The Average Homeowner Now Has $207,000 in Tappable Equity: The Question Is How Do You Tap It?

While prospective home buyers continue to grapple with high mortgage rates and limited supply, existing owners are getting richer.

A new report from Black Knight revealed that the average American homeowner is sitting on more than $207,000 in tappable equity.

The phrase “tappable equity” means an amount that leaves a 20% equity buffer in place, aka 80% loan-to-value (LTV).

This is generally what banks and mortgage lenders will allow homeowners to borrow to ensure they have some skin in the game.

The question though is how do you tap into that equity, especially in a rising rate environment?

Does a Cash Out Refinance Still Make Sense?

tappable equity

  • Mortgage holders withdrew more than $75 billion in the first quarter of 2022 via cash out refinances
  • The cash out refinance share jumped to 75% during Q1 as rate/term refis waned
  • Early Q2 data suggests higher mortgage rates will dampen demand going forward

As noted, American homeowners are sitting on a staggering amount of available home equity.

At last glance, it was over $11 trillion, or roughly $207,000 per mortgage holder.

That figure is up from $127,000 at the start of the pandemic, and more than 2X the levels seen back in 2006 during the prior market height.

Here’s the problem though – mortgage rates have also basically doubled since the start of the pandemic, making a refinance a tough sell.

Still, cash out refinance volume doubled over the past 12 months, with such loans accounting for 75% of all refinances in the first quarter of 2022.

That was up from a 61% share in the fourth quarter of 2021 and 36% from a year earlier.

Of course, refinance lending overall was down 54% in the first quarter from the same period a year earlier, thanks to an 80% drop in rate/term refis.

Meanwhile, cash-out refis were off just 4% on an annual basis. However, the number of transactions fell for the second consecutive quarter, and growth in overall equity withdrawals slowed.

Ultimately, a cash out refinance won’t make sense for a lot of homeowners if their existing mortgage rate is in the 2-3% range.

Sure, it’s nice to tap into that equity, but not if you have to replace your first mortgage rate with a 5-6% interest rate.

What About a Second Mortgage, Such as a HELOC or Home Equity Loan?

The alternative a lot of borrowers are looking at now that mortgage rates are no longer on sale is a second mortgage.

Banks and mortgage lenders are also ramping up their offerings to account for this trend.

There are basically two main options available to homeowners; a home equity line of credit (HELOC) and a fixed-rate closed second.

The HELOC works similarly to a credit card in that you can borrow only what you need, pay it back over time, or simply keep it open for a rainy day.

The downside to the HELOC is that it features an adjustable interest rate, which is tied to the prime rate.

Whenever the Fed moves rates higher, the prime rate will go up by the same amount.

The Fed is expected to raise rates .50% in June and July to tame inflation. This will translate to a 1% increase in HELOC rates.

Of course, they might be done after that, and if the economy goes into a recession, they could turn around and lower rates too.

So HELOCs might have a somewhat telegraphed price assumption over the next year or so.

If you are risk averse, there’s the home equity loan, which allows you to borrow the full amount at closing.

You get a lump sum of your equity, but no additional draws in the future. The upside is that the interest rate is typically fixed.

The downside is that the interest rate is likely higher than a HELOC to account for the fixed rate advantage.

And as noted, you borrow the full amount, whether you need it or not. This means paying interest on the full amount.

Still, either option may be advantageous to a cash out refinance, which disrupts your first mortgage.

Use a Home Equity Sharing Company?

There are also so-called “home equity sharing companies” where you trade a portion of future home price appreciation for cash today.

One such company in this emerging industry is Point, which allows you to get payment-free cash.

However, you do give up a share of your (hopefully) rising property value in exchange, and they charge an upfront transaction fee that is deducted from your proceeds.

The cost of borrowing then depends upon when you pay it back, via home sale, refinance, or simply buying them out. And how much your property appreciates during that time period.

There was a similar company called Noah, which paused applications a while back. It’s unclear if they’ll resume lending at some point.

Other names in the nascent field include Hometap, Unison, and Unlock.

Personally, I don’t love the idea of giving up future gains, especially when they’re unknown. But it’s an option nonetheless.

Seniors Can Consider a Reverse Mortgage to Tap Available Home Equity

One final option to consider, assuming you’re a senior (62+) is the reverse mortgage.

Not only does it allow you to tap your available home equity, but it also comes with no monthly payments.

This is obviously a plus if you’re retired or close to retirement and want to keep your home, but need cash.

It may also be easier to qualify for a reverse mortgage versus a traditional mortgage, especially for fixed income borrowers.

Like the options discussed above, it’s possible to take out a reverse mortgage as a line of credit, or opt for a lump sum payout.

Additionally, you can opt for an adjustable-rate mortgage or a fixed-rate mortgage. So there’s lots to consider.

There are pros and cons to all those options, and which one you choose will be based on your individual needs and risk appetite.

Reverse mortgages can be more complicated than a traditional mortgage, so shopping around could come with the added benefit of education.

It may also allow you to see more loan program options and scenarios to choose from, including proprietary offerings.

To sum things up, it’s not nearly as cheap as it was just a few months ago to tap your home’s equity, but there are still opportunities on the table.

Take the time to educate yourself about each to determine which, if any, is best for you.

Source: thetruthaboutmortgage.com

The Average Homeowner Now Has $207,000 in Tappable Equity: The Question Is How Do You Tap It?

While prospective home buyers continue to grapple with high mortgage rates and limited supply, existing owners are getting richer.

A new report from Black Knight revealed that the average American homeowner is sitting on more than $207,000 in tappable equity.

The phrase “tappable equity” means an amount that leaves a 20% equity buffer in place, aka 80% loan-to-value (LTV).

This is generally what banks and mortgage lenders will allow homeowners to borrow to ensure they have some skin in the game.

The question though is how do you tap into that equity, especially in a rising rate environment?

Does a Cash Out Refinance Still Make Sense?

tappable equity

  • Mortgage holders withdrew more than $75 billion in the first quarter of 2022 via cash out refinances
  • The cash out refinance share jumped to 75% during Q1 as rate/term refis waned
  • Early Q2 data suggests higher mortgage rates will dampen demand going forward

As noted, American homeowners are sitting on a staggering amount of available home equity.

At last glance, it was over $11 trillion, or roughly $207,000 per mortgage holder.

That figure is up from $127,000 at the start of the pandemic, and more than 2X the levels seen back in 2006 during the prior market height.

Here’s the problem though – mortgage rates have also basically doubled since the start of the pandemic, making a refinance a tough sell.

Still, cash out refinance volume doubled over the past 12 months, with such loans accounting for 75% of all refinances in the first quarter of 2022.

That was up from a 61% share in the fourth quarter of 2021 and 36% from a year earlier.

Of course, refinance lending overall was down 54% in the first quarter from the same period a year earlier, thanks to an 80% drop in rate/term refis.

Meanwhile, cash-out refis were off just 4% on an annual basis. However, the number of transactions fell for the second consecutive quarter, and growth in overall equity withdrawals slowed.

Ultimately, a cash out refinance won’t make sense for a lot of homeowners if their existing mortgage rate is in the 2-3% range.

Sure, it’s nice to tap into that equity, but not if you have to replace your first mortgage rate with a 5-6% interest rate.

What About a Second Mortgage, Such as a HELOC or Home Equity Loan?

The alternative a lot of borrowers are looking at now that mortgage rates are no longer on sale is a second mortgage.

Banks and mortgage lenders are also ramping up their offerings to account for this trend.

There are basically two main options available to homeowners; a home equity line of credit (HELOC) and a fixed-rate closed second.

The HELOC works similarly to a credit card in that you can borrow only what you need, pay it back over time, or simply keep it open for a rainy day.

The downside to the HELOC is that it features an adjustable interest rate, which is tied to the prime rate.

Whenever the Fed moves rates higher, the prime rate will go up by the same amount.

The Fed is expected to raise rates .50% in June and July to tame inflation. This will translate to a 1% increase in HELOC rates.

Of course, they might be done after that, and if the economy goes into a recession, they could turn around and lower rates too.

So HELOCs might have a somewhat telegraphed price assumption over the next year or so.

If you are risk averse, there’s the home equity loan, which allows you to borrow the full amount at closing.

You get a lump sum of your equity, but no additional draws in the future. The upside is that the interest rate is typically fixed.

The downside is that the interest rate is likely higher than a HELOC to account for the fixed rate advantage.

And as noted, you borrow the full amount, whether you need it or not. This means paying interest on the full amount.

Still, either option may be advantageous to a cash out refinance, which disrupts your first mortgage.

Use a Home Equity Sharing Company?

There are also so-called “home equity sharing companies” where you trade a portion of future home price appreciation for cash today.

One such company in this emerging industry is Point, which allows you to get payment-free cash.

However, you do give up a share of your (hopefully) rising property value in exchange, and they charge an upfront transaction fee that is deducted from your proceeds.

The cost of borrowing then depends upon when you pay it back, via home sale, refinance, or simply buying them out. And how much your property appreciates during that time period.

There was a similar company called Noah, which paused applications a while back. It’s unclear if they’ll resume lending at some point.

Other names in the nascent field include Hometap, Unison, and Unlock.

Personally, I don’t love the idea of giving up future gains, especially when they’re unknown. But it’s an option nonetheless.

Seniors Can Consider a Reverse Mortgage to Tap Available Home Equity

One final option to consider, assuming you’re a senior (62+) is the reverse mortgage.

Not only does it allow you to tap your available home equity, but it also comes with no monthly payments.

This is obviously a plus if you’re retired or close to retirement and want to keep your home, but need cash.

It may also be easier to qualify for a reverse mortgage versus a traditional mortgage, especially for fixed income borrowers.

Like the options discussed above, it’s possible to take out a reverse mortgage as a line of credit, or opt for a lump sum payout.

Additionally, you can opt for an adjustable-rate mortgage or a fixed-rate mortgage. So there’s lots to consider.

There are pros and cons to all those options, and which one you choose will be based on your individual needs and risk appetite.

Reverse mortgages can be more complicated than a traditional mortgage, so shopping around could come with the added benefit of education.

It may also allow you to see more loan program options and scenarios to choose from, including proprietary offerings.

To sum things up, it’s not nearly as cheap as it was just a few months ago to tap your home’s equity, but there are still opportunities on the table.

Take the time to educate yourself about each to determine which, if any, is best for you.

Source: thetruthaboutmortgage.com

Can You Still Get an Adjustable Rate Mortgage?

Yes, adjustable-rate mortgages are still available, even though your lender may have hidden them from you for the past few years.

Ultimately, ARMs just didn’t make sense for most homeowners because fixed mortgage rates were at/near record lows.

This made the ARM argument a poor one, as there’d be no reason to take on the risk for little to no reward.

As such, banks and mortgage lenders rarely touted these seemingly forgotten mortgages.

But with the 30-year fixed now priced above 5% for the first time in a decade, ARMs have returned.

Do ARM Mortgages Still Exist?

  • Banks and mortgage lenders funded over $600 billion in ARM loans last year
  • They accounted for roughly 10% of all mortgages originated in 2021
  • The 30-year fixed was the most popular loan choice with a ~70% share
  • But ARMs are set to surge in popularity now that fixed mortgage rates are much higher

They sure do, and you’ll be hearing a lot more about them in coming months and years.

Why? Because the popular 30-year fixed is no longer on sale. A year ago, it averaged 2.99%, per Freddie Mac.

This week, it was pricing around 5.09%, while the soon to be in fashion 5/1 ARM came in at a much lower 4.04%.

During the last several years, ARMs like the 5/1 were priced higher than their fixed-rate counterparts, making them totally useless.

But the spread has normalized and widened in recent months as fixed-rate mortgages have surged in price.

This makes the ARM argument a viable one again for many prospective home buyers.

Interestingly, banks and lenders still managed to fund over $600 billion in adjustable-rate mortgages in 2021.

However, this only accounted for about 10% of overall loan volume, with the 30-year fixed taking a 70% share.

The top adjustable-rate mortgage issuer was Chase, followed by Bank of America, First Republic Bank, Wells Fargo, and U.S. Bank, per HMDA data.

Notice anything about that list? All depository banks! This counters the trend of nonbank lenders dominating the mortgage landscape.

And it’s typically because depository banks will keep ARMs and others mortgages on their books, as opposed to selling them off to third-party investors.

Is Now a Good Time to Get an ARM Mortgage?

The short answer is yes, it can be. The reason being is that ARMs are now a lot cheaper than fixed-rate mortgages.

So if you want to save money on your mortgage for the first five or seven years, it’s possible to do so with an ARM.

As noted above, the 5/1 ARM is priced at about 4%, while the 30-year fixed is closer to 5.125% or higher.

To put that in perspective, a hypothetical $500,000 loan amount would result in a monthly payment of $2,387.08 on the ARM.

After 60 months, you would have paid $95,462.20 in interest and the principal balance would be $452,237.40.

Yes, ARMs pay down your loan balance, despite having a horribly negative connotation from the prior housing crisis.

That is, if they’re not interest-only, which many are not these days.

The payment would be $2,722.43 on the 30-year fixed set at 5.125%, which is $335.35 more each month. That’s a meaningful difference for most folks.

And the loan balance would be $459,951.93 after 60 months, a full $7,700 higher than the ARM.

The total amount of interest paid during that time would be $123,297.73, nearly $28,000 more.

So we’re talking $20,000 more in your pocket after five years, along with a lower outstanding loan balance.

Sounds pretty good, right? The only issue is that the 5/1 ARM can adjust higher after those first 60 months are up.

This may or may not happen, as nobody can accurately predict the future. But if the ARM does adjust significantly higher at that time, it could make the payments unaffordable.

It may also begin eating into the savings enjoyed during those first five years.

Adjustable-Rate Mortgages Are Back, But Know the Dangers

Next time you request a mortgage rate quote, don’t be surprised if you get pitched an ARM, such as the 5/1 or 7/1 ARM.

Simply put, ARMs will sound a lot more attractive because they’re priced lower than fixed-rate mortgages right now.

This allows a loan officer or mortgage broker to give you a better quote than the competition, assuming the competitor only provided a 30-year fixed quote.

But it’s important to know that there are risks involved with ARMs that don’t apply to FRMs.

Primarily, that the interest rate can adjust higher after the initial fixed-rate period.

The good news is the 5/1 ARM is fixed for a full 60 months before it actually becomes adjustable.

And the 7/1 ARM doesn’t adjust until month 85, which again provides a lot of breathing room.

However, that time can go by faster than you think, and it’s important to have a plan in place when that first adjustment does come along.

Those who know they’ll move within that timeframe needn’t worry, but if it’s a forever home you’ll want to make arrangements.

Options include refinancing the mortgage to another ARM or a fixed-rate mortgage, if attractive.

Just be sure you qualify for a mortgage, as life circumstances can change, as can interest rates.

If you’re stuck with an ARM once it becomes adjustable, paying it off early could lessen the blow, assuming you can afford it.

Those who are completely risk-averse will probably want to pass on an ARM, even if it amounts to significant savings.

Either way, put in the time to compare all the options in front of you and make a plan ahead of time.

Read more: ARMs vs. Fixed-Rate Mortgages

Source: thetruthaboutmortgage.com

10 Simple Ways You Can Save Money on Your Next Mortgage

You’ve heard the news – mortgage rates surged from below 3% to as high as 5.5% in the span of a few months.

And they don’t appear to be coming down anytime soon. While that’s up for debate, the trend is clearly NOT your friend when it comes to securing a low interest rate on your home loan.

But that doesn’t mean you just throw the rules out the window and apply with any bank or lender willing to approve your mortgage application.

Nor should you just accept the first lowish interest rate presented to you, as enticing as it might be.

This is actually a great time to be even more aggressive, knowing that mortgage rates continue to trend higher, and competition is fierce.

1. Shop Your Mortgage Rate!

I’ve said it once and I’ll say it again, and again after that. You have to take the time to compare rates and lenders if you want to secure the lowest interest rate on your mortgage.

There are studies that prove this – it’s not just boilerplate advice.

A recent study from Freddie Mac revealed that getting just two quotes as opposed to one could save you thousands.

And it actually gets even better the more you shop. Three quotes saves even more. Sure, it’s no fun, but neither is paying a sky-high mortgage payment.

Don’t complain about the rates not being as low as you heard if you haven’t put in the time to shop.

If you make the effort to track down a coupon code for your simple online purchase, you should take the time to gather multiple mortgage rate quotes. Period.

This is especially true now as lenders may be offering a wider range of rates during this volatile period.

2. Improve Your Credit Scores, Then Apply

mortgage credit scores

Also a cliché in the mortgage industry, but a very real and important tip. It’s no secret that those with higher credit scores gain access to lower interest rates.

Just take a look at this chart above of real-time rate lock data from Optimal Blue (part of Black Knight).

Notice the borrowers with 740+ FICO scores have average rates of 5.211%, while the sub-680 borrowers have average rates of 5.619%.

That’s nearly a half-point higher simply because you haven’t addressed whatever credit issues are holding you back.

So if you’re not doing your absolute best credit score-wise, you’re doing yourself a disservice. Take the time to work on your credit if it’s not where it should be.

Generally, a 760+ FICO score is sufficient to obtain the lowest mortgage rates possible, at least when it comes to your credit score.

3. Come in with a Larger Down Payment

While perhaps not as easy as maintaining excellent credit history, a larger down payment can result in a lower mortgage rate, which will save you money each month for a long, long time.

Not everyone has extra money lying around to do this, but if you do, or you can save more before buying, it can work to your benefit when it comes time to apply for a mortgage.

Those who are able to put down 20% or more can obtain lower interest rates and avoid mortgage insurance at the same time.

It’s actually a triple bonus because you avoid pricing adjustments at the 80% LTV+ threshold, the PMI, and wind up with a lower loan amount.

If refinancing your mortgage, you might be able to execute a cash in refinance and lower your LTV to snag a better interest rate.

4. Pay Some Points

While somewhat counterintuitive, if you pay now you can save later on your mortgage.

What I mean by that is offering to pay discount points at closing.

They’re basically a form of prepaid interest that will lower your interest rate for the life of your loan.

For example, if the 30-year fixed is pricing at 5.125%, but you can pay 1% of the loan amount today for a rate of 4.875%, it could save you a lot more money over the duration of the loan term.

Just be sure it makes sense financially, and that you plan to stay in the home/mortgage long enough to recoup the upfront cost.

If you don’t actually keep the home loan or the house for more than a few years, this could actually cost you.

And with rates so high at the moment, with dare I say a chance to drop in the next 12 months, it might be best to settle for a market rate sans points and hope to refinance to cheaper later.

5. Consider All Loan Programs

Yes, the 30-year fixed is in the 5.25% range now. But no, it’s not the only loan program available to home buyers and those looking to refinance an existing mortgage.

There are lots of different home loan types out there, many with lower interest rates than the 30-year fixed.

For example, the 15-year fixed prices closer to 4.50%, and adjustable-rate mortgages like the 5/1 and 7/1 ARM are also significantly cheaper than fixed-rate products now, around 4% or lower.

They also provide a fixed rate for several years before you have to fret about a rate adjustment.

Consider an ARM if you want to save money, especially if you don’t plan on staying in the property for a long period of time.

Your interest rate may never actually adjust if you don’t keep it past the initial teaser period. And you could save a lot of money during those years.

6. Negotiate Harder

You can negotiate mortgage rates and fees. Maybe not all banks and lenders allow you to do this, but many do.

It’s also possible to compare mortgage brokers and have them compete for your business with their many wholesale lender partners. Someone will come up with better than the next guy/gal.

If you don’t bother attempting to negotiate, you’ll never know what’s possible. If the lender says they can’t budge, move on to one that will.

Never accept the first price you’re shown, like anything else in this world.

It doesn’t hurt to ask for lower, especially when it comes to a mortgage. After all, you could be saving money every month for the next 30 years.

7. Lower Your Max Purchase Price

If you want to save money, you might have to make some concessions. That could mean lowering your max purchase price if you’re in the market to buy a home.

I’ve already noted that it could be wise to lower your maximum price threshold on those Redfin and Zillow apps in anticipation of a bidding war.

And while there’s no clear correlation between home prices and mortgage rates, a higher home price will obviously drive up your monthly housing payment.

Either lower your max bid or negotiate more with the seller, or do both. If you can secure a lower purchase price, you’ll need less mortgage. That lower loan amount will save you money.

It’s important to negotiate on the purchase price AND the mortgage. Don’t concede in any area along the way if you want to save money.

Also negotiate with your own real estate agent! They are on your team, but also need to fight for you.

8. Consider a Second Mortgage

Back in the early 2000s, it was common to take out a first and second mortgage concurrently, with the latter known as a piggyback mortgage.

The purpose was to keep the first mortgage at a loan-to-value (LTV) of 80%, thereby avoiding PMI. This method could also be employed to stay at/below the conforming loan limit.

If your down payment is limited, it could make sense to tack on a second mortgage to save some dough.

The blended rate between first and second mortgage sans PMI and higher pricing adjustments could be just the ticket to savings.

If you’ve been considering a cash out refinance, but don’t want to lose your low fixed rate, a standalone HELOC or fixed-rate second mortgage could help you keep your first mortgage intact.

9. Pay It Back Faster

I dedicated a whole article to this one recently. If mortgage rates are high, it makes sense to pay back the mortgage faster.

If your fixed rate is super low, well, take your time in paying back your loan. Or at least don’t rush it.

It’s simple really – the faster you pay the mortgage, the less interest you pay.

You basically want to pay back a low-rate mortgage as slowly as possible, and a high-rate mortgage as quickly as possible, assuming there aren’t better places for your money.

So if you get stuck with a pesky 5% mortgage rate, which is actually pretty decent historically, you can make extra payments each month to lessen the blow.

You could actually pay enough to offset the higher rate and effectively turn it into a 4% mortgage rate.

10. Let It Ride

Lastly, you could wait things out and/or float your mortgage rate if you’ve already applied. You don’t have to accept today’s rates if you’re not entirely happy with them.

Sure, most folks expect mortgage rates to move higher in the near term, but as I’ve said a few times in the past, we’re often surprised at the time we least expect it.

Just consider the recent pullback after it seemed mortgage rates were headed for 6%. Once the spring home buying season wraps, rates could cool off even more.

Typically when new highs are being tested, there are periods of relief along the way. And vice versa. They may not last very long, but it is possible to experience dips and opportunities.

Of course, this can be a risky game to play. But if we’re talking about a refinance, which is entirely optional, you can bide your time and only strike when the timing is right.

Keep an eye on the market, mortgage rate data, and look out for trends and try to lock your interest rate accordingly.

Bonus: Apply for a Mortgage at the End of the Year

After some research, I discovered that mortgage rates tend to be lowest in fall, especially in the month of December.

This is typically a slower time of the year for mortgage lenders, and when they’re not as busy, they may lower their rates to drum up business.

So you might be able to shave an additional .125% or .25% off your mortgage rate if you apply in the later months of the year. This isn’t always true, but it’s something to consider if you’ve got time or flexibility.

It’s actually beneficial for another reason – other than a potentially lower rate, things should be quieter, meaning you might get a more attentive broker/loan officer and a smoother loan process that could move along quicker.

Source: thetruthaboutmortgage.com

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

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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

Are Mortgage Rates Heading to 6%?

Welp, despite my calls for a reversal, or a correction of sorts, mortgage rates keep climbing higher.

The trend is decidedly not anyone’s friend when it comes to low interest rates.

And it’s clear that the current environment is up, up, up, even if conventional data and news tells it should be down, even just a little bit.

What I’m getting at here is it doesn’t seem to matter what’s happening, or what’s being said. Rates are simply going up and not down.

Does this mean a 6% 30-year fixed mortgage rate is just a matter of time?

We Are Trapped in a Rising Rate Environment Right Now

At the moment, mortgage rates are trending higher, no question about it.

When you get into a trending environment like this, there’s not much you can do to reverse it.

Even if stocks fall, and bonds should rise, they don’t. And even if the Fed comes out with a softer-than-expected stance, it’s still not enough to move the dial lower.

Ultimately, banks and mortgage lenders are uber-cautious right now, and that means either holding firm or simply increasing rates.

No one wants to get caught out by offering too low of a mortgage rate, only to see rates climb even higher the next day or week.

As such, they’re all being very defensive when it comes to pricing, erring on the side of higher as opposed to lower.

The latest evidence of this came right after the Fed announcement regarding its 50-basis point increase to the target federal funds rate.

This was widely expected, and some even thought a 75-basis point increase was possible.

Additionally, they provided details of their balance sheet normalization, which is the shedding of the billions in mortgage-backed securities (MBS) they currently hold.

That too was a relatively dovish announcement, revealing that they’d reinvest less of the proceeds from principal payments, as opposed to outright selling MBS.

This “good news” led to a big stock market surge and price improvements from mortgage lenders.

But it was short-lived, with the stock market bounce turning negative the next day. And rates also resumed their upward climb.

Why? Because everyone seems concerned with the longer view of rising inflation, and simply doesn’t care if we get some small wins along the way.

Patience Is a Virtue Until We Get Through This Ugly Stretch

Mortgage rates seem to ride on momentum, whether it’s up or down. Over the past many years, they were on a major downward trajectory.

Both the 30-year fixed and 15-year fixed hit all-time record lows and kept defying expectations year after year.

The Fed mostly engineered that via Quantitative Easing (QE), which it is now reversing via normalization.

So it makes perfect sense for mortgage rates to rise. But similar to how low they went, they now appear to be overshooting the mark higher.

The 30-year fixed is currently pricing around 5.625%, which is nearly double, yes double, the ~3% rate you could receive in late 2021.

That seems a bit extreme to me, and would call for some kind of correction, despite the Fed’s new, aggressive anti-inflation stance.

But as noted, mortgage rates get stuck in a pattern and that’s higher highs, as opposed to ebbs and flows.

There’s been no relief, and it might get worse before it gets better. Chances are we will see 30-year fixed mortgage rates hit 6% before they return to 5%.

It just feels inevitable, whether fair or not. If it happens, it’d be the first time since May 2008.

Those who are buying a home will need to be patient, or look into alternatives, such as the 5/1 ARM or 7/1 ARM, which are both providing reasonable discounts now.

I still believe mortgage rates will improve in the somewhat near-future, whether that’s later this year or in 2023.

However, I am also coming to terms with the fact that the higher mortgage rate train simply can’t be stopped right now.

This was evidenced by the Fed’s recent announcements, meaning it would take something truly out of the ordinary to stop the carnage.

Still, I am holding out hope for a return to more rational rates in the next 12 months.

As such, one strategy could be to go with an adjustable-rate mortgage until the dust settles, then refinance it to a 30-year fixed if you want that stability long-term.

Source: thetruthaboutmortgage.com

Buying a Home in a Seller’s Market With a Low Down Payment

It has been difficult lately to buy a home with a small down payment, considering that the average home price rose by 17% in 2021, and cash offers and bidding wars remain a thing. But buying a house with a low down payment is possible.

Lenders are willing to approve low-down-payment mortgages if you qualify and are comfortable with paying mortgage insurance.

Here’s some help navigating the current real estate market if you have a small down payment.

What Is Considered a Low Down Payment?

According to the National Association of Realtors®, 45% of consumers think they need a down payment of 16% to 20% or more to buy a house. In actuality, the average down payment on a house in 2021 was 17%. If you look at just first-time homebuyers in that survey, the average down payment was closer to 7%.

Given the wide ranges above, what’s actually considered a low down payment? Popular mortgage programs out there may require as little as 3% down, and a couple of more specific home loan programs allow 0% down.

Just keep in mind that anything under a 20% down payment will likely entail some form of mortgage insurance, an ongoing fee charged by most lenders.

Challenges of Buying in a Seller’s Market When You Have a Small Down Payment

There’s truth to the saying “cash is king,” and that continues to be evident in today’s seller’s market, where real estate investors who pay all cash frequently outbid prospective first-time homebuyers.

Be ready for these potential challenges if you intend to buy a home with a small down payment.

Longer Closing Time

Closing on a home with a mortgage-contingent offer to buy takes longer than closing with a cash offer. There’s often more paperwork, and underwriters may take longer to ensure that your financials are in order before green-lighting your mortgage.

Lenders May Disagree With Mortgage Minimums

Just because a mortgage loan program allows for a 3% minimum down payment doesn’t mean the lender will accept it. Lenders have wide latitude to dictate their own terms, and it’s fairly common for them to set their own minimum down payment requirement somewhere above what the stated minimum for the program is.

Home Sellers May Be Nervous About Your Ability to Close

While it’s true that all funds from your down payment and mortgage transfer to the seller at closing, many sellers still buy into the old “bird in hand” adage when it comes to accepting offers. A higher down payment signals a buyer’s financial capacity and is therefore more attractive in the eyes of the homeowner.

If sellers accept a bid with a low down payment, they may run an increased risk of the buyer being rejected at the last minute by their mortgage lender.

In a deal involving a mortgage backed by the Federal Housing Administration (FHA), if the home is appraised for less than the agreed-upon price, the sellers must match the appraised price or the deal will fall through.

And FHA guidelines require home appraisers to look for certain defects. If any are found, the sellers may have to repair them before the sale.

Tips for Buying With a Small Down Payment

If you’re trying to score a home with a small down payment, there are some ways you can approach it to increase your odds of buying the home of your dreams.

One way is to select a government-backed mortgage program — FHA, or the U.S. Department of Agriculture or Veterans Affairs — that allows for a low down payment. The government guarantee makes them more palatable for mortgage lenders and easier for a homebuyer to afford.

Some specialized mortgage programs allow qualified buyers to put as little as 0% down; others, from 3% to 5% down. Some of the most popular low-down-payment mortgage programs are:

•   VA loans (0% down)

•   USDA loans (0% down)

•   FHA loans (3.5% down)

•   Fannie Mae HomeReady (3% down)

•   Conventional 97 loan (3% down)

•   Conventional mortgage (5% down)

Another option is to apply for down payment assistance. Many governments and nonprofits offer down payment assistance programs for first-time homebuyers — those who have not owned a principal residence in the past three years — in the form of loans or grants. Some lenders can even help you qualify for these programs to help offset the upfront costs of homebuying.

Finally, you can also ask a family member, or sometimes a domestic partner, close friend, or employer, to help with the down payment by contributing gift money. The money can’t come with any strings attached, and a gift letter will be key. This is a popular option for parents and in-laws who want to help their children buy a first home.

Pros and Cons of Using a Low Down Payment

There are both benefits and disadvantages to submitting a small down payment on a home. Here are a couple of points to think about.

Pros of Using a Low Down Payment

•   Gets you in a home faster than waiting to save for a bigger down payment.

•   Start building equity earlier and avoid spending money on rent.

•   Preserve cash for other investments, opportunities, and emergencies.

•   Take advantage of current low mortgage rates, theoretically saving you money over the long run.

Cons of Using a Low Down Payment

•   You’ll have to pay private mortgage insurance, or a mortgage insurance premium, which could add 0.5% to 1.5% of the loan amount to your annual housing costs.

•   Your monthly mortgage payment will likely be larger, as the amount you borrow will increase the less you put down.

•   Your lender may penalize you with a higher mortgage rate to offset the higher risk of a lower down payment.

•   You run a greater risk of your home loan being underwater, should home values drop.

Tips for Managing a Seller’s Market

So what’s a prospective homebuyer to do in a seller’s market when the cards are stacked against them?

One way to get a leg up on the competition is to get the ball rolling on financing early and make sure you have everything in place by the time you even submit an offer on a home.

Making sure you’re pre-qualified, when lenders have an idea of your income and assets before you start home shopping, and then pre-approved, when you receive a letter from a lender stating that you qualify for a certain loan amount and rate, can ensure that you’ll be ready to roll the second you find the right home.

Once you’ve submitted an offer on a house, make sure you’re Johnny-on-the-spot when it comes to all documents and information requested by your chosen lender.

Another thing you can do is to find an experienced real estate agent who’s been through the homebuying process countless times.

No matter the temperature of the market, tips for how to shop for a mortgage can come in handy.

The Takeaway

Buying a home with a small down payment, even in a seller’s market, is possible. With preparation and the right mortgage lender, you may be able to land a starter home or your dream home with a low down payment.

SoFi allows a down payment of as little as 3% for qualified first-time homebuyers and 5% for other borrowers for its line of low-fixed-rate mortgages.

Before you apply for a home loan, start with a no-obligation mortgage rate quote from SoFi.

It takes just minutes to get your rate.


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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.

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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