sense to own a home.

• Home owners are much more likely to be satisfied with the quality of their family and community life than renters. While more than half of owners (56%) are “very” or “extremely” satisfied with the overall quality of their family life, only about one-third (36%) of renters report the same levels of satisfaction. Also, 43% of home owners are “very” or “extremely” satisfied with their community life, compared with 30% of renters.

• An overwhelming majority of home owners are happy with their decision to own a home. A full 93% of owners surveyed would buy again.

• Most renters aspire to home ownership. The majority of renters (63%) say they are at least somewhat likely to purchase a home at some point in the future. Among them, young adults (18- to 24-years-old) have the strongest aspirations for home ownership.

The survey also confirmed that home owners and renters continue to have concerns about the economy:

• In today’s market, many aspiring home owners face worries about job security and credit worthiness. Among renters who are “very” or “extremely” likely to buy a home in the future, three out of five consider confidence in job security or creditworthiness to be an obstacle.

• Home owners and renters both believe that the mortgage interest deduction should not be targeted for change. 74% of owners and 62% of renters say it’s “extremely” or “very” important that the MID remain in place.

Given the strong public support of and aspirations for owning a home, we need to keep in place policies that support and encourage responsible, sustainable home ownership.

Resources You Can Use:
REALTORS® may share the data above with their clients and communities. For additional information, check out these resources:

8 Reasons Why You Should Work With a REALTOR®

Not all real estate practitioners are REALTORS®. The term REALTOR® is a registered trademark that identifies a real estate professional who is a member of the NATIONAL ASSOCIATION of REALTORS® and subscribes to its strict Code of Ethics. Here are five reasons why it pays to work with a REALTOR®. 

1. Navigate a complicated process. Buying or selling a home usually requires disclosure forms, inspection reports, mortgage documents, insurance policies, deeds, and multipage settlement statements. A knowledgeable expert will help you prepare the best deal, and avoid delays or costly mistakes.

2. Information and opinions. REALTORS® can provide local community information on utilities, zoning, schools, and more. They’ll also be able to provide objective information about each property. A professional will be able to help you answer these two important questions: Will the property provide the environment I want for a home or investment? Second, will the property have resale value when I am ready to sell?

3. Help finding the best property out there. Sometimes the property you are seeking is available but not actively advertised in the market, and it will take some investigation by your REALTOR® to find all available properties.

4. Negotiating skills. There are many negotiating factors, including but not limited to price, financing, terms, date of possession, and inclusion or exclusion of repairs, furnishings, or equipment. In addition, the purchase agreement should provide a period of time for you to complete appropriate inspections and investigations of the property before you are bound to complete the purchase. Your agent can advise you as to which investigations and inspections are recommended or required.

5.  Property marketing power. Real estate doesn’t sell due to advertising alone. In fact, a large share of real estate sales comes as the result of a practitioner’s contacts through previous clients, referrals, friends, and family. When a property is marketed with the help of a REALTOR®, you do not have to allow strangers into your home. Your REALTOR® will generally prescreen and accompany qualified prospects through your property.

6. Someone who speaks the language. If you don’t know a CMA from a PUD, you can understand why it’s important to work with a professional who is immersed in the industry and knows the real estate language.

7. Experience. Most people buy and sell only a few homes in a lifetime, usually with quite a few years in between each purchase. Even if you have done it before, laws and regulations change. REALTORS®, on the other hand, handle hundreds of real estate transactions over the course of their career. Having an expert on your side is critical.

8. Objective voice. A home often symbolizes family, rest, and security — it’s not just four walls and a roof. Because of this, homebuying and selling can be an emotional undertaking. And for most people, a home is the biggest purchase they’ll every make. Having a concerned, but objective, third party helps you stay focused on both the emotional and financial issues most important to you.

10 Questions to Ask Home Inspectors

Before you make your final buying or selling decision, you should have the home inspected by a professional. An inspection can alert you to potential problems with a property and allow you to make an informed decision. Ask these questions to prospective home inspectors:

1. Will your inspection meet recognized standards? Ask whether the inspection and the inspection report will meet all state requirements and comply with a well-recognized standard of practice and code of ethics, such as the one adopted by the American Society of Home Inspectors or the National Association of Home Inspectors. Customers can view each group’s standards of practice and code of ethics online at www.ashi.org or www.nahi.org. ASHI’s Web site also provides a database of state regulations.

2. Do you belong to a professional home inspector association? There are many state and national associations for home inspectors, including the two groups mentioned in No. 1. Unfortunately, some groups confer questionable credentials or certifications in return for nothing more than a fee. Insist on members of reputable, nonprofit trade organizations; request to see a membership ID.

3. How experienced are you? Ask how long inspectors have been in the profession and how many inspections they’ve completed. They should provide customer referrals on request. New inspectors also may be highly qualified, but they should describe their training and let you know whether they plan to work with a more experienced partner.

4. How do you keep your expertise up to date? Inspectors’ commitment to continuing education is a good measure of their professionalism and service. Advanced knowledge is especially important in cases in which a home is older or includes unique elements requiring additional or updated training.

5. Do you focus on residential inspection? Make sure the inspector has training and experience in the unique discipline of home inspection, which is very different from inspecting commercial buildings or a construction site. If your customers are buying a unique property, such as a historic home, they may want to ask whether the inspector has experience with that type of property in particular.

6. Will you offer to do repairs or improvements? Some state laws and trade associations allow the inspector to provide repair work on problems uncovered during the inspection. However, other states and associations forbid it as a conflict of interest. Contact your local ASHI chapter to learn about the rules in your state.

7. How long will the inspection take? On average, an inspector working alone inspects a typical single-family house in two to three hours; anything significantly less may not be thorough. If your customers are purchasing an especially large property, they may want to ask whether additional inspectors will be brought in.

8. What’s the cost? Costs can vary dramatically, depending on your region, the size and age of the house, and the scope of services. The national average for single-family homes is about $320, but customers with large homes can expect to pay more. Customers should be wary of deals that seem too good to be true.

9. What type of inspection report do you provide? Ask to see samples to determine whether you will understand the inspector's reporting style. Also, most inspectors provide their full report within 24 hours of the inspection.

10. Will I be able to attend the inspection? The answer should be yes. A home inspection is a valuable educational opportunity for the buyer. An inspector's refusal to let the buyer attend should raise a red flag.

Source: Rob Paterkiewicz, executive director, American Society of Home Inspectors, Des Plaines, Ill.,

6 new hurdles for home financing

If you've been in the market for a mortgage recently, you've no doubt noticed how difficult it can be to get approved. You're not imagining it, and it's not just you. Paul McFadden, a loan officer with The Legacy Group in Bellevue, Wash., says, "These days, the number of mortgage applications that get approved is probably three out of 10. In the heyday, it was nine out of 10. Normally five or six out of 10 would be the ratio."

Underwriting standards have tightened, meaning that borrowers need higher credit scores, more income and higher down payments. And that's not all. There are many challenges to financing a home, but the following six are especially problematic in today's market.

1. Higher credit score requirements
Want a loan? You'd better have top-notch credit to get the best deal or, in some cases, to get approved at all. McFadden notes, “Although loans can be had in most cases for credit scores down to 620, they often come with a higher rate and/or fees."

Gregory B. Meyer, community relations manager with Meriwest Credit Union, says, "Credit is an issue, as lenders have raised the bar on credit scores. In 2006, a 680 FICO would get you into a house. Now it takes about a 740."

2. Greater scrutiny of income and assets
"In the past, banks were lax in verifying income and deposits. Now those things have more  scrutiny,” Meyer says.

Tom Wissert, who has more than 30 years of experience in real estate, banking and mortgage lending, says, “Homebuyers better get ready to prove that just about anything that looks hinky on their application is not an issue. Mortgage lenders today have to verify, reverify and reverify again. Qualified buyers are now put through the wringer and often turned down because of appraisal issues, property issues or anything that looks strange, even if the buyer can prove they can pay cash for the property.

He says that we are now seeing regulatory overkill "after years of letting the rules be compromised by mortgage lenders who would not follow the traditional rules that are time-proven to work."

3. Ever-changing borrower requirements
Many borrowers are finding that they can't pin down just what they need to do to get their mortgages approved. Warren Greenlee, a broker with Re/Max at the Lake in Mooresville, N.C., says that a couple of years ago, "anybody with decent credit could get a loan for any size home. Now it is critical to have credit scores above 700, total debt ratios below 36%, a minimum of 20% down to avoid [private mortgage insurance] and good, stable employment. Unfortunately, a buyer can have all of these items fall into the current guidelines, only to have the guidelines change." 

Greg Cook, a licensed California mortgage broker with the First Time Home Buyers Network, says that for the "'middle of the road' consumer, those without a large down payment and average to slightly above average credit scores, home financing has become a moving target."

4. Home appraisals are coming in low
Mortgage banker Darren Clark, of Villa Mortgage Inc. in Cincinnati, says, "Because of slow sales, which lead to few comparables, and the large amount of short sales, sheriff's sales and bank-owned sales, which are priced at a fraction of a dollar, houses are not appraising for the contract price.

"Part of this problem can be blamed on the government enacting [the Home Valuation Code of Conduct], which regulates the appraisal industry, and was an attempt to curtail fraud, but has turned into an unexpected hindrance on the real-estate market recovery."

The problem with the HVCC, Clark says, is that appraisals are now often completed by appraisers who are inexperienced and often unfamiliar with the markets they are working in, resulting in inaccurate appraisals and unnecessarily rejected loan applications.

5. Fewer opportunities for small business owners and independent contractors
"Congress recently introduced legislation that would make 'liar loans' illegal," Cook says. "Liar loans" are another term for low- or no-documentation loans. As the name implies, some borrowers have used these loans to deceive their way into a mortgage they didn't really qualify for. However, these loans are also a valuable tool for many honest workers who are not U.S. citizens or who are self-employed and therefore don't receive regular paycheck stubs or have a simple, straightforward way to prove their income to lenders.

"Typically, a business owner pays himself the minimum amount to avoid paying payroll taxes while reinvesting profits into his business. Banks will no longer make exceptions for circumstances like these and turn many loans down that previously would have been granted."

6. Condo purchases face additional tests
Aimee Renkes, a mortgage consultant with Wintrust Mortgage in Chicago, says, "Condo loans are much tougher these days as we have to approve the condo building in addition to the buyer. We are documenting cash reserves, owner occupancy rates, low delinquency rates on monthly assessments and more. In some markets, such as Chicago, this can be tough to overcome. Additionally, the [Federal Housing Administration] recently changed the condo approval method, which has further inhibited many buyers who only qualify for FHA loans."

The quest for homeownership
For worthy borrowers seeking to take advantage of today's low interest rates and relatively low home prices, having to jump through hoops that homebuyers just a few years ago didn't have to can seem mighty unfair. If there's any upside to the tight credit market, it's that we should see fewer foreclosures in the years ahead.

Provision in Sweeping Bank Reform Law to Affect Mortgage Availability

A behind-the-scenes battle is forming over a provision to the sweeping bank reform law that will affect mortgage availability. At issue is a provision in the sweeping Dodd-Frank Act that requires banks to have “skin in the game” by retaining some of the risk of loans they package and sell.

The goal of the measure is to eliminate a problem leading to the financial crisis where lenders packaged and sold subprime mortgages they knew would fail. Lawmakers drafting the legislation also included a measure that would exempt certain mortgages from the risk retention rule if their loans met certain high underwriting standards.

But reaching an agreement on what the criteria will be for these high-standard loans dubbed “qualified residential mortgages” (QRM) is expected to be difficult and, depending on how regulators rule, a huge slice of the mortgage market could be exempted from risk retention—or only a small piece of the market.

That could have a major impact on what kinds of mortgages are available, and for what price. Mortgage rates have remained near historic lows but mortgage activity is near decade depths.

Reuters reported last week that a group of prominent investors and academics urged top U.S. officials to move quickly to enact the provision, citing the “chaotic situation in the mortgage market today.”

Ernest Patrikis, a partner at White & Case LLP in New York, said regulators must balance how conservative they want underwriting standards to be against how much lending they want to see. What they decide will have a major impact on the kinds of interest rates borrowers with different capabilities will receive. “The borrower that passes the test for a zero-risk retention mortgage will likely get a lower rate on their mortgage than someone that must buy a mortgage that doesn’t get exempted because banks will have to retain some risk there,” he said.

Bank regulators and the Treasury Department are required to work together to draft rules under the watchful eye of a newly formed Financial Stability Oversight Council made up of the heads of bank and securities regulators. A soon-to-be-formed Consumer Financial Protection Bureau, which will write rules for mortgages and other consumer-credit products, will want to be involved as well. Regulators aren’t expected to introduce a proposal for this measure until January.

Washington observers say that regulators, consumer groups and bankers generally already agree to prohibit more exotic or problematic loans from qualifying for the risk retention provision. Specifically, those with negative amortization loans, pre-payment penalties or balloon payments—many of the problematic structures that helped drive the financial crisis—won’t be permitted. Strong credit scores will also be a must as well as effective verification of borrower income.

However, squabbles are already taking place among banks, investors and consumer groups over whether the loans approved under the exemption should have down payments, and if so, how much money down is necessary. Other points of dispute: How many months of verification should be required for a borrower’s income (12 months? 24 months?) and how much debt can a borrower handle. The Mortgage Bankers Association is seeking to include interest-only loans in the definition but consumer groups are passionately opposed.

Big banks are seeking some sort of significant down payment, perhaps as much as a 30% stake by borrowers, arguing that it means homeowners have some skin in the game and would be less likely to abandon the mortgage.

Alternatively, consumer groups are either opposed to having any down-payment requirement or prefer a small down-payment condition.

Finally, smaller banks would like to see a 5% or a similarly small down-payment requirement if borrowers obtain private mortgage insurance and have high credit scores.

Kathleen Day, spokeswoman at the Center for Responsible Lending in Washington said having a high down-payment requirement for the QRM, in the realm of 30% money down, would limit a lot of responsible lending. “Non-standard, non-traditional and predatory products would become part of the universe of the common loan, and it would mean we have the status quo where bad loans are sold as legitimate products,” Day said.

Lisa Rice, president of the National Fair Housing Alliance, a consumer advocacy organization, said a small down payment doesn’t mean the borrower will be more likely to default on the loan. “There are many things that impact a mortgage,” said Rice. “You could take a person who only puts 3 percent down but got their loan at a safe deposit institution or credit union and that loan is better performing than someone who put 20 percent down, got a payment option (adjustable-rate mortgage) and the appraisal was over-inflated.”

Jaret Seiberg, analyst at MF Global Inc. in Washington said he believes regulators will agree to a down payment of 5% for fully documented loans with private mortgage insurance. “Yet this is a real fight, and we continue to worry that the market has ruled out an adverse outcome,” he said.

Wells Fargo & Co. suggested a 30% down-payment requirement, according to a letter the mega-bank sent to the Treasury. The bank argues that a qualified residential mortgage definition that encompasses a large portion of the mortgage market, such as one with a low down-payment obligation, would be ill-advised because it would hike costs for serving credit-worthy borrowers who seek mortgages outside of that definition.

MF Global’s Seiberg reports that some big banks seek a high down payment for the exemption so they can develop products for mortgages that don’t qualify. “A definition of QRM that encompasses a large portion of the mortgage market will produce a tendency to avoid lending to credit-worthy borrowers falling outside that definition,” Wells Fargo stated.

Tom Deutsch, executive director for the American Securitization Forum, which represents mid-sized and large financial institutions and mortgage investors said his members are generally seeking anywhere from a 5-20% down-payment requirement. He contends that a significantly higher down-payment QRM requirement would result in less credit availability for mortgages outside of that definition. “If you are a securitizer, you will have to hold some capital for every mortgage securitized outside of the QRM definition, which means banks will have less capital available to lend for non-QRM borrowers,” Deutsch said.

Seiberg adds that a high down-payment requirement for a QRM loan will mean that most banks and smaller independent mortgage lenders will drive a lot of their lending to Federal Housing Administration mortgages, which are also exempted from the risk-retention requirement.

“The rest of the market will likely reside with the biggest banks, which have the ability to house the mortgages on the balance sheet until the risk retention expires. Yet a low down-payment requirement keeps the door open to competition and should keep mortgage rates low,” Seiberg said.

Consumer groups are worried about access to credit in a scenario where FHA is the only lender for borrowers who can’t afford a 20% down payment.

(c) 2010, MarketWatch.com Inc.

Distributed by McClatchy-Tribune Information Services

Home Buyer Tax Credit Closing Deadline Extended

On Friday, President Obama signed into law a three-month extension of the homebuyer tax credit closing deadline. The extension only applies to transactions that had contracts in place as of April 30, 2010, but hadn’t yet closed. Now those buyers will have until Sept. 30 to make the closing deadline.

Read more

The Home Closing Process

Waiting to Close on a Home

After getting a purchase offer accepted, the next question home buyers want to know is how long will it take for the transaction to close. Unless the buyers are paying all cash for the home, it is the buyer's lender who will determine the length of time required to process the loan and close.

A buyer and seller can agree to an earlier closing date in the purchase contract, but if the lender can't perform during that time window, it doesn't really matter which date is selected, because it's not going to close on the date the buyer and seller specify. It will close when the lender is ready to close.

The Escrow Closing Process

Depending on where you live, any number of entities can handle the closing process. The closing agent could be an escrow officer, a closer, the title company or a real estate lawyer.

Closing processes can vary widely even within the same state. In California, for example, the escrow process is different in northern California versus southern California. The primary difference between the two is escrow instructions are drawn and signed on the front end in southern Cal and on the back end in northern Cal.

Before any escrow can close, however, all the terms of the purchase contract must be met; then the seller deposits the deed and the buyer deposits the funds. Here are sample types of conditions required in California. Your state closing process may vary.

• Fully executed purchase agreement and addendums.
• Deposit of earnest money deposit.
• Home inspection or waiver.
• Fulfillment of seller obligations such as submission of pest inspection report and / or completion, roof certification, home warranty, preliminary title policy, beneficiary demand receipt, repairs, if any, according to the Request for Repairs.
• Completion of buyer inspections, including release of contingencies, if demanded.
• Buyer's final walk-through inspection or waiver.
• Appraisal of property by lender's appraiser.
• Lender's loan approval and satisfaction of loan conditions by buyer such as depositing evidence of a homeowner insurance policy.
• Seller's and Buyer's signed escrow instructions.
• Seller's signed and notarized deed conveying title.
• Buyer's signed and notarized deed of trust and executed promissory note.
• Buyer's signatures on all loan documents.
• Deposit of buyer's funds from lender.
• Deposit of balance of buyer's down payment and buyer's closing costs.

How Long Does a Home Closing Take?

Buyers who have received loan preapproval versus loan pre-qualification are often in a position to close sooner. The preapproval process involves verification of certain items upfront, before signing the purchase contract, moving the borrower a few steps closer to closing.

If a lender has verified the borrower's employment, bank accounts and credit report, closing can take place as quickly as underwriters can process the paperwork and review the appraisal, generally within a week or two. However, if a document is missing from the file such as a preliminary title report or a seller's condition of sale, the closing may be delayed.

Most federally related mortgage loans can close within 30 days. Special first-time home buyer programs, particularly those involving help with the buyer's down payment, might take 35 to 45 days to close. These special loans typically require approval from two underwriting processes.

Home Closing Delays

The biggest problems often occur after the file is submitted to the underwriter. Loan officers are generally familiar with underwriting guidelines; however, they can't always predict an underwriter's response.

Little is worse for buyers than sitting on boxes containing every valuable they own, waiting for movers and not knowing if their loan will be approved by an underwriter. The last few days of closing can be very suspenseful.

Here are common problems that can delay or prevent closing, many of which, it pains me to say, should have been addressed prior to submission to an underwriter, but sometimes the ball gets dropped:

• Low appraisal or the underwriter orders a review appraisal that does not match the first appraisal.
• Additional debt found on the buyer's updated credit report.
• Mistakes noted in the buyer's credit report.
• New liens or judgments filed against the buyer or seller upon title update.
• Clouds on title.
• Marital status change for buyer or seller.
• Required updated bank statements or financial documents.
• Insurance information missing.
• Expired loan or program commitment.

If the purchase contract does not contain a provision that makes closing contingent upon loan approval, the buyer's earnest money deposit could be at risk if the loan is not approved and the transaction does not close.

Title Insurance Policies

What are Title Insurance Policies – Do You Need Title Insurance?

To understand title policy insurance in America, let's look at chain-of-title and how title companies search the public records. Title insurance companies aren't really concerned with where dinosaurs once roamed, whether our ancestors trekked across the Bering Straight or where American Indian tribes settled. Title searches begin with when the United States government stole the land, I mean claimed it — from the U. S. patent — and move forward from that point.

Because humans are involved in recording deed transfers and plotting land parcels, a lot can go wrong. You want title insurance because it will protect you against defects and human error.

Property Searches and Public Records

• Property transfers were first recorded alphabetically in separate Grantor and Grantee books.
• The books are heavy to lift and dusty.
• County records are often maintained at local courthouses or the Clerk of Registrars.
• Today, most records are stored on the computer.

Division of Land

• Early deeds involved large chunks of land known as Townships.
• Townships contain 36 sections and are six miles by six miles.
• Sections measure one mile by one mile and contain 640 acres.
• Half of a section is 320 acres.
• 1/4 of a section is 160 acres.
• 1/4 section of 1/4 section is 40 acres.
• An acre is 43,560 square feet

Title Search Basics

• Title searches start with the most recent deed, searching the grantee's name (the person now holding title) backwards in time, until the deed when the grantee acquired the property is located.
• That grantor's name is then searched backwards in time in the grantee's book to find when the grantor acquired title as a grantee.
• This process continues, and over time, the property description involves larger and larger parcels of land.
• Eventually, the searcher finds the U. S. Patent.

Other Factors Affecting Title

Deeds establish chain-of-title, but sometimes those chains are broken. In addition, title searchers also look for reconveyances (proof that the encumbrances are paid off), and they look for easements, rights-of-way, CC&Rs, other elements affecting title to the property. Here are more records that are searched to piece title together:

• Marriage records
• Death certificates
• Tax sales

Title Insurance Coverage

Depending on the title company, consumers can choose among a variety of options, but the top three choices are Owners, Lender's and Extended Coverage.

Basic Owner's Title Policy Coverage:

1. Clear title to the property
2. Incorrect signatures on documents
3. Forgery, fraud
4. Defective recordation
5. Restrictive covenants
6. Encumbrances or judgments

Basic Lender's Title Policy Coverage:

1. Mechanic's liens and unrecorded liens
2. Unrecorded easements and access rights
3. Defects and other unrecorded documents

Extended Owner's Coverage

1. Building permit violations from previous owners
2. Subdivision maps
3. Covenant violations from previous owners
4. Living trusts
5. Structure damage from mineral extractions
6. Variety of encroachments and forgeries after title insurance is issued

Who Pays For Title Policy Insurance?

• This depends on your local custom.
• It can differ from county to county, but it is also negotiable in the purchase offer.
• Sometimes sellers and buyers split the fee for the owner's policy.
• Typically, the buyer pays for the lender's coverage.

How Long Are Title Policies Good For?

Forever, theoretically. If you are planning to resell the property within a couple years, ask your title company about "binder" coverage. Most companies will sell you a binder policy for 10% more. A binder is good for two years, often can be extended beyond that time, and the fee charged for the new buyer's policy will be the difference between what you bought the property for and the price at which it sold. In other words, you will get a credit for the amount of coverage you purchased under your own Owner's Title policy.

How Often Are Title Policy Insurance Premiums Paid?

Once. The fee is due when you buy. You will never pay it again. Title policy insurance is the best insurance policy you can ever buy.

Homeowner Insurance – Tips to Buying Homeowner Insurance

How to Save Money on Your Homeowner Insurance Policy

Shopping for homeowner insurance is one of those nagging home buying details that sometimes manages to slip though the cracks. It’s not unusual for insurance agents to receive last-minute frantic phone calls from title and / or escrow companies requesting a home insurance binder. To save yourself trouble, it’s a good idea to start shopping for a homeowner policy as soon as your purchase offer is accepted. Here are a few tips about buying homeowner insurance that are designed to save you time and money:

Determine Insurability

Your insurance agent needs extensive information from you to quote you the best rate for your policy. To determine insurability, an agent will ask:

• When was the home built?
• How old is the plumbing and electrical?
• What type of roof?
• What’s the square footage?
• How many claims have been filed over the past 5 years?
• Where is the home located? 

If the home is located in a rural area without a nearby fire department or there is no fire hydrant on the street, some companies may refuse to insure it. In that case, you may have to inquire at a specialty or surplus-lines company, and this quote will take longer to obtain.

Deductibles

You can save money by having a higher deductible on your policy. Typically, insurance companies will start giving discounts at a $500 deductible and increase the discount as your deductible increases. Most companies offer deductibles up to $10,000. Be careful, however, because many mortgage companies will not allow you to exceed a $1,000 deductible, so check with your lender before opting for a higher deductible.

How Much Insurance Do You Need?

Most agents use a cost estimator to figure cost replacement estimates. This will ensure that your home is insured for the correct amount. Insurance companies do not insure dirt. If you buy a home that includes a large lot, do not be astonished when you receive an insurance policy for a lot less than what you paid for the home. This is because you are buying coverage for the home and not the land.

In the past, replacement coverage was called Guaranteed Replacement Cost. There is no such coverage anymore. Today it is Replacement Cost Coverage, which means each insurance company designates a percentage of additional coverage on top of the insured amount. This is designed to protect the homeowner who has suffered a loss from having to pay additional construction costs to rebuild. It can cost more to build because of inflation or simply because material prices have increased. For example, if the dwelling coverage is insured for $300,000, and the company has 125% replacement cost coverage, the homeowner would receive an additional $75,000.

I recommend 200% replacement cost coverage, which gives homeowners double the coverage.

Policy Options

You have other choices on your home insurance policy that you can tailor. Liability coverage is a part of your homeowner's insurance policy that is often overlooked. This protects the insured against claims arising from bodily injury and property damage to others. For example, if your five-year-old was playing with matches and set your neighbor’s house on fire, your liability coverage would pay for this damage. You might have to move out of the neighborhood, but your insurance policy would pay your neighbor.

It is common to see $300,000 in coverage for liability, but the cost to raise it to $500,000 is about $20 more a year. You can have up to one-million coverage on most policies. Over that, you need an excess liability policy or “umbrella” policy. Umbrella policies give you an additional $1,000,000 liability coverage for a $300 to $500 premium.

Available Discounts

Make sure that you are getting all of the credits for which you are eligible. If you have an alarm system that reports to a central station (a company such as Brinks or ADT), in some cases, you can get up to a 10% discount. If you are over 50 and care to admit it, you may be eligible for a discount. Companies have different names for age preference policies, from senior discount to mature policyholder discount.

The most common discount is the multi-policy discount. This will save you money on your home and auto insurance. By combining the two policies with the same company, you are given a certain percentage discount on both. the percentage discounts vary among companies, so it’s best to shop around.

Review Your Policies

Call your agent and review your homeowner policy at least every three years. Needs change, markets change and coverages change. You should stay up-to-date on your insurance because you never know when you will need to rely on it.

Doing the Final Home Inspection Walk-Through

What's a Final Walk-Through?

Final walk-throughs are not a home inspection. It's not a time to begin negotiations with the seller to do repairs, nor is it a contingency. A final walk-through is an inspection performed anywhere from a few hours to five days before closing, and its primary purpose is to make certain that the property is in the condition you agreed to buy — that agreed-upon repairs, if any, were made and nothing has gone wrong with the home since you last looked at it.

Buyers are often pressed for time as the day draws near for closing, which means buyers can be tempted to pass on the final walk-through. It is never a good idea to forego the final walk-through.

Vacant Homes

Sellers often move out before closing. Ever watch HGTV's House Hunters and try to guess which home the buyers will choose? Well, I'll let you in on a secret. It's the vacant house! Trust me, nine times out of 10, it's the vacant one. That's because they film the show backwards, starting with the house the buyer purchased, just before it closes escrow.

Now, in situations where the seller has already moved out, it is even more imperative that buyers conduct a final walk-through. Problems arise when homes sit vacant for any period of time. For example, when termite companies test showers, they plug the shower drain and let the water run. Guess what happens if the termite inspector forgets to remove all the paper over the drain and doesn't completely turn off the shower handle? A small drip, drip, drip can turn into a flooded bathroom. You don't want to find out your home is flooded after you buy it.

Case Example

Let's call these clients Angie and Carl. They were a few days away from closing on an adorable California bungalow. This house was owned by a local sportswriter who had been transferred to Phoenix, and the owner left shortly after putting the home on the market. The home inspection went smoothly, and the home inspector did not note any items that required immediate attention. In fact, there was nothing about this situation that was cause for alarm.

The day Angie and Carl arrived for the final walk-through, they were advised to turn on all the lights, run water and make sure the stove worked, all those sorts of logical precautions, but these buyers were engrossed in other spur-of-the-moment distractions and "new home" excitement. Instead of listening to their agent's advice, they were discussing their sofa placement and which window treatments they should buy for the living room. Although it is not within my scope to perform a final walk-through for clients, it was apparent that the buyers had no interest and would likely, if given the chance, have waived the final walk-through. I could hear them in the back yard talking about how far the present decking could extend before striking the fence as I wandered around the house turning on lights, and then I hit the handle on the toilet. All of a sudden Angie screamed. I dashed into the back yard in time to witness a geyser — water gushing from the ground! And it smelled.

If I hadn't depressed the flushing mechanism on the toilet, we would never have had subsequently discovered that the sewer line had tree roots growing in it. The following day we received an estimate of $5,000 to fix it. Since we were a few days away from closing, we had time to withhold that money from the seller's proceeds and order the work completed.

Here is a list of items to check on a final walk-through:

• Turn on and off every light fixture
• Run water & look under sinks for leaks
• Test all appliances
• Check garage door openers
• Open and close all doors
• Flush toilets
• Inspect ceilings, wall and floors
• Run garbage disposal and exhaust fans
• Test heating and air conditioning
• Open and close windows
• Make sure all debris is removed from the home

When the Home is Occupied

Sometimes sellers don't move out until the day the transaction closes or even a few days after closing. In those situations, I recommend that buyers do a final walk-through in the presence of the seller. Why? Because the seller knows all the little quirks about the home and can answer questions the buyers may have.

A good question to ask a seller is:

What is the one improvement you've always wanted but never got around to implementing?

This is also a good time to ask the seller for a forwarding address so the buyers can send mail. It's smart to stay on good terms with the seller and, in some parts of the country, like California, buyers almost never meet the sellers. Moreover, because you never know when you might need to get in touch with the former owners, the final walk-through is an excellent opportunity, as strange as this may sound, for the parties to say hello.

Next Page »