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Getting a Mortgage Means Shopping for Homeowners Insurance

March 26th, 2010

If you’re in the process of getting a home loan, you may have begun shopping around for homeowners insurance. When comparing policies keep the following tips in mind to help keep your cost down.

Mortgage Related Expenses

Don’t wait until the last minute to get a homeowners policy. Your monthly mortgage costs are going to include not only principle and interest payments, but also insurance and property taxes.

Use a Mortgage Payment Calculator

Mortgage lenders set aside insurance and tax payments in an escrow account until it’s time to pay your insurer and local government. Use a mortgage payment calculator that lets you include the costs of insurance and taxes so you can figure out exactly how much you are going to pay each month.

Pay a Higher Deductible

The higher your deductible the lower your monthly premium. Deductibles usually start at $250, but by increasing the amount to $500 you could save up to 12% on your premiums, according to MSN. Raise it to $1,000 and you could save up to 24%.

Look for Other Discounts

Another way to reduce the amount you pay for insurance is to buy homeowners and auto policies from the same company. Ask your insurer about discounts for being a long-time customer, having an alarm system, or installing smoke detectors.

Replacement Cost

Get insured for the replacement cost on your home. That’s the amount it would actually cost to rebuild the home in your area. Actual cash value coverage only covers the cost to replace your home minus depreciation. 

Mortgage Refincing and Insurance

If you are doing a mortgage refinance, don’t automatically assume that it makes sense to keep your current homeowners insurance policy. Review the policy and get quotes from other insurers. Ask your insurance company if you qualify for discounts and let them know that you plan to take your business elsewhere if it can’t give you a more competitive price.

Switching Policies

Do not cancel your existing insurance policy until you actually have a new one in place. Be prepared to come to the closing with proof that you’ve prepaid up to a year’s worth of premiums for your insurance policy.  

Even if you aren’t getting a new home loan or doing a mortgage refinance it can pay to review an existing homeowners policy. You don’t have to wait until it’s time for the policy to be renewed to look for ways to lower the cost.

Should You Get a Mortgage or Keep Renting?

March 18th, 2010

Many people dream of owning a home. They do whatever they can to scrape together a down payment on a mortgage loan and work many years to pay it off. But should you buy a home or continue to rent? Here are some things to consider.

  1. Are you ready for the responsibility? Owning a home involves a variety of chores and financial investments. Are you ready to do yard work, home repairs, and other tasks that you currently don’t have to think about because you have a landlord? If you are not willing to do the work, or can’t afford to pay someone else to do it, you may not be ready for homeownership.
  2. Do you have enough saved up for a down payment on a home loan? The larger the down payment, the smaller your monthly payments are going to be. Mortgage lenders also look more favorably on people who have a sizable down payment, healthy income, and low levels of debt.
  3. Have you done your homework to understand the different types of mortgage products available? Just because your friend got a 15-year mortgage loan doesn’t mean that’s the right product for you. Knowledge is power and can keep you from getting into the wrong type of mortgage.
  4. Do you need assistance from a first-time homebuyer program in your community? You may be able to get free advice from a housing counselor or help with a down payment.
  5. Do you plan to use the first-time homebuyer tax credit? If so, you need to have a contract on a home before May 1, 2010, and must close on the home before July 1, 2010. If you qualify for the tax credit, you could receive up to $8,000.
  6. Have you shopped around for mortgage quotes to get an idea of how much you can borrow? Compare offers from several mortgage lenders before choosing one to do business with.
  7. Have you carefully researched the neighborhood you want to move to? Have a real estate agent do a comparative analysis of homes that are similar to what you want to purchase. Ask about foreclosure rates in the area and whether there is any data on how many homes are underwater on mortgages.

There are a lot of things to consider before taking the leap from renting to homeownership. Avoid feeling pressured to buy a home because everyone tells you that is the American dream. You may be content to continue renting a while. Consider all your options carefully so that you have no regrets in the future.

5 Things to Remember When Refinancing

March 12th, 2010

According to Freddie Mac data, mortgage rates averaged 4.95% for 30-year loans, and 4.32% for 15-year mortgages.

How Long Can Mortgage Rates Remain Low?

Current mortgage rates are near historical lows, but some housing experts believe rates may begin to rise this year. It is unclear what may happen to rates. However, you still have time to take advantage of low mortgage rates by refinancing, so keep the following things in mind as you shop for a loan:

  1. You can’t time mortgage rates. Interest rates fluctuate all the time, so it’s difficult to predict with certainty which way they are headed at any given point in time. If you shop around for a refinance deal, consider asking your mortgage lender to lock in your rate. In most cases you must pay a fee to lock in a mortgage rate for a specific period of time, which is usually about 60 days
  2. Don’t assume that your current mortgage lender has the best refinance deal. Shop around and compare deals for mortgage refinancing. The good faith estimate (GFE) can help you compare apples-to-apples. Let your current mortgage lender know about other offers to see if they can match them or give you a better deal
  3. You could end up paying mortgage insurance (MI) if your property value has fallen significantly. If your home appraisal leaves you with less than 20% equity, expect to pay for MI. You can avoid MI by using any money you have saved to make a one-time payment at closing to boost your home equity
  4. If you don’t have a title insurance policy to protect yourself, now is the time to get one. Title insurance is issued to protect your mortgage lender against problems that may be related to the property title. In many cases, you have to ask for an owner’s title insurance policy that protects you
  5. Unless you are desperate to raise cash, it’s probably not a good idea to cash out equity when you refinance. With housing values still falling in many areas, you may want to hold on to as much equity as you can

Consider refinancing if you are struggling to make your monthly payments, have a high interest rate, or have an adjustable rate mortgage. However, refinancing your mortgage may not make sense if you plan to sell your home soon, or already have a low mortgage rate. Use a loan calculator to determine if refinancing can save you money.

Mortgage Acceleration Pros and Cons

March 3rd, 2010

The troubled economy has caused some homeowners to consider accelerating their mortgage loan payments. Although many financial experts caution against paying off a home loan early, many people are ignoring that advice and focusing on owning their homes faster.

Mortgage Interest

One of the most common reasons given to discourage people from paying off a mortgage early is because they won’t be able to deduct the interest they paid on their income tax returns.

Before you accept this argument hook, line, and sinker, use a mortgage payment calculator to see if the amount of interest you can deduct on a tax return beats what you can save on interest by aggressively attacking mortgage principal.

Saving and Investing

Another argument against paying off a home mortgage early involves the notion that you could earn more by investing the money you would put toward extra payments. In some cases you would earn more by investing the money. But it’s important to stay true to yourself and decide what type of risk you want to take with your cash.

Are you going to feel more secure with your money in the stock market or some other type of investment, or are you going to be happier knowing that you are going to own your home free and clear in a few years? Only you can decide if mortgage acceleration is right for your situation.

How to Accelerate Mortgage Loan Payments

If paying off a home mortgage early appeals to you, consider these popular methods:

  • Make mortgage loan payments biweekly instead of monthly. This amounts to making 13 payments a year instead of only 12. Although many banks offer to set up biweekly payments for a fee, you can do it on your own. Simply cut your monthly home loan payment in half and pay that amount every two weeks.
  • Use bonuses, tax refunds, and other windfalls to pay down your home loan. Make sure you direct the mortgage lender to apply the funds to your principal.
  • Refinance mortgage to pay it off in 15 years. Depending upon how much principal you owe, expect to see the monthly payments increase. Make sure you have the income to support the higher mortgage payments.

Pay off Other Debt

Finally, when deciding whether or not to pay off a mortgage loan early, consider whether or not you have other debts. If you have high interest credit card debt or other loans, use extra cash to pay them off before turning your attention to acclerating mortgage payments.