What The Heck Is Homeowners Insurance?

The journey to homeownership is no easy trek. There will be an endless list of new terms and information that come up during the loan process, and even afterward. An important part of being a homeowner is knowing the ins and outs of homeowners insurance.

A standard homeowners insurance policy will provide you with financial protection in the event of a disaster or accident involving your home’s structure and belongings inside. Let’s look at some common questions about homeowners insurance and break it down together.

Is homeowners insurance required?

Technically, homeowners insurance is not required by law. However, most lenders will require you to have at least some form of basic insurance to fund a loan. Once you pay off your mortgage and you own the home outright, you don’t have to keep your insurance. But there are plenty of reasons to keep it.

What does homeowners insurance cover?

Your homeowner’s insurance will reimburse you for living expenses if you’re forced to live outside of your home during repairs, in addition to the home and personal property coverage. (Given the cause of damage is a covered peril in your policy.)

 

A named-peril policy will only cover the perils specifically outlined in your policy. An open peril policy will cover everything except the hazards specifically listed in your policy.

There are eight different forms of homeowners insurance, but there are five options for basic homeownership (not a condo or mobile home, etc):

HO1: Basic Form (Limited Coverage Policy)

This form of homeowners insurance offers the most limited coverage. Because it’s a named peril policy, only the perils outlined in your policy are covered. Perils:

Fire/Lightning

Windstorm/Hail

Vandalism

Malicious mischief

Vehicles

Aircraft

Explosions/Riots

Glass breakage

Smoke

Volcanic eruption

Personal liability

HO2: Broad Form (Basic Policy)

All perils listed under HO1 are included in this form, in addition to:

Falling objects

Weight of ice, snow, and sleet

Accidental discharge or overflow of water/steam

Sudden and accidental tearing apart, cracking, burning, bulging

Freezing

Sudden, accidental damage from artificially generated electrical current

HO3: Special Form (Most Common Policy)

This is considered the most common type of homeowners insurance because of its broad range of coverage, and the fact that it’s generally still affordable for homeowners. HO3 is an open peril policy. Some common exclusions you will see on an open peril policy include:

Earth Movement

Ordinance of law

Power failure

War

Nuclear hazard

Government action

More

HO5: Comprehensive Form

An HO5 policy will cover more perils than the previous types listed. Similar to an HO3, an HO5 is an open peril policy. Whereas an HO3 policy has named perils for personal property, HO5 policies are open peril for both the dwelling and personal property.

HO8: Older Home Form

This form of homeowners insurance is designed for homes built more than 40 years ago and don’t meet all of the structural update requirements found in HO3 policies. HO8 policies are peril plans that provide the same basic coverage as HO1 policies.

Most basic forms of homeowners insurance will not cover flood or earthquake damage. A standalone policy may be needed for your home if you live in areas prone to these types of damage.

How much does homeowners insurance cost?

The average premium for homeowners insurance in 2016 was about $100/month ($1,192 annually.) However, your cost will vary on location, provider, and extensiveness of the policy.

It’s important that you don’t confuse homeowners insurance and mortgage insurance. Homeowners insurance exists to protect the homeowner in the event of damage to your home. Whereas mortgage insurance exists to protect the lender in the event that you (the borrower) cannot repay your loan.

How do I buy homeowners insurance?

When it comes time to buy insurance, there are a few important steps you have to take before you go shopping. First, you’ll need to get a replacement cost estimate of your home from a certified appraiser. This estimate will help ensure you get the most from your insurance policy.

Next, you should take inventory of your personal items, including any valuables you may need coverage for. To understand just how much coverage you’ll need, combine your total assets.

It’s no secret that you should never go with the first company you find. So, take time to do your research, and ask people you know for recommendations. You should also get multiple quotes and check for possible discounts.

Are you ready to begin the homeownership journey? Contact Your Home Loan Experts, The Polder Group at Summit Funding.

 

Refinancing Before and After Divorce

Divorce rates across the United States have seen an 8% drop over the past ten years. However, the likelihood of divorce is still between 40-50% for American couples in their first marriage.

The thing to remember is no one gets married with the intention of getting divorced, but life happens. It’s important for you and your partner to be on the same page financially in case divorce were to ever become a reality.

Refinancing Before Divorce

Contrary to popular belief, if you were to split from your spouse, their name is not removed from the mortgage, even if the divorce decree awards the home (and the mortgage) to one spouse. In order to remove someone from the mortgage, you will usually need to refinance the mortgage with the spouse who will be in sole possession of the home.

If you and your soon-to-be ex-spouse are still on good speaking terms, refinancing before getting a divorce could be the best option for both of you.

Better Chance at Qualification

When you apply for a refinance as a joint couple, your finances reflect two salaries and two credit scores. Lenders will have more records to take into consideration when deciding whether or not to grant the loan.

Lock in a Low-Interest Rate

The Federal Reserve recently cut rates for the first time in ten years, so right now could be the best time to refinance. Sometimes a divorce will not finalize for a year or more, depending on the circumstances. As a couple, you may decide that a refi now would save you both thousands of dollars in the long-run.

Refinancing After Divorce

It’s important to remember that your ability to refinance will be based on a number of factors that might change after you get divorced. For example, your credit score will not be directly affected by the split, but there are circumstances that could cause your score to drop, which could also increase your interest rate.

Debt-to-Income Ratio

Lenders take your debt-to-income (DTI) ratio into consideration when approving you for a home loan. If you’re married, the salary of both you and your spouse are evaluated. Once your spouse’s salary is taken out of this equation, it might be more difficult for you to refinance.

Joint Accounts

There’s always a chance that you may be required to close joint credit accounts with your ex-spouse. As a result, this would lower your total available credit. You may also run into trouble if your former partner is unwilling to pay off balances due on joint accounts. This is where your credit score will begin to take a hit.

If most of your financial accounts were in another person’s name, you might also have a limited credit history.

Potential Benefits

Although your chances of qualifying for a refinance are potentially higher as a couple, there are still benefits to waiting until after your divorce is finalized to refi.

Your ex-spouse won’t be on the new mortgage

You will be in charge of your own financial decisions

Liquidity could be used to buy your former spouse out of their portion of the home

Because your home is likely the most valuable asset you and your spouse purchased together, it’s important to know what your options are before and after a divorce. Speak with your home loan experts today at The Polder Group, with Summit Funding to hold your hand through the process.

SECOND HOME FOR COLLEGE STUDENTS

They grow up so fast. It seems like just yesterday they were learning how to crawl, and now your child is packing up for college. With all the overwhelming emotions you must be feeling, there’s no doubt you’re also feeling the sticker shock of paying for their education. From tuition and books to parking passes and meal plans, college is a pricey investment.

There are some costs that are just unavoidable, but there is one area of spending that could create long-term wealth for both you and your student. Have you considered buying a second home for your college student?

Before you panic at the thought of a second mortgage, let’s look at the long-term benefits of a second home, rather than paying for university housing.

Investment Strategy

When it comes to planning for your future (and your child’s) it never hurts to have a backup plan. By investing in a different market of real estate, outside of your primary residence, you have the potential to increase your investments. Owning a second home also opens up the options for your living situation after retirement.

Owning, rather than renting, a home will also allow the home to build equity. MyCollegeGuide recently said students at public universities can expect to pay an average of $8,887 each year for room and board, and those at private universities are likely to pay closer to $10,089 per year. Why not put this money toward a home that has the potential to keep making money, long after your student moves out?

Tax Benefits

As long as you use the property as a second home, and do not rent it out, you can deduct mortgage interest the same way you do on your primary residence. As a homeowner, you can deduct up to 100% of the interest you pay up to $750,000 of the total debt that is secured by both the primary home and the second home. (Note: $750,000 is the total debt between the two houses, not $750,000 each.)

When deciding on whether or not to rent out your property to another individual for the time you’re not using it, speak with a financial advisorCertain tax breaks will or will not apply, based on your specific situation.

Appreciation

College towns are perfect for property appreciation. Because new students will always be moving through, homes in the area will always be in high demand. Even after your college-aged kid moves out, you could consider renting it out to other students. Or, if you have multiple kids going to the same school, rent the property out during the years it’s being unused. (If you do this, be aware of how it will affect your taxes.)

Stability

Avoid the stress of finding a new living space each year by owning a home your child can live in for all four years of college. No move-in dates, security deposits, or storage fees.

Additional Tips

If you’re considering purchasing a second home, rather than paying sky-high prices for university housing, consider these additional tips: 

Remember all the expenses. Taking care of a home is an expensive task. From lawn care to appliance upkeep, you’ll need to factor in all of the costs of buying the home, besides just the mortgage.

Look in advance. Even if your kids are a few years away from picking a college, consider the benefits of different markets. Buying a home in one state versus another might be a deal-breaker. You’ll also need to be in good financial standing when you apply for a home loan. (Know your loan options.)

Understand scholarship requirements. If your child is awarded a scholarship through the university, living on-campus might be a requirement. Consider all the possibilities with your child in advance and stay on top of potential requirements. (Some universities will require freshman to also live on campus, no matter what.)

Help your child establish credit. If you decide to have your soon-to-be-student listed on the mortgage and deed, they will need to have some established credit before applying. Consider applying for a low-limit credit card in the student’s name or have a small car loan in their name to help with their credit rating.

Do you have more questions? Give our team of loan experts a call. 520-495-0222

FICO’s New Credit Score Making It Easier To Get Home Loan

FICO released a new way to score credit: UltraFICO. Potential borrowers – especially those in the 500 to 600 FICO score range or who have little to no credit history – may be able to qualify for mortgages they previously didn’t qualify for. UltraFICO does this by helping to establish credit based on banking and savings activity, rather than credit cards, loans, and other debt.

How may this affect getting a mortgage?

Here’s how:

For potential borrowers, enhancing credit scores with UltraFICO may help them qualify for a mortgage they previously did not qualify for. It may even improve the terms of a loan or open up new financial opportunities when it comes to the details of a loan. UltraFICO may act like a “second-chance score” to benefit two main groups of consumers:

  • Those with little-to-no credit history.
  • People rebuilding credit after a personal financial breakdown.

For lenders, UltraFICO allows them to enhance a borrower’s traditional FICO credit score by pulling non-traditional financial information. For borrowers in the 500-600 range, this could turn a “no” into a “yes.” Lenders use financial details previously not visible on a traditional credit report:

  • Evidence of saving money
  • Maintaining a bank account over time
  • Avoiding a negative balance in an account
  • Regularly paying bills
  • Making other bank transactions

The new score may impact approximately 15 million consumers. It may help those consumers who currently don’t have the debt history required for a traditional FICO credit score.

The new UltraFICO Score is scheduled for launch as a pilot program in early 2019. It is expected to be available to lenders by mid-2019.

Unmarried Home Purchase: What You Need To Know

It’s common for unmarried couples to want to buy a home. Married or not, it is possible. Buying a home is one of the most significant financial decisions of your life, so it’s important to understand the details of buying a house as a couple.

Here are four things you should plan for when buying a home as an unmarried couple:

Thoroughly Discuss Your Finances

It’s very beneficial for couples to discuss each other’s financial situations in detail. Before meeting with a lender or realtor, it’s imperative that you review each other’s credit score, income, debts, and financial history. Most differences between your finances can be accommodated, so it’s important to know the details of each other’s finances in case any surprises arise. This step will prevent any conflict during or after the mortgage process.

Determine Your Costs and How to Split Them

It’s essential to have a system in place to split bills and other expenses. This is even more critical when buying a home. First, figure out how to divide the down payment and closing costs when purchasing the home. Then, discuss and decide how to handle the monthly mortgage payments, utilities, and other costs associated with owning a home (emergency repairs, maintenance, taxes, etc.).

You may want to work this out together with a real estate attorney and get the details in writing to keep things on record. If you don’t already have a joint bank account, it may be a good idea to at least create one for funding the home while keeping your other funds separate.

Understand Your Ownership Options

You may not have known that there are options for the purchase of your home. Deciding on which ownership option suits you may be one of the most important decisions in the process. Your home’s title can be configured in a few different ways, depending on which state you live in:

Joint Tenancy: You both equally own the property. Common between husbands and wives, joint tenancy allows one of you to inherit the property if something should happen to the other.

Tenancy in Common: You both own a specific percentage of the property. For example, you may own 40% of the property while your significant other owns the other 60%. If something happens to one of you, the ownership will transfer to whoever is denoted in a living will or trust. If there is no will or trust, ownership goes to the next of kin and not your significant other.

Sole Ownership: Some couples may find that it’s better just one of you to have full ownership of the home. If you have better credit than your significant other or are in a better place financially, this may work for you.

Create a Backup Plan

Sometimes things don’t work out as planned and, legally speaking, there are no protections in place for unmarried couples who co-own a home. We recommend creating a partnership agreement. Similar to a prenuptial agreement this will detail what happens to the home if you two split up. Written contracts are the best way to plan so we recommend you take any chance you get to draw up your agreements in writing.

Do you have questions or would you like to sit down for a complimentary no-obligation consultation? We are your Home Loan Experts, at your services. Give us a call 520-495-0222.

Home Loan APR and Interest Rates

We understand that the mortgage process can be complex. Two key aspects of a mortgage – or really any loan – are the annual percentage rate (APR) and the interest rate. Many homebuyers, especially first-time homebuyers, may not know the difference between APR and interest rate, but with our guidance, understanding these two different costs of a home loan will be a breeze.

Interest Rate vs. APR

Interest Rate: The cost of borrowing the principal loan amount (the amount of money you are being loaned) is called the interest rate. It can be fixed or variable, but it is always expressed as a percentage.

APR: Includes the interest rate plus other costs such as fees, discount points, and some closing costs. Simply put, it is a broader measure of the cost of a mortgage. Like the interest rate, APR is always expressed as a percentage.

How does this affect your mortgage?

The interest rate calculates what your actual monthly mortgage payment will be. The APR on a loan measures the total cost of a loan. For example:

Staying for a while: Given a 30-year fixed rate loan, it makes more sense to take out a loan that has the lowest APR possible, if you plan on staying in your home for the 30-year term. You will end up paying a lower amount over the 30 years.

Not ready to settle down: It may make sense to pay fewer upfront fees at a higher rate, and a higher APR, if you don’t plan on staying in the home for more than a few years. That way the total cost will be less over the short time you are in the home.

If you have any questions about APR or interest rates, don’t hesitate to contact us!

How To Win A Multiple Offer Situation

How To Win A Multiple Offer Situation

The real estate market is hot right now, and the competition for homes is rising with little inventory to satisfy the demand. Homes are being sold with multiple offers on the table within days, and even hours, after listing. This may be ideal for sellers, but for buyers, this could mean trouble if they don’t have a skillful real estate and lending team representing them to snatch the perfect home.

Get Pre-Approved!

Make sure your borrower is in the strongest financial position possible; in today’s market, you’re going to need every card on the table. This means your client’s financing decision needs to be strategic. You need a lender who will match your client with financing that puts them in the best bargaining position possible. Get a pre-approval in hand so your client can shop with confidence.

Understand the Seller.

Find out what the seller’s experience has been like so far. If they have placed the house on the market several times only to have the deal fall through, your client can use this to their advantage by differentiating themselves from previous and current prospective buyers.

Stand Out with a Powerful Introduction Letter.

This will humanize your client and their situation to the seller. Let’s say your client can’t beat the best offer, but they can at least match it. That is when a humanizing touch can be enough to sway things in your favor. Help your clients craft a letter that tells their story; you want the seller to feel like your clients deserve the house.

Be Flexible.

Counsel your client on flexibility whenever possible. Be ready to yield to the seller’s desires, from the close date, to concessions, to who will pay for minor repairs. The more ideal and uncomplicated you make the offer, the easier it is to choose you over the next guy.

Have a Lender Who Won’t Let You Down.

Let’s say you do manage to get the offer accepted. Congratulations! But now is the most crucial part; delivering on those promises. If your lender fails to meet deadlines, doesn’t communicate proactively, or worse, didn’t really pre-qualify the client, your reputation could take a serious blow. Help your client choose a lender who makes you look good. Allow us to be that trusted partner!

If you have questions about how to get your client pre-approved with a lender you can trust, please feel free to reach out to The Polder Group at Summit Funding at your earliest convenience. We would love to work with you!

CFPB investigates Zillow’s Co-Marketing Program: What Agents Should Know

 

The CFPB’s recent action against Zillow speaks volumes about the mortgage industry’s regulatory atmosphere when it comes to advertising compliance. With costly fines and other serious penalties for marketing rule breakers, loan officers and their business partners can’t afford to ignore the signs of the times.

To help you navigate this arena with confidence, we have gathered the following information detailing the most common compliance blunders they encounter, with 3 ideas on how you can avoid potentially disastrous mistakes.

Always split payment, and show proof

All co-marketing material/expenses must be split based on pro-rata share, and be documented. This means if I pay for half of a co-marketing flier with you, the flier needs to show both of us, with an equal share of the marketing space. You also need to retain copies of checks, co-op forms, etc. when marketing with another person.

Get use to the verbiage

Unfortunately, mortgage compliance can take the fun and elegance out of marketing. We cannot boast about having the best rates or guarantee to close a loan within a set number of days. If your referral partner is engaged in these kinds of promises, it could be best to have a conversation with them, or if need be, steer clear of them altogether since this kind of rhetoric is inviting trouble.

Get use to the disclaimers

Our disclaimers are required by law. We know how ugly some of the long regulatory verbiages can be, or how picky marketing materials have to be to avoid triggering massive disclosures. However, as frustrating as these can be, there is no room for flexibility. The disclosures have to be there to protect everyone involved. If we don’t include these on our advertisements, it will be a serious reason for concern.

If you have questions about our industry, please let us know. We’d be happy to assist you in any way we can! The Polder Group at Summit Funding

Your HomeReady

 

Segments of the potential mortgage market are completely ignored by some lenders. Not only is this a poor business choice, but ignoring certain populations can be seen as a discriminatory practice by regulators. At PRM, we want to serve all communities and bring the dream of home ownership within reach. Through Fannie Mae’s HomeReady program, we can help you to grow your business in underserved communities for credit-worthy clients with low to moderate income. With flexible income guidelines not seen in other conventional programs, HomeReady helps PRM to assist you in bridging the gap for clients who otherwise would have limited financial options. Segments of the potential mortgage market are completely ignored by some lenders. Not only is this a poor business choice, but ignoring certain populations can be seen as a discriminatory practice by regulators. At The Polder Group, we want to serve all communities and bring the dream of home ownership within reach. Through Fannie Mae’s HomeReady program, we can help you to grow your business in underserved communities for credit-worthy clients with low to moderate income. With flexible income guidelines not seen in other conventional programs, HomeReady helps The Polder Group to assist you in bridging the gap for clients who otherwise would have limited financial options.

 

HomeReady Flexible Income Guidelines

 

  • Rental income acceptable
  • Boarder income acceptable
  • Non-Occupant Co-Borrowers acceptable
  • Expanded eligibility for lower income families by potentially using income derived from occupants other than the borrower as a compensating factor
  • Flexible DTI requirements
  • HomeReady increased home affordability in other ways, with low down payment options, which can be less than the required amounts for FHA loans. Additionally, your client also doesn’t have to be a first-time homebuyer, and properties can be more than 1 unit.

 

In order to qualify for the HomeReady program, your client must meet income requirements for the area the subject property is located in.  For low-income census tracts, there are now income limitations. Income limitations by area can be viewed

Here.

https://www.fanniemae.com/singlefamily/homeready-income-eligibility-maps

 

 

If you have a client you think might benefit from the flexibility of the HomeReady Program, contact The Polder Group Today.