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Real Estate - After the Sale




Advice topics for after the sale of the home

Moving checklist
Getting rid of PMI

Types of insurance

Now that you have your house, you will need to protect it (and your belongings!) There are several types of insurance available, and how much coverage you need depends largely on the house's location and your financial situation.

The most common type of insurance -- and the one many mortgage companies require -- is homeowner's insurance.

Homeowner's insurance covers your house, its surrounding property, its belongings and any liabilities resulting from fire, wind or other destructive force. However, there are several types of homeowner's policies, and each covers your house to a different extent.

To buy your house, your lender may require two types of insurance:

Private mortgage insurance (also known as PMI) protects the lender from you defaulting. Most lenders require it, and the cost will be added to your mortgage, or will be required at closing. PMI is required if you have less than 20 percent equity in the home. So if you are putting down more than 20 percent in a down payment, then you may not have to purchase PMI. When your equity (the difference between the market value of the house and the amount owed on the mortgage) reaches 20 percent, you can contact your lender about canceling PMI.

Title Insurance protects against any disputes over ownership of the property. Lender's title insurance covers the lender should there be any questions about ownership or liens against the property. Owner's title insurance protects the owner. Title insurance is paid as a one-time fee at closing.

Other types of insurance cover specific types of natural disasters:

Flood insurance is offered through the federal government under the National Flood Insurance Program (NFIP). The government manages the program because flood losses tend to be catastrophic, and private insurance companies cannot adequately measure the risk involved, according to the National Association of Independent Insurers. The policies are administered by the Federal Emergency Management Agency (FEMA), and are available only in communities that have met certain requirements. Even though it is a federal program, insurance agents are qualified to sell flood policies.

Earthquake Insurance is most popular in California but is available to all homeowners regardless of location. Rates are set according to your home's proximity to a known earthquake fault, the house's condition and the amount of coverage.

Homeowner's insurance

Homeowner's insurance comes in two main forms:

  • Actual cash value
    Coverage is limited to a specific amount, regardless of whether the value of the house rises or falls. For example, a $70,000 actual cash value policy would cover only $70,000 in damages, even if the value of the house rises to $100,000.
  • Replacement cost
    Policy covers the costs of replacing any damages. For example, a replacement cost policy would cover the cost of replacing a $100,000 house, regardless of whether the house rose or fell in value.

There are four main types of homeowner's policies:

Basic homeowner's insurance, known as HO-1, covers damage to your property resulting from a limited number of causes, such as fire, theft and vandalism. It is only available in a few states, and is the least common policy.

Broad homeowner's insurance, known as HO-2, covers the same types of damages as HO-1, plus some additional natural causes. It is slightly more expensive than HO-1, but covers damage resulting from ice, snow and falling objects.

Standard homeowner's insurance, known as HO-3, is the most common type of homeowner's policy, according to the National Association of Independent Insurers. It covers damage resulting from most natural disasters, with the exception of floods and earthquakes. Those are covered by separate policies.

A fourth type of policy, known as the FAIR plan (Fair Access to Insurance), is for people who don't qualify for the HO plans. Generally, this is for buildings located in crime-ridden or rundown neighborhoods.

Plans for condominium owners

Because condominium owners share the costs of public grounds with other members of their condo association, there is a special type of homeowners insurance that covers condominiums, HO-6. This policy covers the areas owned by the individual condo owner. The condominium association purchases coverage for the shared property separately.

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Getting rid of PMI

The mortgage lender calls it private mortgage insurance -- PMI for short.

Few homebuyers think about it when they apply for a loan. But if they don't have enough cash to make a down payment of at least 20 percent on their new home, the lender is probably going to insist that as part of the contract, the buyer take out a PMI policy.

It insures the lender, not you, who would get his money if for some reason you defaulted on the loan.

About one of every 10 borrowers gets nailed with PMI. And it doesn't come cheap. For example, if you buy a $100,000 home with only 5 percent down, your PMI cost will be about $700 a year, or 0.7 percent of the amount you borrow.

The plus is that PMI enables people with little cash to get into a house. The downside is that it's a profitable little plum for the mortgage lender who may not have explained when you got your loan, that you have the right to drop PMI later on.

The whole idea behind PMI, remember, is that it covers the lender in the event you can't come up with the 20 percent down payment. But as you keep building up your equity in the house through your monthly payments, eventually you're going to reach that magic 20 percent level.

That's when you send the lender a letter saying you no longer wish to pay PMI. If you don't tell the lender, he or she may never tell you, although in a few states the lender is required by law to do so. In some cases, homeowners have had to sue lenders because they didn't inform them of their rights, after repaying a ton of money on their original loans.

Let's assume your equity is now 20 percent or more. If you had PMI tacked onto your mortgage costs, have good credit, and have made your monthly payments on time, there is no reason for you to carry the PMI albatross any longer.

Incidentally, there are other ways you can get to 20 percent equity, such as if the value of homes in your area rises, or if you added a nifty wing to your abode. But you need to find out whether your mortgage was sold off to Federal Home Loan Mortgage Corp. (Freddie Mac) or Federal National Mortgage Association (Fannie Mae). Freddie Mac usually requires that you carry your mortgage loan for five years before you can drop PMI.

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Preparing for the big move

One month before moving:

Write to the Chamber of Commerce.
Make truck rental reservations.
Contact schools for info regarding enrollment.
Plan your travel route.
Save moving receipts.
Develop a plan for packing.
Place legal, medical records in safe place.
Notify others of your change of address:

  • Friends and family members
  • Banks, insurance companies, and other financial institutions
  • Credit card companies
  • Magazine and newspaper publishers
  • Doctors, dentists, and other service providers
  • Book and music clubs
  • State and federal tax authorities and any other government agencies

Two weeks before moving:

Inform gas, electric, water, phone, and local cable service providers of your move.
Sign up for the above services at your new address.
Recruit moving-day help.
Confirm rental truck or moving company reservation.
If using a moving company, ask about payment requirements.
Arrange to close or transfer your bank account.

The day before moving:

Set aside moving materials, like tape measure, pocketknife, and rope.
Pick up rental truck.
Check oil and gas in your car.
Get a good night's rest!

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