7 Ways to Show Proof of Renters Insurance to Your Landlord

No one wants to have an apartment break-in happen to them or lose their personal belongings to an unexpected tornado but sometimes life happens. When the unexpected occurs, everyone wants financial coverage and know that they have a backup plan or safeguard in place.

That’s where renters insurance comes in. While property owners will have insurance policies covering the apartment complex and building in place, it’s often up to the tenants to provide their own renters insurance where the policy covers personal belongings. In fact, most landlords are requiring proof of renters insurance to rent their property before signing the lease.

We’ll help you understand the fundamentals of a basic tenant insurance policy and provide ideas on how to show proof of renters insurance if your landlords require it.

What is a renters insurance policy?

Simply put, insurance is protection against financial loss. Renters insurance is a type of insurance policy that’s specific to tenants and renters only. Unlike homeowners insurance, renters insurance does not usually cover the structure of the building, but it does cover the renter’s personal property that’s housed inside the apartment.

Renters insurance exists to protect you and your personal belongings should an incident — like theft or fire — occur while you rent. The insurance policy would then pay you for the damage caused to your belongings. Renters insurance also protects renters from liability in case someone gets hurt within your apartment.

Renters insurance covers property from a burglary

Why every renter needs renters insurance coverage

Landlords are requiring tenants to provide proof of renters insurance. This helps safeguard property managers from liability, but it also protects renters. People who have renters insurance can breathe easy knowing it protects their personal property. Here are a few reasons you need to purchase renters insurance:

  • Offers protection of your personal items from theft or natural disasters
  • Covers you from personal liability if someone is hurt within your apartment
  • Often required to sign a new lease
  • Sometimes required for lease renewal
  • Can save you money should something happen to your personal belongings
  • Provides peace of mind to tenants
  • Helps expedite the rental process and avoid waiting periods if you already have a policy

Regardless of the reason you purchase renters insurance, it’s smart to have it when you live in a rental unit.

What exactly does renters insurance cover?

We’ve talked about the benefits of having renters insurance, but what exactly does renters insurance cover? Your coverage will vary based on your insurance company and policy, but in most cases, renters insurance policies offer these types of coverage:

Personal property coverage

Personal property coverage includes repairs or replacements for lost or damaged property, such as furniture, electronics and clothing. Depending on the policy, it may cover the costs of things like jewelry, but you’ll have to check with your insurance provider to see how much coverage comes with your plan.

Liability coverage

Liability coverage protects the tenant in case an injury occurs to someone within the apartment and needs medical attention. There’s often a cap on how much liability coverage there is, so read your policy carefully.

Renters insurance will cover a hotel room if you

Additional living expenses coverage

Additional living expenses coverage includes the cost of hotel or travel bills should your apartment become unlivable due to an incident that occurs on-site. This part of a policy will not cover property damage to the building itself — that’s usually the landlord’s responsibility — but it will cover your hotel bills while you find a new place to rent.

You’ll likely have increased premiums when you purchase more coverage and it’s up to you to determine how much renters insurance you need and how much coverage your landlord requires. Do your research to select the best policy for you.

How to show proof of renters insurance to your landlord

We’ve mentioned that landlords require proof of insurance to rent a rental property. But how do you show proof of renters insurance to a landlord? Here are several ways to show proof of renters insurance.

1. Provide the declarations page to your landlord

Every renters insurance policy will have a declarations page that outlines the details of your coverage. The declarations page will include things like your name, the policy number and how much coverage you purchased. You can send a digital copy directly to property management as proof.

Send a digital copy to your landlord.

2. Share a digital file with the landlord

You can show digital proof of your insurance by emailing the landlord a copy of the entire policy or the declarations page itself. When you send electronic proof, you have a digital footprint that shows your communication with the landlord. You can even ask your landlord to store this electronic copy on their property management software so you have a record of it.

3. Show them the physical copy of the renters insurance policy

If you’re more old-school, you can print out a physical copy of the policy as a way of showing proof of coverage. Print out a copy for your records and print out a second copy for the landlord to have, as well.

4. Have your insurance agent contact your landlord to confirm

If your landlord will accept verbal confirmation, you can ask the insurance company to call the landlord directly to show proof of insurance. Let your landlord know when your insurance agent will contact them so they can prepare for the call.

5. Add the landlord as an interested party to the policy

On any insurance policy, you can add an interested party to the policy. This is one way to show proof that the tenant has insurance. When the insurance agent is writing the policy, they will add the landlord as an interested party and then, notify the landlord upon completion of the policy.

6. Share the policy number and insurance agency with your landlord

Another way to show proof when renting is to share details of the policy with your landlord. You can share things like the number of the policy, the name of the insurance company and agent or the amount of coverage purchased.

Simply tell your landlord you have renters insurance.

7. Give verbal assurances of your renters insurance policy

Depending on the property managers, you can show proof by giving verbal confirmation of coverage. While this is only as good as your word, some landlords are OK with this type of proof. Keep in mind that there’s often no digital or written record of verbal assurances, so it’s not the most concrete or secure way to show proof of renters insurance.

These are some of the most common and accurate ways to show proof of coverage when property owners require proof.

How much does renters insurance cost?

Renters insurance is relatively inexpensive and ranges from $15 to $20 a month, or $180 to $220 per year. The cost of the policy will depend on how much coverage you purchase. Some landlords will even require that you have a certain amount of coverage, but that varies by location, by the landlord and even by state. When you’re analyzing your budget, it’s important to include renters insurance with your other utilities.

Keep in mind that most policies renew annually and if you don’t automatically renew your policy lapses and you may temporarily lose coverage. You also need to pencil in the cost of compensation for the agent, if they charge a fee to draft a policy.

Signing the renters insurance policy.

How to get a renters insurance policy of your own

If you’re trying to rent an apartment and can’t sign the lease until you have proof of renters insurance, then it’s time to find a policy for you. There are ways to find an insurance agency who you get you set up:

  • Ask your new landlord for a recommendation
  • Use your existing insurance agency and bundle it with your car insurance, for example, to save money
  • Use an online comparison tool to find an insurance company
  • Do an online search to find an insurance agency
  • Ask your neighbors who they use
  • Go to your local insurance broker

Proof of renters insurance is key

Once your policy is in place, you’ll be happy to know that you can then sign the lease, move into your new apartment and feel secure knowing you’re protected from the unexpected.

Source: apartmentguide.com

Top Real Estate Terms You Need to Know

Buying a home can be a challenging prospect, particularly for people looking to get into the market for the first time. There is a lot to be aware of throughout the process, so we have put together a convenient list of the top real estate terms that you need to know when buying a home.

Comparative market analysis (CMA) – An in-depth analysis which is provided by a real estate agent that determines the estimated value of a home based on homes that have been sold recently that are a similar size, condition, age or have similar features and are located in the same area.

Buyers/balanced/sellers market – A buyers market occurs when the number of homes for sale outnumber buyers. A seller’s market occurs when conditions favour sellers, and there are less homes available than there are people looking to buy a home. A balanced market sits between those and is an optimal time to buy and/or sell.

Read: Entering a Balanced Market Spells Relief for Many Buyers: CREA

Housing ratio – This is one of two debt-to-income ratios that a lender analyzes to determine a borrower’s eligibility for a home loan. This ratio compares the total housing cost (principal, homeowners insurance, taxes and private mortgage insurance) to your gross income.

Debt-to-income ratio (DTI) – A ratio that compares a home buyer’s expenses to their gross income.

Adjustable-rate mortgage (ARM) –  An ARM has an introductory interest rate that lasts a set period of time and adjusts every six months thereafter for the remainder of the loan term. Once the time period has ended, your interest rate will change, as will your monthly payment.

Fixed-rate mortgage – A mortgage with principal and interest payments that remain the same throughout the duration of the loan, because the interest rate does not change.

Private mortgage insurance (PMI) – This is a fee charged to borrowers who make a down payment that is less than 20% of the home’s value. Typically 0.3% to 1.5% of the yearly loan amount., this fee can be canceled in certain circumstances when the borrower reaches 20% equity.

Pre-qualification – This is a basic assessment of your income, assets and credit score which determines what loan programs you might qualify for, if any. An agent may request this or a pre-approval letter before showing a potential buyer a home.

Pre-approval – This is a thorough assessment of a borrower’s income, assets and other data to help determine a loan amount they would be able to qualify for. An agent may request one of these or a pre-qualification letter before showing a buyer a home.

Read: Reality Check: Interest Rates are Rising, Securing a Mortgage Now is Best for Buyers

Approved for short sale – This indicates that a homeowner’s bank has received an offer from a buyer and has determined the reduced listing price on a home meets their short sale criteria, based on the seller’s circumstances and how much is owed.

Origination fee – This is a fee charged by either a broker or lender to underwrite and process a home loan application. This is not a single fee, but a set of lender-specific fees that are part of your costs when closing a mortgage loan.

Amortisation – This is the process of paying off a loan through a series of periodic payments to a lender. This includes two items – interest and principal, which is the amount of money you borrowed.

Closing costs – Costs outside a property’s sale price that need to be paid to cover the cost of the transaction. This could include discount points, insurance fees or survey fees, among others. These can vary from location to location but must be described to you when you submit your mortgage loan application.

Debt-to-income ratio (DTI) – A ratio that compares a home buyer’s expenses to their gross income.

Contingencies – These are conditions that are written into a home purchase contract that protect the buyer, should issues arise with financing, the home inspection, etc.

Equity – The percentage of a home’s value owned by the homeowner.

If you’re considering buying a home in the coming months, contact us to talk to an agent and receive a free consultation.

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Source: zoocasa.com

Should I File a Home Insurance Claim? Pros, Cons, When It Makes Sense

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You love the big cherry tree in your home’s front yard. Each spring, it explodes in a riot of bright pink flowers. Each summer, it drops sour fruit that perks up nicely in a sugary pie. 

Until it doesn’t. One summer day, your family comes home to find one of the cherry tree’s limbs in your living room, felled by a strong thunderstorm. The damage is extensive: two broken windows, a caved-in window sill, and serious water and impact damage to the living room floor and furniture.  

Once the initial shock wears off, you prepare to file a home insurance claim. But then, you start to ask questions. What if your insurance company denies the water damage portion of the claim? What if my home insurance premiums spike? How much will I have to pay out of pocket due to your policy’s high deductible? Should I even file this claim? 


Should I File a Home Insurance Claim?

The fact that a seemingly serious event like a tree falling through your house is such a close call teaches us an important lesson about homeowners insurance: It’s not always in your best interest to file a claim. Even when they cause short-term financial pain, some incidents aren’t worth filing over. 


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Plus, standard homeowners insurance policies exclude certain types of incidents that can cause serious financial stress for homeowners, such as floods and earthquakes. You need separate insurance policies if your home is at risk of these uncovered perils.

Pros & Cons of Filing a Homeowners Insurance Claim

If you’re considering filing a homeowners insurance claim, you’re probably facing a hefty bill for cleanup and repairs or a long list of damaged items to replace. Or perhaps you’re staring down a lawsuit brought by a guest or worker who sustained serious injuries on your property.  

In any case, you need to figure out whether it makes sense to go through with your claim — and fast. That means objectively assessing the pros and cons of doing so.

Pros of Filing a Home Insurance Claim

Depending on the circumstances, filing a home insurance claim has significant financial benefits.

  1. It Helps You Pay for Repairs. If your claim is approved, you can use the payout to offset the cost of repairs and restore your home to its previous condition. Without this financial assistance, you might find yourself cutting corners or making ill-advised financial moves to cover the cost, such as dipping into your 401(k). 
  2. It Helps You Replace Damaged or Stolen Goods. Your homeowners insurance policy could help offset the cost of replacing possessions damaged in a naturally occurring incident like a storm or fire. If your home was burglarized or vandalized, the proceeds could cover the cost of replacing stolen property as well. Depending on your policy, you could receive the items’ actual cash value or replacement cost, which is the cost of buying them new.
  3. Repairs Help Maintain Your Home’s Value. Homebuyers don’t pay top dollar for properties with fire-damaged siding, broken windows, or gaping holes in the roof. Your home insurance payout helps restore your home’s value with minimal out-of-pocket cost.

Cons of Filing a Home Insurance Claim

Filing a claim on your homeowners insurance policy isn’t always a slam dunk. The claims process has some hidden and not-so-hidden pitfalls that could leave you worse off than when you began.

  1. Your Insurance Premium May Go Up. Although this isn’t guaranteed, your homeowners insurance rates could rise after you file your claim. Exactly how much depends on the type of claim you file, the size of the claim, and your previous claims history. Generally, liability claims bump premiums more than claims related to fire, vandalism, or natural disasters.
  2. Too Many Claims Mean Your Policy May Not Be Renewed. A rate increase is unwelcome but manageable. A canceled policy is far more serious. If insurers see you as riskier than the typical homeowner, you could have trouble getting coverage on your own. Your lender might need to step in and take out a policy on your behalf — often at a much higher premium than your old policy.
  3. If You Get a Claim-Free Discount, You Could Lose It. Once you file a home insurance claim, your claims history is no longer spotless. That matters because many home insurance companies offer claim-free discounts for homeowners who never file claims.

When You SHOULD File a Home Insurance Claim

So, you’re thinking about filing a home insurance claim. How can you be sure you’re making the right call?

Use these tests to assess your would-be claim. The more that apply to you, the stronger your position.

Repair or Replacement Costs More Than Your Deductible

This is the first test your would-be claim must pass. If it doesn’t, there’s no point in filing a claim.

Your deductible is the amount you must pay out of pocket before your home insurance kicks in. Your policy documents should clearly specify this amount. It’s either expressed as a flat dollar amount or a percentage of the policy’s total coverage amount.

Dollar amount deductibles typically range from $500 to $2,500, with $1,000 being a common value. Some policies have more than one deductible, depending on the type of property damage. Separate “wind and hail” deductibles are common, for example — and often higher than the standard deductible.

If your home sustained significant damage or loss, your claim value should easily exceed your deductible. For example, if you expect repairs to cost $20,000 and your deductible is $2,000, your insurance company covers $18,000 — 90% of the total cost.

On the other hand, if you expect repairs to cost $3,000, your insurance company only covers $1,000 — 33% of the total cost. That’s a closer call because filing a claim could result in higher home insurance premiums that eventually offset your payout. 

The Event Is Covered by Your Policy

Your homeowners insurance company isn’t obligated to provide reimbursement for every type of damage or loss to your home. In fact, while your policy covers a lot, it probably excludes specific events, known as exclusions.

Common exclusions include but aren’t limited to:

  • Earthquake
  • Flood
  • Damage and liability issues caused by poor maintenance 
  • Insect infestations
  • Mold
  • Personal property losses and liability issues caused by power outages or power surges
  • Intentional damage caused by a resident
  • Damage caused by war or nuclear fallout
  • Injuries caused by aggressive dogs
  • Issues related to or caused by home-based businesses
  • Costs related to building code violations

You may need to purchase separate insurance policies to cover some of these perils. For example, your lender may require you to carry flood insurance if you live in a recognized flood zone. 

Other add-on policies are optional but often a good idea. For example, if you run a business out of your home, you should consider carrying business insurance to protect against inventory or equipment losses or damage to your workspace.

You’ve Suffered Significant Loss or Damage

Often, it’s not a close call. If your home is seriously damaged or destroyed in an event that’s covered by your policy, you absolutely should file a homeowners insurance claim. Otherwise, you’ll be on the hook for tens or hundreds of thousands of dollars in repair or replacement costs.

If you have any doubts about the extent of the damage to your home, get a few repair quotes from building contractors in your area. You can also talk to your insurance agent or ask your home insurance company to send out an insurance claims adjuster before you file.

You Haven’t Made a Claim in the Past 5 Years

Approved homeowners insurance claims typically remain on your insurance record for five years after they’re made. 

This record is known as the Comprehensive Loss Underwriting Exchange (CLUE) database. When you make a claim, your insurer checks its own records and the CLUE database to see whether you’ve made any other claims in the past five years.

If you have made a claim in the past five years, expect your insurance premiums to spike after your second claim is approved. 

For fire, theft, and general liability claims, the increase could amount to 50% or more of your previous premium. A weather-related claim won’t increase your premium quite as much, but you’ll still notice a jump.


When You Should NOT File a Home Insurance Claim

It’s not always worth it to file a home insurance claim. 

Certain situations, such as minor damage that costs less to repair than your insurance deductible, all but rule out a claim. Others, such as an active claim history, bring an elevated risk of a denied claim.

If any of these situations apply to you, think twice about filing a home insurance claim.

Repair or Replacement Costs Less Than Your Deductible

If the damage or loss is relatively minor, your deductible could be too high to bother filing a claim. There’s no point in filing a claim — and potentially increasing your policy premiums — if you won’t even receive a payout.

Even if it’s a close call, be mindful of the potential for your premiums to go up after a successful claim. A claim worth $20,000 probably makes sense, but a claim worth $3,000 or $4,000 might actually set you back.

Damage Was Caused by Lack of Maintenance or Normal Wear & Tear

An event that appears to be covered by your policy might not be if the insurance adjuster can argue that it was caused by neglect, poor maintenance, or even normal wear and tear.

For example, let’s say your home loses heat during the winter, causing a water pipe to burst in your ceiling. Homeowners insurance policies generally cover this type of event — if the burst pipe was in good condition to begin with. If the pipe was already heavily corroded, your insurer might blame you for not replacing it sooner. They could deny the claim altogether.

The Event Isn’t Covered by Your Policy

It’s often quite easy to figure out whether a particular event is eligible for home insurance coverage. If your home collapses in an earthquake and your policy specifically rules out claims for earthquake damage, you’re out of luck. Hopefully, you have earthquake insurance.

But closer calls are more common than you’d think. If your resident termite colony worsens an existing foundation issue that eventually spurs a costly repair, your insurer could argue that the entire claim falls under the insect damage exclusion. 

When in doubt, it’s worthwhile to begin the claims process anyway. If you don’t like what the insurance adjuster has to say, you can drop the claim without increasing your insurance rates. 

Or you can hire a public adjuster — an independent insurance adjuster who can make a stronger case to your insurance company. Public adjusters usually work on contingency, so they only get paid if your claim is successful.

You’ve Made Multiple Claims in the Past 5 Years

The more homeowners insurance claims you make in a five-year period, the more your insurance rates increase after a successful new claim. 

Make too many claims in too short a period, and your insurance company could drop you altogether. If you’re unable to find replacement coverage, your lender could take out a policy on your behalf. Expect this lender policy to cost a lot more than your old policy.

All that said, you shouldn’t automatically rule out a new homeowners insurance claim just because you recently got an insurance payout or two. If your home is seriously damaged or destroyed by a covered event, it’s probably still worth it to file. Just be ready to pay higher premiums on the back end.


Final Word

Some say the best way to save money on homeowners insurance is not to file a claim at all. There’s a grain of truth to that, but don’t take it too literally. 

If your home is seriously damaged in an event that’s covered by your policy, a home insurance claim is absolutely warranted. Taking the time to file could save you tens or hundreds of thousands of dollars in out-of-pocket expenses, keeping you on track to reach your long-term financial goals.

Still, it’s always a good idea to take stock of the situation before filing a claim. If your home sustains damage due to an event not covered by your policy or the cost of repairs doesn’t exceed your policy’s deductible, a claim isn’t in the cards. And even if filing a claim would be profitable on paper, it’s worth considering the long-term costs — in the form of higher premiums for years to come.

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Brian Martucci writes about credit cards, banking, insurance, travel, and more. When he’s not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. Reach him on Twitter @Brian_Martucci.

Source: moneycrashers.com

What Is Home Title Insurance – Policy Costs, Coverage & Need

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You’re all settled into your dream home — the one you saved up years to afford. You’ve unpacked every last moving box, arranged the furniture, and made the first payment on your mortgage. Life is good.

Then, one day, you hear a knock at the door. The person standing there hands you an official-looking document and tells you the now-grown child of a previous owner is suing you. They believe the property belongs to them, and they have the previous owner’s will to prove it.

You know you need to hire a lawyer. But you’re all tapped out after paying tens of thousands of dollars for the down payment. You’re in a serious bind — one that could get worse if the person suing you prevails. But if you had home title insurance, you probably wouldn’t have to pay out of pocket to defend yourself. 

What Is Home Title Insurance?

Home title insurance, or simply title insurance, is a special but common type of real estate insurance that protects your financial interest in a specific piece of property. 


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You can buy title insurance on your primary residence, second home, or any investment property you buy directly. You don’t need title insurance to invest in real estate indirectly, such as through publicly traded real estate investment trusts or real estate crowdfunding. 

Most forms of insurance provide financial protection against future losses. For example, homeowners insurance protects against costs related to damage to or theft from your home. Title insurance protects against future losses too, but it covers out-of-pocket expenses associated with future ownership disputes.

Title insurance also covers a lot of upfront work that happens before you even own your home. After you make an offer on a new property but before you close, your title insurance premium covers the cost of investigating the title. It also covers the cost of fixing any title issues, such as old liens or ownership disputes, before they cause greater financial harm. 


What Does Home Title Insurance Cover?

Title insurance policies typically have three functions:

  • Cover the cost of investigating the chain of title, the official ownership records of the property in question
  • Cover the expense of fixing any problems discovered during this investigation 
  • Pay future legal expenses for any action against or attempts to collect money from the current owner resulting from any undiscovered issues 

Though title insurance policies vary from state to state and provider to provider, they always cover the cost of conducting a title search. A title search is a thorough examination of relevant public records to determine whether any problems exist with the title. These records are typically held with the city or county where the property is located.

Ideally, a title search looks at the entire history of a property stretching back to its original platting or subdivision. That’s generally done by scrutinizing the property’s abstract, a document containing the complete chain of ownership and historical liens. 

A comprehensive title search doesn’t stop there. Since abstracts can be incomplete or contain erroneous information, title searchers rely on other sources, such as local tax records, previous owners’ wills, and past court judgments.

Curing or Resolving Problems

Title insurance policies also cover the cost of resolving or “curing” most title problems uncovered during the search, which insurance professionals call “defects.” Common title defects include:

  • Liens for unpaid property taxes, known as tax liens
  • Construction liens — also known as mechanics’ liens — for unpaid construction, renovation, or repair bills
  • Liens for other unpaid debts that used the home as collateral
  • Court judgments, such as a post-divorce judgment awarding part of the property to a former spouse

Old liens or judgments don’t necessarily jeopardize the sale. But in rare cases, the title search does uncover egregious problems with the title that make it difficult to proceed. 

For instance, the title searcher might discover the seller doesn’t really own the property and thus doesn’t have the right to sell it or that a previous deed transferring the property was forged and the true owner can’t be located. 

In such cases, the lender could refuse to issue a mortgage on the property and force the buyer to walk away.

Finally, title insurance policies cover future costs arising from title disputes. For example, if you have a valid title insurance policy, you won’t have to pay out of pocket when a building contractor stiffed by the previous owner sues you.

In the rare event a court rules the most recent transfer of the property was invalid, your title insurance policy compensates you for any loss of equity in the property. That might occur if it’s discovered a previous owner deeded the property to a third party in a previously undiscovered will, for example.

A title insurance policy’s coverage limit is usually equal to the property’s assessed value when the policy is issued. The lender’s appraisal sets that value.


Types of Title Insurance

Title insurance comes in two basic forms: lender policies and buyer policies. 

As the buyer, you’re generally responsible for paying the full cost of both policies. That expense is one of many closing costs. However, in a buyer’s market, you may be able to work out a cost-sharing arrangement with the seller or even convince them to cover the entire cost.

Either way, each policy type works slightly differently. 

Owner’s Title Policy

Also known as an owner’s title policy, a buyer’s policy protects your ownership interest as the buyer and future property owner. That interest increases with time, which means your financial liability for any title issues also increases with time. 

Owner’s title insurance is not mandatory. However, the cost is a fairly small share of total closing costs, and going without it could have serious financial consequences, so it’s worth the investment.

Your owner’s policy remains in force for as long as you own the property, even after you pay off your mortgage. 

Lender’s Title Policy

Also known as loan policies, lender policies protect the mortgage lender’s interest in the property, which usually decreases over time. For this reason, they tend to cost less than buyer’s policies.

Lender policies remain in force for the entire life of the loan or until you refinance the loan, at which point the lender obtains a new policy.


How Much Does Home Title Insurance Cost?

Like other types of insurance, title insurance policies wrap their fees into a single charge called a premium. Unlike most other types of insurance, title insurance premiums don’t recur every month or year. You pay them all at once during closing.

Some of the factors that affect title insurance premiums include:

  • The value of the property — typically, more expensive properties have higher title insurance costs
  • The amount of work necessary to maintain accurate, up-to-date information on the covered and adjacent properties
  • The amount of work necessary for the title search and examination
  • The amount of work required to cure any defects or adverse interests uncovered by the title search
  • The expected cost of compensating the insured parties for any title defects

The average title insurance policy carries a one-time premium of about $1,000, which covers all upfront work and ongoing legal and loss coverage. However, premiums vary substantially. They can range from less than 0.5% to more than 1% of the purchase price.

State regulation also plays an important role in title insurance premiums. Some states tightly regulate the industry, severely limiting how title insurers can structure their policies and how much they can charge.

In other jurisdictions, title insurance regulation is lighter, and insurers have more leeway to set rates. For example, Wisconsin allows title insurers to follow a “file-and-use” standard, where they can change rates on the fly as long as they notify the state within a set time frame.


Do You Need Title Insurance Coverage?

You’re not required by law to purchase an owner’s title insurance policy. In that sense, you don’t “need” owner’s title insurance.

But choosing not to buy title insurance for yourself could be a very costly mistake. There’s a reason your lender has title insurance. It has seen far too many examples of title issues causing serious financial hardship for homeowners and doesn’t want any part of them.

Without title insurance, you could be held liable for old liens, fines, and other debts attached to the property. Yes, even if the owner who was supposed to pay them is long gone. As the current owner of record, it falls to you to make the creditor whole.

If you’re not able to pay old debts that come to light, you risk losing the property to foreclosure. That’s most commonly for unpaid property taxes, which can be hefty. If you can’t pay the bill for back property taxes and can’t work out a payment plan, the city or county could seize your property and sell it in a tax foreclosure auction.


How to Choose the Right Home Title Insurance Policy

You’ll receive a title insurance recommendation at some point during the underwriting process. Depending on how real estate transactions work in your state, this recommendation might come from your mortgage lender, title agent, real estate agent, or real estate attorney.

Title insurance costs and policy terms rarely vary much between insurers operating in the same jurisdiction. And purchasing title insurance is just one of many things you must do to close on a mortgage loan, so you might feel tempted to act on this recommendation without a second thought.

But you don’t have to. A federal law known as the Real Estate Settlement Procedures Act prohibits anyone from forcing you to use a particular title insurance company. As a real estate buyer, you always have the option to shop around for an owner’s title insurance policy and choose the provider that best fits your needs. You can’t shop around for a lender policy, though.

Because title insurance is so standardized, the most important factor to consider when shopping for an owner’s policy is price. The first closing estimate you receive from your lender should include a line item stating the estimated total cost of your owner’s policy. That’s your number to beat — you want a cheaper policy.

To find that policy, search online using terms like “owner’s title insurance policy in [your state].” Visit each provider’s website and look for pricing information. If you’re lucky, you’ll find actual prices listed on the site, but don’t be surprised if you don’t. A quick phone call should get you a ballpark estimate. 

If you’re buying lender’s insurance and owner’s insurance from the same company, ask about a bundle discount. They won’t necessarily offer one unless you ask. And if the seller bought the home less than 10 years earlier, ask the title company for a reissue rate — basically, an extension of the seller’s current policy.

Once you have several quotes, choose the lowest one. Make sure the policy you end up selecting covers a full title search, defect curing, and future legal expenses. 


Final Word

Title insurance doesn’t come cheap. Depending on factors like where the property is located, how much it’s worth, and how many times it has changed hands over the years, your owner’s title insurance policy could cost anywhere from less than 0.5% to more than 1% of the purchase price.

Add in the lender’s title policy, which is typically cheaper but by no means free, and you’re looking at a sizable addition to your closing costs.

But does that mean title insurance is a bad deal? Hardly. It’s a drop in the bucket compared to the total cost of homeownership, and the protection it provides is potentially invaluable. Though title issues are relatively unlikely to arise on any given property, title insurance ensures you’re not financially liable for past debts or legal expenses related to those issues. 

And in a worst-case scenario, title insurance could mean the difference between staying in your home and losing it to foreclosure. 

When you put it that way, home title insurance sounds like a bargain.

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GME is so 2021. Fine art is forever. And its 5-year returns are a heck of a lot better than this week’s meme stock. Invest in something real. Invest with Masterworks.

Brian Martucci writes about credit cards, banking, insurance, travel, and more. When he’s not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. Reach him on Twitter @Brian_Martucci.

Source: moneycrashers.com

How to File a Homeowners Insurance Claim (After a Loss)

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Additional Resources

If you have a mortgage, it’s very likely you also have an active homeowners insurance policy. Virtually all mortgage lenders require borrowers to carry home insurance, which helps protect the value of their investment — and yours.

You might not think much about your policy. The typical homeowner goes many years without filing a home insurance claim and some never have to. But it’s nice to know your policy is there when disaster strikes.

But insurance companies don’t just send you money when something goes wrong. That’s why it’s important to know what you should expect if and when the time comes to file a claim.

How to File a Homeowners Insurance Claim

Homeowners file home insurance claims for all sorts of reasons, from physical damage caused by storms or fires to monetary losses caused by theft or burglary to injuries sustained by guests on the premises. 


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The details of the claims process depend on what happened along with factors specific to the property insurance company. But if you follow this step-by-step guide, you can easily file and manage a homeowners insurance claim. 

1. File a Police Report (if Applicable)

If you have reason to believe you’re the victim of a crime, file a police report as soon as you become aware of it. Common crimes involving residential property include:

  • Vandalism
  • Arson
  • Burglaries and break-ins
  • Home invasions
  • Theft of personal property

To file the report, call your local police department’s nonemergency phone number or visit its website and look for an option to report a crime online. Only if the crime is still in progress or you believe there’s an ongoing threat to your safety should you call 911.

You must provide official identification, such as a driver’s license number, and may be required to visit the police station in person. Expect to meet a police officer or detective at your home as well, as they’ll need to document the damage. Get the name and badge number of every investigator on the case — the insurance company might need this information later.

Don’t clean anything until they tell you it’s OK to do so. And don’t be surprised if it takes them a few days to get to you, especially if you live in an area where property crime is relatively common.  

Don’t file a police report if your home sustained damage in a natural disaster such as a storm, wildfire, or flood. You should only involve the police if you’re the victim of a person or group of people acting maliciously or negligently.

2. Contact the Insurance Company

Next, contact the insurance company or your insurance agent to begin the claims process. 

Most insurance companies make it easy to file straightforward claims online. Expect to work through a claims representative or your insurance agent for more complicated or high-value claims. 

If you’ve set up an online account with your insurance company, log in and look for a Claims tab or button. It should point you in the right direction — either to the digital forms you’ll need to complete or submit or to a phone number you can call to start the process.

During your initial conversation with the insurance company representative, ask:

  • Whether the claim is likely to be covered by your policy based on your description
  • For a rough estimate of the claim value
  • By when you must file the claim
  • What they need from you to process the claim, including any repair cost estimates

3. Document the Damage

If you filed a police report, ask your contact at the police department if you can use the photos and notes they took at your property. 

If you didn’t file a police report or you have trouble getting photos and detailed notes from the department, do the following:

  • Take as many photos as possible of the damage
  • Make a detailed home inventory of damaged, destroyed, or missing items
  • Write up a detailed summary of what happened to the best of your recollection

Even after documenting the damage, don’t clean anything up or make any cosmetic repairs until an insurance company representative visits the property or tells you it’s OK to tidy up. Otherwise, they might not get a complete picture of the damage and might lowball your payout.

4. Make Temporary Repairs Only if Absolutely Necessary

There are two exceptions to the don’t-clean-up rule. If either applies, make temporary repairs as soon as you’ve finished documenting the damage.

First, if the property is unsafe due to structural damage or other hazards, hire an engineer to recommend repairs and a building contractor to execute them. You might need to relocate temporarily to a hotel or short-term rental until they complete the repairs.

Second, if not repairing the damage would make it worse, do whatever’s necessary to stabilize things. For example, if your roof is open because a tree limb crashed through it, remove the limb and replace that section of the roof before the next rainstorm — or at least fit a tarp over the hole so it doesn’t leak. Any amount of water coming into your home’s living area will cause further damage and increase your total repair costs.

Keep all invoices and receipts associated with these repairs, even if you do the work yourself. You can include them with your claim and may qualify for reimbursement.

5. Submit the Claim

Next, complete your insurance claim. Fill out a proof-of-loss form — the claim form — and provide:

  • Details about what caused the loss
  • The part or parts of your home damaged if it’s not a total loss
  • An inventory of the personal property damaged, destroyed, or stolen
  • The estimated value of the loss or damage
  • The police report if you have one
  • Photos or video of the damage
  • Receipts for costs incurred before the company approved your claim, including for emergency repairs and additional living expenses

If the claim has a liability component — say, a guest or worker sustained a serious injury on the property — include additional documentation like:

  • Any medical records related to the claim, such as itemized medical bills 
  • Any legal records or correspondence related to the claim, such as letters from attorneys representing people injured on the property
  • Contact information for third parties involved in the claim, such as health care providers and lawyers

Submit everything through your insurance company’s online claims portal, by fax, or by mail. If you still owe money on your mortgage, notify your mortgage servicing company of the claim. They might want to hold the payout in escrow while your home is being repaired and could be entitled to keep a portion of it. 

6. Prepare for the Insurance Adjuster Visit

Most home insurance claims require a site visit by an insurance claims adjuster. That’s the person who confirms the damage or loss occurred, determines how extensive it is, comes up with a more precise estimate of the value, and confirms it’s covered by your policy.

If the damage is confined to a single part of the home or property and is clearly visible from the outside, you might not need to be around when the adjuster arrives. But if they need to enter your home or inspect less obvious signs of damage, you must be on-site. They might ask you to be there anyway, as there’s a good chance they’ll want to interview you in person.

Before the adjuster arrives, do the following:

  • Write your story in note form to ensure you have clear, truthful answers during the interview
  • Organize photos and videos of the damage in case the adjuster misses anything 
  • Make notes of specific damaged items or parts of the home you definitely want the adjuster to see
  • Write down any questions you have about the process so you can ask them in person

7. Get Repair Estimates

Once the adjuster confirms the damage is covered and gives you an estimate of its value, get repair estimates from local contractors. Look for contractors that:

  • Are licensed in your home state for the type of work you need done
  • Are adequately bonded and insured — ask the contractor for their insurance company’s name and call them to ensure the contractor has a paid-up policy 
  • Accept payments from home insurance companies, as your insurer might insist on paying part of the settlement directly to the contractor
  • Have good reviews from previous clients and few or no complaints with customer protection organizations like the Better Business Bureau

Get at least three quotes for each repair job. Don’t automatically go with the lowest estimate — you want the job to get done right the first time. However, ensure the total value of all repair estimates is comfortably below the estimated settlement amount your adjuster gave you. If the cost of the job increases due to hidden damage or higher-than-expected costs for labor or materials, you could end up spending more than you get from your insurer.

8. Track the Claim & Follow Up

After submitting the claim, use your insurance company’s online claim tracking tool to monitor its progress. You should be able to access this tool through your online account. If you don’t have one, now is a good time to set one up. 

Follow up with the claims department if you don’t see any progress on your claim for several weeks. Most states require insurers to approve or deny claims within a certain period after filing, typically 30 to 40 days.

Respond promptly if the insurance company contacts you by phone, email, or snail mail. They might need more information to process your claim, and failing to respond could delay processing or even result in a denial.

9. Review the Settlement Offer

If your home insurance claim is approved, your insurance company will present you with a settlement offer. This is a proposed payout based on the assessed value of the damage and the cost of repairs necessary to bring the property back to its previous condition.

If you feel the first settlement offer is fair, tell the insurance company you accept it and prepare to receive the payout. If you believe the offer is too low, you can contest it. 

Your chances of getting a higher offer will be much better if you can provide repair estimates from licensed contractors and show that the insurer’s offer isn’t enough to cover the rebuilding costs.

If the insurer continues to lowball your settlement offer, you can hire a public adjuster. This is an independent insurance adjuster whose job is getting you the best possible settlement, not saving the insurance company money. They negotiate with the insurance company on your behalf and advocate for a higher payout.

But a public adjuster doesn’t come cheap. They’ll most likely charge a percentage of the total insurance payout — typically between 15% and 30%, with the proportion declining as claim value increases. For bigger claims where the insurance company’s initial offer was insultingly low, you’ll probably recover this cost and then some. For smaller claims, hiring a public adjuster might not be worth it.

10. Receive the Payout & Make Repairs

Once you’ve accepted the settlement offer, figure out how the insurance company plans to pay it.

For simple claims that involve straightforward repairs, expect the insurance company to cut you a check or execute an electronic transfer for the full balance of the payout. It’s your responsibility to put that money toward repairs and other expenses stemming from the incident.

If your claim is larger or requires complicated repairs, you won’t receive a lump sum for the full payout. 

If you paid for temporary repairs or paid out of pocket to live somewhere else because your house was unsafe, expect a direct payment for part of the claim value. The insurer might even issue this payment before your claim is officially approved.

If you still have a mortgage, the lender is entitled to a portion of your payout. Expect them to hold their portion in an escrow account you or the repair contractor can draw on to pay for repairs as needed. If you live in a condo or co-op, your community manager or homeowners’ association may do the same.

Alternatively, your lender or homeowners association may simply review and approve the proposed settlement amount, clearing the insurance company to send it to you. If that’s the case, you won’t need to go through an escrow account.

The insurer should also send you a portion of the payout directly. You can use it to cover repair costs without going through the escrow account or getting lender approval.

Ensure you understand how the insurer plans to divide your payout and when you can expect each installment. You don’t want contractors to add late payment fees to your already-hefty repair bills or place a lien on your house because you didn’t have enough money to pay them.


What to Do If Your Homeowners Insurance Claim Is Denied

What happens if the insurance company denies your claim? You have options. 

Start by reviewing your claim and insurance policy. It’s possible you missed an exclusion in your policy that clearly rules out the type of claim you made. If that’s the case, the denial is probably legitimate, and you might not have recourse.

If your insurer sent a letter or digital message explaining why it denied your claim, read it carefully. The message should explain the company’s reasoning in plain English and offer clues as to what you can do to get the company to reconsider. If you’re unclear on anything in this letter, call the insurance company’s claims department and ask them to review your file.

If your homeowners insurance policy covers the issue that prompted the claim, it’s possible the insurer denied it because you didn’t provide clear evidence of damage or loss. More or better photos and videos of the damage or more supporting documentation related to a liability claim might be enough to get the insurer to reconsider.


Home Insurance Claim FAQs

If you still have questions about filing a home insurance claim and working through the home insurance claims process, this quick list of frequently asked questions can help.

How Long Does the Home Insurance Claims Process Take?

It depends on how complicated the claim is. Many states require home insurance companies to approve or deny claims within a certain period, often 30 to 60 days. Simple claims can take just a few days to approve.

Insurers typically make the first payment within 30 to 60 days of approving a claim. Depending on the amount of repair work required, further payments might not come for weeks or months. The last payment for a total rebuild might not come for a year or two.

Does Home Insurance Cover Temporary Living Expenses?

Yes, provided your policy specifically says they are. Look for references to “loss-of-use coverage” or “Coverage D,” depending on the insurer. 

Most policies include loss of use coverage. If you’re unsure your policy covers temporary living expenses, review your policy documents or call your insurance company to confirm. 

If you don’t have it yet and don’t want to pay out of pocket for temporary housing, consider adding it before you actually need it. Doing so will raise your premiums a bit, but you’ll be protected if your house becomes uninhabitable for a time. 

Will Filing a Claim Affect My Home Insurance Rate?

Probably. It’s possible your policy allows you a mulligan — that is, it ignores the first claim on the policy when recalculating your rates. Check your policy documents to see if you’re so fortunate.

Otherwise, expect your premium to increase after you file a claim. How much depends on the type of claim you file and your previous claims history.

Insurers are more forgiving of one-off claims and weather-related claims homeowners can’t control. They’re less forgiving of claims related to burglary, theft, and property damage caused by guests. 

They especially frown on liability claims arising from unsafe conditions at your property. In fact, it’s common for insurers to drop homeowners who file liability claims. And your premiums may increase by more for subsequent claims than for the first one made on your policy.

Can I Keep Any Leftover Payout Funds After I Make Repairs?

Often, yes. But some caveats apply:

  • Restrictions Written Into the Policy. Many home insurance policies don’t expressly prohibit homeowners from keeping unused settlement funds. But some do. If yours does, you must return the balance to the insurer once an inspector approves the repairs.
  • Contingent on Inspection. For bigger jobs, expect an adjuster to verify the work is proper and complete. If they suspect you skimped so you could pocket the payout, they may require you to do more work or simply ask for the unused funds back.
  • Funds Withheld or Held in Escrow. You’re not entitled to keep any portion of the payout held in escrow by your lender or withheld by the insurance company pending completion of repair work. If you don’t end up needing those funds, don’t expect to see them.

Final Word

Filing a home insurance claim takes time and can cause considerable frustration. However, it’s often the best way to reduce the financial burden of damage or losses caused by storms, burglars, or unruly guests. If you don’t have an umbrella insurance policy, a home insurance claim might be your best — and perhaps only — protection from a potentially ruinous lawsuit.

However, you shouldn’t file a home insurance claim lightly. Doing so is likely to raise your premiums. Depending on the type of claim, your insurer might even choose not to renew coverage. That could force you to scramble to find backup coverage, likely at a higher cost than before.

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GME is so 2021. Fine art is forever. And its 5-year returns are a heck of a lot better than this week’s meme stock. Invest in something real. Invest with Masterworks.

Brian Martucci writes about credit cards, banking, insurance, travel, and more. When he’s not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. Reach him on Twitter @Brian_Martucci.

Source: moneycrashers.com

Rolling Closing Costs Into Home Loans: Here’s What You Should Know

You may be spared the pain of paying closing costs upfront, depending on the type of loan and the lender’s criteria, but you’ll either be given a higher interest rate on the mortgage to cover those costs or see the costs added to your principal balance.

Heard of a no closing cost mortgage or refinance? Sounds divine, but mortgage closing costs are as certain as death and taxes. They must be accounted for, one way or the other.

If you’re thinking about what’s needed to buy a house, keep closing costs in mind.

What Are Closing Costs?

A flock of fees known as closing costs on a new home are part and parcel of a sale. They typically range from 2% to 5% of the home’s purchase price.

Closing costs include origination fees, recording fees, title insurance, possibly points, appraisal fee, property taxes, and homeowners insurance. Some of the costs are unavoidable; lender fees are negotiable.

Closing costs come into play when acquiring a mortgage and when refinancing an existing home loan.

You may cover closing costs with a cash payment at closing, with your down payment, or by tacking them on to your monthly loan payments. You may also be able to negotiate with the sellers to have them cover some or all of the closing costs.

Can Closing Costs Be Rolled Into a Loan?

If you’re buying a home and taking out a new mortgage, your lender may allow you to roll your closing costs into the loan, depending on:

•   the type of home loan

•   the loan-to-value ratio

•   your debt-to-income (DTI) ratio

Rolling closing costs into your new mortgage can raise the DTI and loan-to-value ratios above a lender’s acceptable level. If this is the case, you may not be able to roll your closing costs into your loan.

If your loan-to-value ratio is too high, you may be forced to pay private mortgage insurance. In that case, it may be worth it to pay your closing costs upfront if you can.

If you hear of someone who’s taken out a mortgage and says they rolled their closing costs into their loan, they may have actually acquired a lender credit — the lender agreed to pay the closing costs in exchange for a higher interest rate in a “no closing cost mortgage.”

A no closing cost refinance works similarly.

Not all closing costs can be financed. For example, you can’t roll in the cost of homeowners insurance or prepaid property tax. Some of the costs that may be included are the origination fees, title fees and title insurance, appraisal fees, discount points, and the credit report fee.

What about government-backed mortgages? Most FHA loan closing costs can be financed.

VA loans usually require a one-time VA “funding fee.” A borrower can roll the funding fee into the mortgage.

USDA loans will allow borrowers to roll closing costs into their loan if the home they are buying appraises for more than the sales price. Buyers can then use the extra loan amount to pay the closing costs.

Finally, for FHA and USDA loans, the seller may contribute up to 6% of the home value as a seller concession for closing costs.

How to Roll Closing Costs Into a Home Loan

When you’re refinancing an existing mortgage and you roll in closing costs, you add the cost to the balance of your new mortgage. This is also known as financing your closing costs. Instead of paying for them up front, you’ll be paying a small portion of the costs each month, plus interest.

Pros of Rolling Closing Costs Into Home Loans

If you don’t have the cash on hand to pay your closing costs, rolling them into your mortgage could be advantageous, especially if you’re a first-time homebuyer or short-term homeowner.

Even if you do have the cash, rolling closing costs into your loan allows you to keep that cash on hand to use for other purposes that may be more important to you at the time.

Cons of Rolling Closing Costs Into Home Loans

Rolling closing costs into a home loan can be expensive. By tacking on money to your loan principal, you’ll be increasing how much you spend each month on interest payments.

You’ll also increase your DTI, which may make it more difficult for you to secure other loans if you need them.

By adding closing costs to your loan, you are also increasing your loan to value, which means less equity and, often, private mortgage insurance.

Here are pros and cons of rolling closing costs into your loan at a glance:

Pros of Rolling In Costs Cons of Rolling In Costs
Allows you to afford a home loan if you don’t have the cash on hand Increases interest paid over the life of the loan
Allows you to keep cash for other purposes Increases DTI, which can lower your ability to secure future credit
May allow you to buy a house sooner than you would otherwise be able to Increases loan to value, which may trigger private mortgage insurance
Reduces the amount of equity you have in your home

Is It Smart to Roll Closing Costs Into Home Loans?

Whether or not rolling closing costs into a home loan is the right choice for you will depend largely on your personal circumstances. If you don’t have the money to cover closing costs now, rolling them in may be a worthwhile option.

However, if you have the cash on hand, it may be better to pay the closing costs upfront. In most cases, paying closing costs upfront will result in paying less for the loan overall.

No matter which option you choose, you may want to do what you can to reduce closing costs, such as negotiating fees with lenders and trying to negotiate a concession with sellers in which they pay some or all of your costs. That said, a seller concession will be difficult to obtain if the housing market in your area is competitive.

The Takeaway

Closing costs are an inevitable part of taking out a home loan or refinancing one. Rolling closing costs into the loan may be an option.

If you’re in the market for a mortgage or a refinance, check out home loans with SoFi.

SoFi allows qualifying borrowers to roll closing costs into the mortgage. And SoFi’s fixed rates and terms are worth taking note of.

Get rolling and find your rate today.

FAQ

What is a no closing cost mortgage?

The name of this kind of mortgage is a bit misleading. Closing costs are in play, but the lender agrees to cover them in exchange for a higher interest rate or adds them to the loan balance.

How much are home closing costs?

Closing costs are usually 2% to 5% of the purchase price of a home.

Can you waive closing costs on a home?

Some closing costs must be paid, no matter what. But you can try to negotiate origination and application fees with your lender. You may even be able to get your lender to waive certain fees entirely.


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Home Loans
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Source: sofi.com

Everything You Need to Know About a Reverse Mortgage: Pros and Cons

Reverse mortgages can help older homeowners free up cash in retirement by borrowing against the value of their home.

It can help retirees age in place while producing a stream of income for everyday expenses.

But reverse mortgages are complex and controversial. Strict rules must be followed to avoid foreclosure, and the costs can outweigh the benefits.

If you’re considering a reverse mortgage for yourself or someone you know, it’s important to understand the advantages and disadvantages involved.

In this guide, we break down everything you need to know about how reverse mortgages work and who can benefit from this type of loan.

What Is a Reverse Mortgage?

A reverse mortgage is a type of loan that allows property owners ages 62 and older to convert home equity into cash.

Unlike a regular mortgage, you don’t need to make monthly loan payments. Instead, your lender pays you, and your debt increases over time.

The loan is settled or repaid when you sell the home, move out or die.

According to The Brookings Institute, the average maximum claim amount on reverse mortgages is about $275,000, and the average borrower age is 73.

Types of Reverse Mortgages

There are three types of reverse mortgages.

Home Equity Conversion Mortgages

These are the most common type of reverse mortgage loan and are only available to homeowners ages 62 and older.

HECM loans are backed by the Federal Housing Administration (FHA), and must meet strict rules and lending standards.

HECM loans are non-recourse loans. This means you’ll never owe more than what your house is worth — even if its market value drops.

Private (Proprietary) Reverse Mortgages

These reverse mortgages are much riskier because they are not insured by the federal government. They’re typically designed for borrowers with higher home values.

Single-Purpose Reverse Mortgages

These loans are offered by some state and local governments and nonprofit agencies to help homeowners fund a specific need, such as home improvements or property taxes.

These loans aren’t available in all areas and only homeowners with low to moderate incomes may qualify.

Reverse Mortgage Process: How Does It Work?

If you’ve built considerable equity in your primary residence (usually at least 50% of the property’s value), you can work with a reverse mortgage counselor to find a lender and a program that meets your needs.

Remember: You must attend a HUD counseling session administered by an approved counseling agency to qualify for a HECM loan.

Next, the counselor would tell you how to apply for a loan through a specific program.

The lender will perform a credit check and review your property (including the title and appraised value).

Your home needs to be in good shape to qualify for a reverse mortgage. If it doesn’t meet certain property standards, the mortgage lender may require that certain repairs be made before approving a reverse mortgage loan.

If everything checks out and you’re approved, the lender funds the loan.

Like a regular mortgage, a reverse mortgage can have either a fixed rate or an adjustable interest rate.

Pro Tip

Reverse mortgages tend to have higher interest rates than traditional mortgages. 

A woman looks out the window of her home while sipping coffee.
Getty Images

Reverse Mortgage Cost and Fees

Reverse mortgage fees can be substantial.

These costs include:

  • Mortgage insurance premium
  • Origination fee
  • Servicing fee
  • Interest on the loan
  • Third-party charges

Interest and fees are added to the loan balance each month. Unlike a regular mortgage, the amount you owe on a reverse mortgage increases over time.

This means you’ll get charged interest and fees on top of the interest and fees that were added to your previous month’s loan balance.

But remember: You don’t need to repay the loan until you move out, sell the home or pass away.

Receiving Reverse Mortgage Proceeds

How much money you receive from a reverse mortgage depends on your age, the interest rate on your loan and the value of your home.

Loan proceeds can pay out in one of the following ways:

  • A lump sum.
  • A line of credit.
  • Yearly, quarterly or monthly payments.

You choose how funds are paid out. Most reverse mortgages are processed within 30 to 60 days.

If your home isn’t fully paid off, reverse mortgage funds must be used to pay off the existing mortgage.

Repaying a Reverse Mortgage

You can choose to make payments on the loan to reduce your debt — but it’s not required. You don’t need to make monthly mortgage payments like you would with a traditional mortgage.

You’re still required to pay homeowners insurance, property taxes and HOA fees. Otherwise, you can face default or even foreclosure.

Many reverse mortgage loans aren’t repaid by the borrower. Instead, when the borrower dies, the borrower’s heirs repay the loan or sell the home to satisfy the debt.

The borrower (or their estate) gets any leftover money from the sale after the loan is paid.

Reverse Mortgage Pros and Cons

Taking out a reverse mortgage can help older people age at home. But it comes with costs and risks.

It’s important to understand both the benefits and disadvantages of a reverse mortgage before you sign on the dotted line.

You should consider all of your borrowing and housing options —  including a home equity loan, refinancing or downsizing — before you get a reverse mortgage.

An elder law attorney or financial advisor can also help you explore these options.

Reverse Mortgage Pros

Here are some advantages to getting a reverse mortgage.

You Get To Stay In Your Home

You get to keep the title to your property, and stay in a familiar place. You can use proceeds from the loan to pay for home improvements and other needs.

The home loan balance isn’t due until you move out, sell the property or pass away.

The Money You Receive Isn’t Taxable

The Internal Revenue Service (IRS) doesn’t consider money from a reverse mortgage income. Instead, it’s categorized as a loan advance, which means you receive the money tax-free.

This is unlike other retirement income, such as distributions from a 401(k) or IRA.

It Can Help Fund Your Retirement

Unexpected financial shocks are common in retirement. Reverse mortgages were originally designed for older homeowners on a fixed income who struggle to cover living expenses but who have a lot of wealth built up in their homes.

These seniors are often referred to as “house-rich and cash-poor.”

If an unexpected job loss, health issues or death of a spouse leaves you with limited savings, monthly payments from a reverse mortgage can help supplement your retirement income.

Reverse mortgages can also help pay off debts. For example, you can use funds to pay off an existing mortgage if the balance is low.

Reverse mortgages aren’t a perfect solution for retirement money problems, though. It’s possible to default on the loan and lose your home to foreclosure if you don’t meet certain requirements.

Different Payout Options

You can receive money from a reverse mortgage in a single lump sum, periodic payments or as a line of credit. The last option lets you tap reverse mortgage funds when you need them.

A Single-Purpose Reverse Mortgage Could Serve Your Needs

A single-purpose reverse mortgage is a special type of home loan generally offered by state agencies and nonprofit organizations.

This kind of reverse mortgage tends to offer lower fees and interest rates. Unlike HCEM loans — which can be used for any reason — a single-purpose reverse mortgage restricts how the funds are spent. For example, you may only be able to tap funds for home improvements or to pay property taxes.

A senior citizen looks stressed out while sitting at his kitchen table.
Getty Images

Cons of Reverse Mortgages

Violating the terms of your reverse mortgage agreement can result in foreclosure — and leave you on the street.

It’s critical to understand the disadvantages of reverse mortgages before you enter into an agreement with a lender.

A Reverse Mortgage Isn’t Free — Or Cheap

You’ll need to maintain homeowners insurance, taxes and HOA fees.

You also need to pay an upfront mortgage insurance premium at closing which can equal 2% of your home’s appraised value.

According to the Consumer Financial Protection Bureau, other closing costs can include an appraisal, title search, surveys, inspections, recording fees, mortgage taxes and credit checks.

You’ll also face origination fees when you sign up for a reverse mortgage. Origination fees are capped at $6,000 and vary based on your loan amount.

You can pay these closing costs and fees in cash or by using the money from your loan.

While you have the option of rolling these costs into your loan balance, you’ll end up receiving less money as a result.

Aside from these upfront costs, there are also ongoing expenses added to your loan balance each month.

This includes yearly mortgage insurance premiums equal to 0.5% of the outstanding mortgage balance. These insurance premiums are charged by the lender and are paid to the Federal Housing Administration.

Mortgage insurance premiums are paid in addition to your homeowners insurance.

You Could Lose Your Home to Foreclosure

Reverse mortgage lenders can foreclose on your home for several reasons.

The most common are:

  • You fail to pay property taxes, homeowners insurance, HOA fees and other costs associated with owning your home.
  • The home is no longer your primary residence (you don’t live there for at least six months out of the year).
  • You don’t keep up with repairs or maintain your home as required by your lender.

If you fall into one of these situations, you could default on the reverse mortgage and lose your home to foreclosure.

Your Heirs Probably Won’t Get The House

If you leave the house to your heirs, they will need to repay the total reverse mortgage balance or 95% of the home’s appraised value — whichever is less — to keep the property.

This leaves your heirs with the following options:

  • Pay out of pocket to cover the loan.
  • Get financing to pay off the loan.
  • Sell the home.
  • Turn the home over to the lenders to satisfy the debt.

Once the debt is satisfied, there may not be any equity left for your heirs.

Roommates and Family Could End Up On The Street

Any friends, non-spouse relatives or roommates who live with you will likely need to vacate the home after you die. The same applies if you leave the property for more than a year.

Non-borrowing spouses can remain in the home following the death of a reverse-mortgage holder. So can a surviving borrower listed on loan documents.

(Keep in mind no one living with you under the age of 62 can be a borrower on a reverse mortgage.)

It Could Affect Your Medicaid And Other Benefits

A reverse mortgage can impact your eligibility for government need-based programs.

The money you receive from the loan can cause you to violate asset restrictions for Medicaid and Supplemental Security Income (SSI).

This is more likely to happen to reverse mortgage borrowers who receive the loan as a lump sum and don’t spend the money down after 30 days.

If you’re currently enrolled in one of these government programs, it’s best to speak with a social worker, benefits specialist or elder law attorney before getting a reverse mortgage.

Reverse Mortgage FAQs

Who Qualifies for a Reverse Mortgage?

To qualify for a Home Equity Conversion Mortgage, you must be at least 62 years old and a homeowner. 

Here are other requirements you must meet to qualify for a federally-backed reverse mortgage:

  • Your home must be your principal residence.
  • Your home must be in good condition. 
  • You must own your home outright or have a low mortgage balance. 
  • You need to have the financial resources to keep up with property taxes, insurance premiums and HOA fees. 
  • You can’t be delinquent on any federal debt, including federal income taxes and federal student loans. 
  • You must undergo counseling from a HUD-approved reverse mortgage counseling agency.

Who Is a Good Fit For a Reverse Mortgage?

A reverse mortgage is best for older Americans who plan to age in place at their current home until they pass away. 

While it can free up income for retirement, this type of loan is best for people who can afford other financial obligations, such as homeowners insurance and yearly property taxes. 

It’s also suitable for people who don’t want to pass down their home to their children or other family members. 

When Is A Reverse Mortgage a Bad Idea?

Reverse mortgages aren’t a good idea if you already struggle to afford your property taxes, insurance payments and upkeep on your home. 

These expenses don’t go away when you get a reverse mortgage. You can set aside reverse mortgage funds to pay for these expenses, but that will reduce the amount of liquid cash available to pay other costs. 

Reverse mortgages are also a bad idea if you plan to move anytime soon. It doesn’t make sense to throw away thousands of dollars in home equity if you plan to sell your home in the next few years. 

If you decide to sell your home while you have a reverse mortgage, you must repay the entire loan you borrowed plus interest and fees. 

Finally, if your spouse isn’t at least 62, getting a reverse mortgage can be a bad idea. 

Federal laws protect your non-borrowing spouse from losing the home if you die first — but they can’t receive any additional mortgage proceeds after you pass away. Losing these monthly payments or line of credit could make it impossible for your spouse to make ends meet. 

Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.

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Source: thepennyhoarder.com

What is the Fair Housing Act and How Does It Impact Renters?

Life isn’t fair, but equal opportunity access to housing should be.

There are many ways for a person to experience discrimination. Historically, certain groups have faced discrimination in just about every way possible. For example, perhaps they’re not paid the same wage as a similarly qualified co-worker, someone forced them out of an area due to urban development or denied them other basic rights. It’s of general public importance that society and the Department of Justice continue to chip away at such injustices, futile as it may seem sometimes.

Discrimination in housing happens when someone denies housing to a person on the basis of race, color, religion, sex (both sexual orientation and gender identity), disability status, national origin or familial status. One would hope that society has come past all of that, but the Fair Housing Act sets up rules and standards so that landlords and property managers don’t try to pull a fast one.

What was the result of the Fair Housing Act of 1968?

Sadly, the Fair Housing Act of 1968 was a long time coming. It was finally passed as Title VIII of the Civil Rights Act of 1968 just after the assassination of the Rev. Dr. Martin Luther King, Jr. In fact, President Lyndon Johnson promoted the passage of the act as a tribute of sorts to Dr. King, as he’d been a major supporter of fair housing practice rights throughout the civil rights movement.

Since the passage of the Fair Housing Act, it is much more difficult for landlords and property owners to engage in discrimination in housing, even as housing and urban development continually change the landscape of America. It also makes it unlawful for a mortgage lender to refuse funds based on personal characteristics.

Black and white hands gripped together.

Black and white hands gripped together.

What is the main purpose of the federal Fair Housing Act?

The main purpose of the Fair Housing Act is to eliminate housing discrimination. Although it has made a significant dent, the housing industry is far from perfect today. In fact, the Harvard T.H. Chan School of Public Health released data in 2017 that says that 45 percent of African Americans, 31 percent of Latinos, 17 percent of Native Americans and 25 percent of Asian Americans report being victims of housing discrimination when attempting to either buy or rent housing. This is likely because there are lots of ways to discriminate against potential tenants that aren’t just saying, “No, you can’t live here.”

What characteristics are in the Fair Housing Act?

The federal government prohibits discrimination against certain groups during any part of the housing process. This includes such behavior from landlords, property managers, brokers, mortgage lenders, insurance companies and real estate agents. Most of them are pretty obvious, but here’s a breakdown of the categories.

  • Race. It’s illegal to discriminate based on a person’s race, or even their perceived race. This also includes multiracial people, as well as those engaged in a relationship with a person of a different race.
  • Color. The color of a person’s skin cannot be considered in housing matters. This includes whether a person’s skin is lighter or darker or between members of the same race.
  • Religion. Housing cannot be denied or influenced by the applicant or buyer’s religion.
  • Sex. This includes housing discrimination based on “actual or perceived gender identity and sexual orientation.” Sexual harassment is also vigorously protected.
  • Disability status. Protects against discrimination of people with any type of disability, whether mental or physical. A few examples of disability are those with HIV, cancer, drug addiction, alcoholism, mental illness, visual/speech/hearing impairments, autism, epilepsy, etc. It doesn’t apply to people who are, “current users of illegal controlled substances, but does provide protections for individuals with drug or alcohol addiction.” People with disability status also have the right to accessibility requirements.
  • National origin. According to the Department of Justice, national origin refers to the country where a person was born, or where his or her ancestors came from.
  • Familial status. The Fair Housing Act doesn’t allow discrimination against families with children under 18. The exception, of course, is facilities established as “Housing for Older Persons,” also known as 55+ community developments.

Unfair decisions about housing based on these characteristics apply to properties for sale or rental properties in suburban or urban development situations.

Denying and application

Denying and application

The many ways the Fair Housing Act prevents discrimination based on national origin, race, etc.

The Fair Housing Act isn’t exactly light reading. It has a lot of components that people aren’t aware of, and, in fact, may think that certain behaviors are normal during the renting or buying process. It becomes all the more critical as housing and urban development continue to rage. Here’s a breakdown of the components of the Fair Housing Act:

How housing discrimination is prevented in cases of sale or rental housing

At the risk of being redundant, the Fair Housing Act makes it unlawful to refuse housing because of race, color, religion, sexual orientation, gender identity, religion, familial status, national origin or disability status. Housing providers cannot discriminate against someone by using one of those factors to do the following:

  • Decline to sell housing, refuse to rent housing based on personal characteristics
  • Decline to negotiate on housing based on those same reasons
  • Make housing unavailable
  • Change the parameters for sale or rental to less favorable terms. So, the landlord cannot alter the privileges, terms or conditions of the contract based on personal characteristics.
  • Change the sale or rental price
  • Offer or suggest different housing options in a discriminatory manner. For example, it’s unlawful to steer someone to a different unit based on family status, like whether they have children under 18. Or, whether or not they receive housing assistance.
  • Put out an advertisement that displays any preference. Phrases like, “Perfect for singles” or “young professionals” are not allowed because that discriminates against older people, those in blue-collar jobs and families.
  • Lies and says that a particular unit is not available
  • Change or use totally different application or qualification criteria altogether to discriminate against people in housing and urban development. This includes application fees, application procedure, income requirements, credit score requirements, etc.

Wheelchair ramp to provide accessibility

Wheelchair ramp to provide accessibility

How the Fair Housing Act prohibits discrimination against someone already in housing

  • Harass the tenant about anything related to race, color, sexual orientation, familial status, etc. Sexual harassment is also strictly prohibited.
  • Delay or totally fail to perform repairs or maintenance of housing based on a tenant’s race, disability status, etc. Or, if the owner refuses to make reasonable accommodation so that a person with a disability can fully use the unit and amenities.
  • Evict the renter or their guest without just cause
  • Steer the tenant to certain areas, like a particular part of the building
  • Place limits on amenities, privileges, facilities, etc. In other words, the property manager can’t dictate whether or not certain people can use community access amenities, like the swimming pool or laundry room.
  • Manipulate the process of obtaining homeowners insurance. For example, a provider can’t change the terms or refuse to insure a person or family based on race, etc.
  • Refuse a person’s membership in a real estate brokers’ association or a multiple listing service based on personal characteristics
  • Attempt to profit on the listing or sale of a home by persuading owners to sell because “people of a particular protected characteristic are about to move into the neighborhood.” This is known as blockbusting.

How the Fair Housing Act prohibits discrimination in housing during the mortgage process

The Fair Housing Act also extends to protect people from discrimination during the mortgage lending process. A lender cannot do any of the following based on a person’s race, color, religion, sexual orientation, gender identity, religion, familial status, national origin or disability status.

  • Deny a mortgage loan or other types of financial assistance
  • Deny a person loan information
  • Alter terms or conditions based on racial discrimination. For example, interest rates, fees, points, etc.
  • Inaccurately appraise a dwelling as a form of discrimination in housing
  • Refuse to buy a loan based on race, etc.
  • Place conditions on a loan that hinge on a renter/buyer’s response to harassment

There are obviously many ways for a person to experience discrimination in housing. Even though the Fair Housing Act prohibits discrimination outright, it certainly still occurs.

Is anyone exempt from following the Fair Housing Act?

A few types of landlords and owners are exempt from adhering to the Fair Housing Act’s standards. For example, an owner who sells or rents out a single-family home without using an agent is exempt. So is an owner who occupies a building that has four or fewer units. Lastly, if a religious group or club operates private housing for members only, they are exempt, as well.

Young woman looking confused.

Young woman looking confused.

What to do if you’ve experienced housing discrimination

Both state law and federal law prohibit discrimination in regard to housing. However, it still happens, so it’s important to know what to do if you face housing discrimination. Individual states have their own channels to report housing discrimination, or a person can file a complaint online via the U.S. Department of Housing and Urban Development (HUD). HUD also accepts complaints by email, telephone or regular mail. HUD responds to all complaints within 10 business days.

You must file complaints within one year of the encounter, however, so don’t let them languish. Include all of the following information in the complaint:

  • Your name and address
  • The name and address of the person you’re complaint is regarding
  • Address of the housing involved in the complaint
  • Date(s) of the incident
  • A brief summary of the incident in question

Upon receiving the complaint, it’s thoroughly investigated. Fair housing rights investigators talk to all parties involved, including any witnesses and determine if there’s reasonable cause to move forward. They collect any details and data and then, help everyone involved in the complaint come to an agreement.

If necessary, the illegal discrimination complaint could wind up in front of an administrative law judge in federal or state court. This is especially likely if a person decides to file suit against a community development, public housing or other housing providers.

If the Justice Department finds merit in the claim, they will likely inflict civil penalties. For the first violation of the Fair Housing Act, civil penalties are a maximum of $16,000. For the second violation within the past five years, the penalty is $37,500. If two or more violations occur within a seven-year period, the penalty is $65,000. The Department of Justice is not playing around!

The impact of housing discrimination

It’s probably very tempting to ignore instances of housing discrimination based on race, etc. Despite the stress and effort involved in the complaint process, it’s absolutely important to fight back against illegal discrimination practices.

In addition to being of general public importance, civil rights are an ongoing battle for people of all types, whether it’s to do with accessibility requirements for disabled people, sexual harassment, national origin, sexual orientation or anything else.

Source: rent.com