When Should You Lock in a Mortgage Interest Rate?

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On a $400,000 mortgage, the difference between a 4% and a 5% interest rate comes out to almost $240 per month. That’s over $2,800 per year. 

You could do a lot with that kind of money. And claiming it could be as simple as locking your mortgage rate as soon as you’re ready to make an offer on your house.

Lock too early, though, and you could lose your choice rate — and the savings that come with. So it pays to understand both how closing timelines and mortgage rate locks work. 


What Is a Mortgage Rate Lock?

Mortgage interest rates can bounce around like a pinball. But mortgage loans usually take a month or so to close, so how do you know at the start of the process what your final mortgage rate will be by your closing date?


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Enter: the mortgage rate lock. 

When you apply for a mortgage, you first submit a mortgage application form — called a 1003 form — along with mountains of paperwork documenting your income, assets, liabilities, and firstborn child. The lender reviews your loan application, and (hopefully) preapproves you for a mortgage. 

But that doesn’t mean you’re ready to move forward. If you’re buying a new house or investment property, you need to submit the mortgage preapproval letter with your purchase offers, after all. 

Once you sign a real estate sales contract however, the clock starts ticking. The “time is of the essence” clause isn’t just flowery legalese — it means you need to close by a certain date, or the contract (and your earnest money deposit) become forfeit.

At this point, you call up your loan officer and tell them you’re ready to roll. They can then lock in that moment’s mortgage rate for you, guaranteeing that you get that interest rate if you settle within a certain timeframe. You must do the same if you’re refinancing your current mortgage, though in that case there may be less urgency to close within a specific timeframe.

Rate locks apply to both fixed-interest and adjustable-rate mortgages (ARMs). With the latter, they determine your initial introductory rate.


How a Mortgage Rate Lock Works

No matter how much higher interest rates climb between that moment and when you settle, you still get the interest rate from the moment the loan officer locked it. 

Of course, the reverse is also true. If interest rates fall, you still pay the higher interest rate from the date you locked in your rate. 

Unless you buy a float-down option, that is.


What Is a Float-Down Option?

To hedge against the risk that interest rates fall after you lock in your rate, you can pay your lender for a “float-down option.” If interest rates drop after you locked your rate, this lets you close your loan with the subsequent lower rate. 

But float-down options come at a cost. That cost could come in the form of an up-front fee or higher lender fees at settlement. If the option doesn’t kick in, you could be saddled with a higher interest rate.

Before you can take advantage of a float-down option, interest rates must fall by a certain minimum amount. For example, the lender might set the minimum drop distance at 25 basis points,or 0.25%. If rates only drop by 0.2%, you can’t call in the float-down option. 

Which raises another point: You’re responsible for redeeming your own float-down option. Your lender won’t volunteer the information. You have to keep an eye on interest rates yourself and specifically ask your lender to redeem your option if rates fall. You can only redeem the option once, and after that your rate locks normally.

So make sure you understand the specific rules and costs for your lender’s float-down option before opting for it.


Mortgage Rate Lock Fees

The longer your rate lock, the more likely it is to come with fees. 

For example, your lender may offer a 30-day lock for free, but if you want a 60-day lock, the lender might charge an extra fee that’s expressed as a fraction or multiple of a mortgage point. A mortgage point is 1% of the total loan value — for example, $4,000 on a $400,000 loan. Your lender might cut you a break and charge a fraction of a point rather than a full point, however. 

If you fail to settle within your rate lock period, you can opt to extend your lock, but often at a comparable fee. If mortgage rates have since dropped, you may be in luck, but don’t count on that happening. 


When Should You Lock in a Mortgage Interest Rate?

As soon as you’re ready to proceed with your loan, you should lock in your interest rate. 

You could gamble on interest rates falling and delay locking in a rate, but it means exactly that: gambling. Unless you have a crystal ball lying around, just lock in your rate when you know you’re ready to proceed.

If you’re applying for a purchase loan, lock your rate once you sign the purchase agreement with the seller. If you’re refinancing, you don’t have the same time crunch because there’s no seller involved. Simply decide when you want to settle and work backward from there. 

Just remember that you have to settle within the lock period or you could end up paying a higher interest rate. It usually takes 30 to 60 daysfor mortgage loans to settle. Make sure your loan officer and underwriting team are working toward an on-time close.


How to Lock in a Mortgage Rate

Your mortgage broker or lender locks the rate on your behalf, so you don’t have to “do” anything but ask for it. In most cases, your loan officer will ask you whether you’re ready to lock in a rate when you tell them you’re ready to move forward.

Use the opportunity before locking in a rate to negotiate a lower interest rate, after comparison shopping. You can also negotiate a lower interest rate in exchange for higher lender fees. These are called “discount points” in the industry.

Confirm the length of the lock with your loan officer, and try to get a commitment in writing that they can close within that time period. This commitment won’t be legally binding, but it gives you that much more leverage if they fall behind schedule at your expense. 


Mortgage Rate Lock FAQs

While interest rate locks are pretty simple, first-time homeowners usually have plenty of questions about them. Keep the following in mind as you apply for a mortgage.

Should I Lock in My Mortgage Rate Today?

It depends. Did you sign a real estate sales contract today? If so, then yes. 

Likewise, if you’re looking to refinance your mortgage as soon as possible, then yes, lock in a rate once you choose a lender and get approved. You could wait and hold out for lower interest rates, but that could just as easily backfire on you. 

How Long Can You Lock in a Mortgage Rate?

You can typically lock in a mortgage rate for 15 to 60 days. That includes both conforming and non-conforming loans. 

The length of your lock period depends on the lender’s policies and market conditions. Lock periods may shorten when mortgage rates are rising and lengthen when they’re falling. 

Shorter lock periods — 15 to 30 days — often cost nothing. Longer lock periods often come with additional fees.

What Happens if My Rate Lock Expires Before Closing?

In most cases, you can ask your lender for a rate lock extension. But if you do, they may charge you for the privilege, even if they’re to blame for the delay. 

If you don’t extend the locked rate, you fall at the mercy of the current mortgage rates at the time the lock expires. In other words, your loan rate begins to float with the market once more. In a rising interest rate environment, this means you’ll have a higher monthly loan payment.

What Happens if Rates Fall After I Lock in a Rate?

If you opt for a float-down option and it triggers, your interest rate will drop according to the terms of that option. 

Likewise, if your lock period expires before the loan closes and rates have fallen, you may end up with a lower interest rate when the loan does close — and a lower monthly payment. 

Otherwise, you close on your loan at whatever rate you locked in, regardless of the market interest rate at the time your loan closes. 

Can I Back Out of a Mortgage Rate Lock?

Technically, yes. You can back out of a rate lock. But it comes with consequences. 

You’d need to cancel your entire mortgage application. The lender would effectively throw out your file, and you’d have to reapply for an entirely new loan. That could even mean paying for a whole new home appraisal.

This restarts the lengthy loan process, further pushing back your settlement date. If you’ve made an offer on a house, you’ll likely default on your sale contract and could lose the house to another buyer, putting your home search back at square one.


Final Word

While you have many options for types of mortgages, rate locks exist in nearly every one. 

Word to the wise: Don’t play interest rate roulette. Just lock in a home loan rate when you’re ready to move forward with a mortgage, and if you absolutely must, opt in for a float-down option. But just as you shouldn’t try to time the market in your investments, you shouldn’t try to time interest rates either. 

As a final thought, one surefire way to lower your interest rate is to improve your credit score. Market interest rates rise and fall, but lenders always charge a lower premium over benchmark rates for borrowers with strong credit. Not only does it lower your monthly payment, but it can also lower your down payment to boot. 

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G. Brian Davis is a real estate investor, personal finance writer, and travel addict mildly obsessed with FIRE. He spends nine months of the year in Abu Dhabi, and splits the rest of the year between his hometown of Baltimore and traveling the world.

Source: moneycrashers.com

Coastal Grandmother Decorating Ideas: Transform Your Apartment With Summer’s New Hot Trend

Luxury and comfort can exist together in home design, and middle-aged women have perfected the art of combining the two.

It’s cozy and chic. Neutral and bright. Airy and open. It’s high-end, but not in the way that you’re afraid to sit on the couch or touch a vase. It’s still comfortable and welcoming, where you feel like you can cuddle up and read a book. We’re talking about the coastal grandmother aesthetic.

What is a coastal grandmother?

Imagine reading a book on your porch that overlooks the ocean shores, sipping a glass of wine while feeling the gentle breeze. You’re wearing a loose pair of pants with a slightly oversized button-up shirt — but you don’t look frumpy. You still look very put-together, but in a practical way, as if you’ve dressed yourself to pick vegetables in the garden or run to the street market to buy fresh flowers.

Coastal grandmother is the embodiment of the style of affluent middle-aged women in coastal cities — think Ina Garten, Oprah Winfrey and Martha Stewart. It’s being classy and high-end while still being casual and comfy.

How to incorporate coastal grandmother design in your home

Now that you know roughly what the coastal grandmother aesthetic is, it’s time to channel the coastal grandmothers we all know and love (including those mentioned above) to achieve the look!

1. Teak furniture

teak furniture

teak furniture

Instead of wooden furniture pieces being painted to match a colored theme, stripping it back to the basic wood is what a coastal grandmother would do. Highlighting the natural beauty of teak wood furniture, whether it be a bench or a dresser, will bring in the warmth that a grandmother wants in her home while also hinting at the driftwood found on many coastal beaches.

2. Chunky cable knit blankets

Chunky blankets

Chunky blankets

You can find a coastal grandmother wearing a luxe cable knit sweater to keep warm in the colder months. And to match that sweater, she’s got cozy, chunky cable knit blankets for snuggling up by the window and watching the snowfall or reading a book. Chunky knitted blankets are both simple and luxurious, embodying all that is the coastal grandmother.

3. Neutral colors

neutral colors

neutral colors

Coastal style, in general, focuses on using light, neutral colors, like white and beige. You can also pull in other colors, but make sure they’re more muted, like dusty blue or a soft pastel coral. If you’re trying to play it safe as you start out, you can’t go wrong with white and beige as your base colors, then bringing in accents of muted blues.

4. Sheer, breezy curtains

breezy curtains

breezy curtains

Having sheer curtains that blow in the ocean breeze is a staple in any coastal grandmother’s living room. They give a home a fresh and airy feeling, while also framing the window. And in typical coastal grandmother fashion, these curtains aren’t over-the-top — they’re subtle and seemingly unnoticeable, yet make a big impact on the room overall.

5. Natural materials

natural materials

natural materials

Using items with a natural wood finish or made from natural materials give the light and natural vibe that is a coastal grandmother. You may decide to use a lightly-stained wooden coffee table and cotton or linen textiles. Textiles made of natural materials are more breathable, so choosing fabric materials made from plants like flax, jute and hemp can give your place more of an airy feel, versus something like polyester that makes you sweat just by looking at it.

6. Sea glass bottles

sea glass bottles

sea glass bottles

Frosty blue and green bottles and jugs are reminiscent of bottles found at sea or that washed up on the shore. Thankfully, we don’t need to wait around for one of these beautiful bottles to show up on the beach because we can easily find them at the store. Just make sure you’re sticking with blues and greens and not going too wild on the glass colors, or else it will distract from the typical coastal style.

7. Fresh flowers

fresh flowers

fresh flowers

A coastal grandmother almost always has fresh flowers in her home. She may have picked them from her own garden or she may have strolled into town and purchased them from a local vendor at a street market. Either way, a vase of fresh flowers is a must for achieving the coastal grandmother style.

8. Slipcover couch

Linen slip covered couch

Linen slip covered couch

For reasons we may not understand until we reach the actual coastal grandmother age, having a slipcover on your couch is the way to go. We don’t mean the slipcover that’s made of stretchy material and has elastic on the ends to hold it into place — we mean a slipcover that fits the couch perfectly and made of breathable material like cotton or linen. It’s the type of couch you can comfortably sit and chat with friends on for hours and is the perfect couch for taking afternoon naps.

9. Throw pillows

Throw pillows

Throw pillows

When a coastal grandmother has throw pillows, that doesn’t mean just one or two. You’ve got to cover every surface you can possibly sit on with throw pillows — a few for the couch, one on every chair and even a couple to put on the window seat. You’ll also want these throw pillows made of the same breathable textiles as other things in your home and you want to make sure they follow the light, neutral color scheme and add to your nautical or beach items.

10. Woven baskets

Woven baskets

Woven baskets

Storing items in plastic bins is too modern for the coastal grandmother style. Get woven baskets that can serve the same purpose as other storage solutions, but look more natural and inviting. You can use baskets for more than the storage of household items —you can also use them while gathering vegetables and flowers from your garden or carrying your purchases from a day at the street market.

Make coastal grandmothers proud

Coastal grandmothers have spent their entire lives achieving their style, so make sure you do them proud! If you’re ever stuck, simply ask yourself, “What would Martha Stewart do?” And you’ll have a handle on the coastal grandmother style in no time.

Source: rent.com

Stochastic Oscillator – Meaning, Formula & What This Indicator Measures

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Developed by George Lane in the late 1950s, the stochastic oscillator is a technical analysis tool that has become a staple for short-term traders. The tool is a momentum oscillator, which measures price changes over time to tell you the momentum of a move. High momentum trends are likely to continue, and decreasing momentum points to a reversal on the horizon . 

The stochastic oscillator generates buy and sell signals based on patterns in price movements and a historic reaction to those patterns. 

But what exactly is the stochastic oscillator, and how can you use it to become a more successful trader?


What Is the Stochastic Oscillator?

The stochastic oscillator is a technical indicator that compares the most recent closing price of a financial asset to a high-low range of prices over a period of time, generally 14 days. This comparison helps to determine if the asset is experiencing overbought or oversold conditions. 


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At its core, the tool is a momentum indicator, pointing to both the direction and vigor of price movements. The general idea is that if the asset is trending up, the current price will be closer to the highest high for the period, generating a high reading; when it’s trending down, the current price will be closer to the lowest low, generating a low reading. 

Moreover, Lane theorized that momentum changes before price changes, meaning that signals from this momentum oscillator should happen prior to major price movements. It’s used to determine the strength of current trends, find trend reversals, and help determine the best time to buy and sell assets. 


How to Calculate the Stochastic Oscillator

This indicator is popular among traders and is widely available on most trading charts. So, there’s a strong chance you’ll never have to calculate the oscillator readings on your own. Nonetheless, it’s best to know the inner workings of the tools you use.  

In most cases, the stochastic oscillator uses a 14-day time frame, but you can adjust the time frame to fit your needs.

Here’s how to calculate this indicator:

Stochastic Oscillator Formula

The formula for the stochastic oscillator is as follows:

((C – LP) ÷ (HP – LP)) x 100 = K

The following key applies when using the formula above:

  • C – Most recent closing price
  • LP – Lowest price in the data set
  • HP – Highest price in the data set
  • K – Oscillator reading

Traders who use the stochastic oscillator use two trendlines. The K-line is a plot of the readings of the oscillator, also known as the fast stochastic or the signal line. The D-line, or slow oscillator, is the three-day simple moving average (SMA) of the oscillator’s reading. 

Signals are generated based on the reading of the oscillator and crossovers between the signal line and the D-line. 

Example Calculation

Let’s say ABC stock closed at $100 today. Over the past 14 days, the stock has traded between a low of $95 and a high of $109. The formula to determine the oscillator reading for this example is:

(($100 – $95) ÷ ($109 – $95)) x 100 = 35.71


How to Read the Stochastic Oscillator

Assets are considered overbought when the oscillator reading is 80 or above and oversold when the reading is 20 or below. Overbought assets may have unjustifiably high prices and can be due for a pullback, whereas oversold assets may be priced below their true value and ripe for a rebound.

The oscillator is range-bound, meaning that its reading will always fall between zero and 100. Traders read the indicator at a glance, knowing the closer the number is to zero, the more oversold it is, and the closer it is to 100, the more overbought it is. 

Traders also read the indicator by plotting two trendlines on the financial asset’s chart: the signal line (oscillator reading) and the D-line (three-day SMA of the oscillator). Traders then analyze the relationship between the two lines to determine buy and sell signals. 


Trading Strategies Using the Stochastic Indicator

Traders commonly use three strategies when employing the stochastic indicator in their trading plan. Those strategies include:

Overbought/Oversold Strategy

The overbought/oversold strategy is the most simple strategy to follow using this indicator. All you’ll need to do is look at the reading with the following in mind:

  • 80 or Above: Sell Signal. Stochastic readings at 80 or above suggest the asset being analyzed is overbought, which means the price is likely nearing resistance and a bearish reversal may be on the horizon. 
  • 20 or Below: Buy Signal. Stochastic readings of 20 or below suggest the asset being analyzed is at oversold levels. This means the price of the asset is nearing support and a bullish reversal may be coming. 

When using the overbought/oversold strategy, the signals are most accurate when both the fast and slow readings of the oscillator are above 80 or below 20. 

Let’s look at Apple’s stock chart with stochastics from the beginning of April 2022 (below). The oscillator appears as a sub-chart below the main stock chart:

In the stochastics chart at the bottom of the image, the signal line is represented in black and the baseline is red. Both readings in this chart are over 80, suggesting the stock is overbought and likely to make a bearish reversal.  

Stochastic Crossover Strategy

The stochastic crossover strategy is a bit more involved than the overbought/oversold strategy, but it’s a great way to verify signals from the other stochastic strategies. The crossover strategy uses both the K-line and the D-line plotted on a financial asset’s chart. 

Once the lines are plotted, traders look for crossovers, or points where the faster-moving K-line crosses over the slower-moving D-line. When the crossover is in the upward direction, it acts as a buy signal, suggesting recent prices are increasing. When the crossover is in the downward direction, it acts as a sell signal, suggesting recent prices are decreasing. 

Let’s look again at Apple’s chart, with the sub-chart below the main chart showing the red and black lines plotting the stochastic oscillator:

Note that the fast Stochastic (K) is plotted in black and the slow stochastic (D) is plotted in red. Each time the black line crosses above the red line, it acts as a buy signal, suggesting prices are likely to head up moving forward. When the black line crosses below the red line, it’s a sell signal, suggesting Apple’s stock will fall ahead. 

Stochastic Bull/Bear Strategy

The bull/bear strategy uses the divergence between price action and the movement of the stochastic oscillator to determine when reversals might take place. 

For example, if a stock is trending down and mints a new low, but the stochastic oscillator reads a higher low, the divergence could mean the downtrend is coming to an end and the bulls will take control soon. This is known as a bullish divergence. 

On the other hand, when a price is on the uptrend and hits new highs, but the stochastic oscillator produces a lower high, a bearish divergence is taking place, suggesting declines could be ahead. 


The Relative Strength Index (RSI) vs. the Stochastic Oscillator

The relative strength index (RSI) and stochastic oscillator are both momentum oscillators, made to generate the same types of signals. The difference is the underlying data and methodology the two use. 

The stochastic oscillator is based on the relationship between the most recent closing price and the recent range of prices.

The RSI, by contrast, measures the velocity (or speed) of price movements rather than the relationship between recent prices and the closing price of an asset. 

Because these indicators are based on different points of data, they are often used in conjunction with one another before a trade is made, each helping to verify the signals of the other. 


Stochastic Oscillator Limitations

As a technical indicator, the stochastic oscillator has proven its worth time and time again, but it’s not perfect. The biggest limitation to the indicator is the potential for false signals, where the indicator suggests a move is coming that doesn’t come to fruition. 

Due to the potential for false signals, it’s important to use the stochastic indicator in conjunction with other technical indicators when making your trades. 


Stochastic Oscillator FAQs

Technical indicators are complex topics that often lead to questions. Some of the most common questions surrounding the stochastic oscillator are answered below:

What Do K and D Mean?

K is the reading for the oscillator that acts as the signal line when plotted on a trading chart. D is the abbreviation used to describe a three-day moving average of K. Traders plot both K and D on trading charts and analyze the relationship between the two trendlines to generate buy and sell signals. 

What Is a Slow Stochastic Oscillator?

The slow stochastic oscillator is known as the D-line and is another term for the three-day moving average of the oscillator’s reading. The slow stochastic is used for two reasons:

  1. Generate Signals. The K-trendline crossing above or below the D-trendline generates buy or sell signals. 
  2. Verify Signals. Traders using the overbought/oversold strategy focus primarily on the K-reading in the oscillator. But they can also use the slow stochastic (D-line) to verify whether the asset is in overbought or oversold territory because it moves more slowly than the fast stochastic (K-line).

What Are the Two Lines in the Stochastic RSI?

The Stochastic RSI, or StochRSI, applies the formula for the stochastic oscillator to RSI data, combining the two methods to determine the strength of a trend. As with the traditional stochastic oscillator, the two most-used trend lines in the Stochastic RSI are K (the signal line) and D (the baseline). 


Final Word

The stochastic oscillator has become one of the most widely used technical analysis tools in financial markets. Whether you’re trading stocks, forex, cryptocurrency, or any other asset, paying attention to the stochastic reading and crossovers has the potential to generate compelling buy and sell signals. 

However, like any other financial tool, the oscillator isn’t perfect. Traders should consider using it in conjunction with other technical indicators when researching opportunities. 

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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.

Joshua Rodriguez has worked in the finance and investing industry for more than a decade. In 2012, he decided he was ready to break free from the 9 to 5 rat race. By 2013, he became his own boss and hasn’t looked back since. Today, Joshua enjoys sharing his experience and expertise with up and comers to help enrich the financial lives of the masses rather than fuel the ongoing economic divide. When he’s not writing, helping up and comers in the freelance industry, and making his own investments and wise financial decisions, Joshua enjoys spending time with his wife, son, daughter, and eight large breed dogs. See what Joshua is up to by following his Twitter or contact him through his website, CNA Finance.

Source: moneycrashers.com

What Is IRS Tax Form 1098 (Mortgage Interest Statement)?

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Additional Resources

In an effort to help make filing taxes easier this year, we are breaking down the various IRS tax forms to help you know if you need them, and how to use them.

There’s nothing like a love letter from your mortgage lender with an IRS tax form to make you swoon with joy.

As tax forms go, the 1098 ranks among the simplest as you prepare your tax return. But there are some things you need to know about Form 1098 and how to use it in your tax return.

What Is IRS Tax Form 1098, Mortgage Interest Statement?

The IRS Form 1098 informs you how much interest you paid on your mortgage loan for the last tax year. 

Mortgage lenders send you this document in case you want to itemize your deductions on your tax return. They also send a copy to the Internal Revenue Service for their records, so don’t get any ideas about taking liberties with your interest deduction. 

Far fewer taxpayers itemize their deductions since the standard deduction jumped in the Tax Cuts and Jobs Act of 2017. That makes Form 1098 less relevant to the average American than it once was, though it does contain information you may need.

However, the form remains relevant to real estate investors, who deduct mortgage interest on Schedule E of their tax return. Mortgage interest is an expense for investment properties and comes off their taxable profit. Deducting it from your investment property profit doesn’t require you to itemize your deductions. 


Who Should File Form 1098?

Property owners don’t file Form 1098 as part of their federal tax return. They simply list the amount of mortgage interest in the appropriate place on their return: Schedule A for homeowners, Schedule E for investment property owners.

Mortgage lenders need to file Form 1098 with the IRS if the borrower paid more than $600 in a given year and send you a copy — which you can frame if you so choose. They typically send the form in February with the total mortgage interest paid in the previous year.


How to File IRS Form 1098

While you don’t need to file Form 1098 as a borrower, it helps to be able to read it. 

The most important information lies in Box 1: the amount of mortgage interest paid in the previous year. However, the form contains other useful information, including:

  • Box 2: Outstanding mortgage principal (your remaining loan balance)
  • Box 3: Mortgage origination date (your loan start date)
  • Box 4: Refund of overpaid interest (if applicable)
  • Box 5: Mortgage insurance premiums (if you paid private mortgage insurance for a conforming loan or mortgage insurance premium for a Federal Housing Administration loan, it appears here)
  • Box 6: Points paid on the purchase of the principal residence (you may be able to deduct these as well)
  • Boxes 7-11: Identifying information about your loan, such as the property address

You’ll also find identifying information about yourself, such as your name and Social Security number.


Other 1098 Forms

While the mortgage interest statement is the most common type of 1098 form, it’s not the only brat in the pack. You may also come across the following 1098 forms.

Form 1098-C, Contributions of Motor Vehicles, Boats

If you donated a vehicle — including boats or airplanes — to a charitable organization last year, you’ll receive a 1098-C from the charity. 

Charities often give these vehicles to individuals in need or sell them at below-market rates and use the profit to fund programs. Alternatively, the charity might auction the car to raise money for their cause.

Form 1098-C confirms you weren’t part of that transaction. However, if you donated a beater worth less than $600, you may not receive one of these forms. Read the instructions for Form 1098-C for more information.

Form 1098-E, Student Loan Interest Statement

You may feel like you’ll be paying off your student loans for the rest of your life, but at least you get a tax break. Maybe. 

Each year, you’ll receive a 1098-E detailing how much interest you paid to each loan servicer if it exceeded $600. You can deduct the interest from your taxable income on your 1040 without itemizing your deductions as long as you meet the income requirement.

You can deduct up to $2,500 in student loan interest for loans used to pay for qualified expenses while you were in school. However, the deduction does phase out if your modified adjusted gross income (MAGI) falls between $70,000 and $85,000 (between $140,000 and $170,000 if married filing a joint return). You cannot take a student loan interest deduction if your MAGI exceeds $85,000 or more ($170,000 or more if you file a joint return). 

If you paid less than $600 in student loan interest last year, the servicer may not send you a 1098-E, but you can still deduct this interest as long as you have a record of how much you paid. If you don’t know, ask your servicer and record it in your tax file.

As a bonus, if your parents or someone else pays student loans in your name for you, the IRS considers the money a gift, and you can still deduct the interest on your own taxes. However, if the loan is in someone else’s name, that person is entitled to take the interest deduction as long as he or she is the one paying on it.

Form 1098-T, Tuition Statement

If you or one of your dependents is currently in school, the school will send an IRS Form 1098-T at the end of the year detailing all fees you paid for qualified tuition and other related expenses. Calculate all education-related tax deductions and credits, such as the tuition and fees deduction, the lifetime learning credit, or the American opportunity tax credit.

The amounts on the form encompass all money you paid to the school, even if you paid in advance — the payment appears on the tax form for the year in which you actually paid it. 

For example, if you pay your spring semester tuition in December of the previous year, it will show up on the prior year’s 1098-T. These amounts include any money used from loans to pay for tuition and education expenses and list financial aid like college scholarships and grants separately.

Some expenses, such as college textbooks and school supplies, are not generally reported on the 1098-T, but you can still claim them for higher education tax credits or deductions so long as they’re classified as qualified expenses by the IRS.


Form 1098 FAQs

If you still have burning questions about 1098 tax forms, these answers to frequently asked questions can help clear them up.

How Do I Get a 1098 Form?

Your mortgage lender sends you a Form 1098, Mortgage Interest Statement. If you haven’t received it by late February, blow off some steam by yelling at your lender. (Just kidding. Be nice. They literally still own part of your house. But thinking about yelling at them should make you feel better.)

Form 1098-C comes from the charity you donated a vehicle to, while Form 1098-E comes from your student loan servicer. Form 1098-T comes from your college or university. 

Do I Need to File Form 1098 With My Tax Return?

No, you don’t. You need only include the information in the appropriate field on your tax return.

When in doubt, ask your accountant or tax advisor. Alternatively, you can use an online tax preparation service, which will ask you for the amount you paid and fill it into the right field for you. 

What Happens if I Don’t File a 1098 Form?

The IRS doesn’t require borrowers to file a 1098 form at all. But if you ignore them, you might miss out on valuable income tax deductions and make an involuntary donation to Uncle Sam. 

If you are a lender, charity, student loan servicer, or university, you are required by law to both send a 1098 form to the payer and file it with the IRS. Failure to do so will result in your immediate execution — no, not really, but the IRS may penalize you, audit you, or otherwise make your life unpleasant. 


Final Word

With a higher standard deduction these days, most Americans don’t have to stress over documenting and itemizing every single deduction anymore. It makes filing your tax return that much simpler.

However, homeowners who itemize their personal deductions do still want to include their mortgage interest among them. And the mortgage interest deduction offers another way for real estate investors to lower their taxes while leveraging other people’s money to build their portfolio of properties. Get tax advice from a qualified tax professional if you have any questions about these tax benefits.

Whether you deduct mortgage interest on your tax return or not, keep your 1098 forms in your tax records for at least three years after filing. You never know when Uncle Sam will pay you a nasty visit with an audit, and every deduction could help if he does. 

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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.

G. Brian Davis is a real estate investor, personal finance writer, and travel addict mildly obsessed with FIRE. He spends nine months of the year in Abu Dhabi, and splits the rest of the year between his hometown of Baltimore and traveling the world.

Source: moneycrashers.com

TradeBench Review – Free Trading Journal to Improve Your Investing

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Dig Deeper

Additional Resources

TradeBench is a totally free online trading journal and risk management tool. All features are unlocked for all users and there are no paid plans. 

How does TradeBench get away with offering its services for free? By working with sponsors and asking its users to click an ad from time to time — a small price to pay for a tool that has the potential to make you a more successful trader. 

Wondering if TradeBench is right for you? Read on to learn about its features and benefits.


Key Features of TradeBench

TradeBench is marketed as a trading journal, which is a great tool in its own right. 

TradeBench offers far more than simple journaling functionality though. These are the most important features of its platform.

Automatic Trading Journal

The most profitable traders generally keep a trading journal and look back on it regularly in an effort to find pieces of their strategies that can be improved upon.  But keeping a journal manually can be a cumbersome task, especially for beginners. 

TradeBench’s automatic trading journal helps solve this problem. 

The platform connects to your brokerage account, automatically journalling trade data every time a trade is closed. The service captures data like entry price, exit price, profit, and setup — giving you the ability to review and learn from your recent trading activity. 

TradeBench’s trade journal feature allows you to generate reports with customizable parameters. That makes it easy to pinpoint the data you’re looking for and focus on the areas of your trading strategy that could use improvement. TradeBench lays out data in user-friendly, color-coded graphs that make it easier to understand what you’re looking at. 

Supported Assets

TradeBench supports stocks, forex, and cryptocurrency.

It also supports contracts for differences (CFDs). A CFD buyer agrees to pay the seller the difference between the current value of an asset and the value of the asset upon expiration. If the value of the asset falls, the seller pays the difference to the buyer. 

Risk & Money Management

Trading in financial markets is risky business, so traders must take active steps to mitigate the risk of loss. As a TradeBench user, you can input your risk parameters into the platform and use the proprietary risk management tools to determine:

  • Maximum Risk Exposure. The platform can outline entry points and exit points so that you understand the maximum risk exposure you have with each trade. 
  • Position Sizing. TradeBench generates statistics-driven pointers on position sizing relevant to your risk tolerance and portfolio size for each trade. 
  • Diversification Needs. Finally, TradeBench provides tools for better diversification while actively trading. 

Trade Planning

Planning is important in any process, especially when it comes to trading in financial markets. 

Fortunately for its users, TradeBench makes trade planning a breeze. The platform uses algorithms to produce a trade plan summary that outlines the potential profit or loss and risk-to-reward ratios to help you better understand where your entry points and exit points should be. 

TradeBench also provides trade planning checklists that automatically include several areas of interest you need to pay attention to when making a trade. 

You can customize these checklists to better fit your trading strategy and use them as market screeners. For example, if you’re only interested in stocks trading with a minimum volume and a maximum price, you can type those parameters into the checklist and search the market for opportunities that meet them.  

Open Trades Dashboard

TradeBench isn’t just for tracking data from previous trades and planning future trades. The platform can also track your open trades in real-time so that you can see how your portfolio is doing and make changes as necessary. 

The Open Trades Dashboard features a “what if scenario” tool as well. This tool creates calculations based on open trades and potential exit points to help you determine when the best time to exit your position might be. 

No matter if you’re trading long or short or have a single or multiple entries, the Open Trades Dashboard at TradeBench has the tools and functionality you need to improve your live trading activities. 

Potential Trade Comparison Tools

As you trade, there will be times when you find yourself stuck at a fork in the road between two or more trades, unsure of which trade to execute for the best results. 

For example, you might think ABC stock will break out to the upside and quickly gain value. However, if it fails to break out of its trading range, you know that it could fall dramatically. TradeBench has a tool that makes it a breeze to compare these options before you enter trades. 

TradeBench outlines the data from the trade comparisons in a color-coded table. That makes it easy to quickly spot the trades that are likely to be the biggest winners and losers while avoiding more detailed technical analysis on trades likely to be duds. 

Trading Simulator

Trading simulators are beneficial to beginners and experts alike, and TradeBench comes with a trading simulator that’s like nothing else on the market. Once you connect the TradeBench simulator to your brokerage, it mimics the features, available assets, and available trade types you’ll find in the brokerage’s live trading environment. 

If you’re a beginner, you can use TradeBench’s simulator to ensure that you understand the trading process and have a strategy that works before risking your hard-earned money on live trades. If you’re an expert, you can use the simulator to test new strategies and ideas with less real-world risk. 

P&L Charts

TradeBench makes it easy to quickly gauge your market performance with profit and loss (P&L) charts. The charts outline your entry cost, your exit price, and the profit or loss generated. For each trade, it shows this information in dollar amounts and in percentages.


Is TradeBench a Scam?

There’s quite a bit of chatter online about a potential TradeBench scam. We dug into the scam and found that TradeBench, the company that owns the TradeBench.com website, is a legitimate service that’s geared towards helping beginners and experts alike become more successful in financial markets for free. 

However, there was a website found at TradeBench.Digital that was scamming traders out of their hard-earned money. Thankfully, TradeBench.Digital doesn’t exist anymore, but the scam left a stain on the TradeBench brand that may wrongfully deter some users from this robust trading tool. 


Advantages of TradeBench

There are several advantages to taking advantage of the services offered by TradeBench. Some of the most significant perks to membership include:

  • Automatically Track Stock, Forex, CFD, and Crypto Trades. Stock traders, forex traders, and cryptocurrency traders can all benefit from using the TradeBench platform, unlike many other trade journaling services that generally focus their services on a smaller group of assets, especially for free users.  
  • Everything’s Free. You might be asked to click an advertiser’s link or read an email from time to time, but TradeBench will never ask for your credit card number. All features are free, and there are no paid plans on the platform. 
  • Risk Management Tools. Risk management is crucial to the trading process. Traders who don’t employ risk management strategies can end up with exorbitant losses. The risk and money management tools on TradeBench go above and beyond the norm, showing that the company has a keen interest in its users’ success. 
  • Interactive Charts. TradeBench offers a wide range of interactive charts and technical indicators to help you find the best trade setups.  
  • Track Open Trades. Market conditions can change rapidly, which makes tracking multiple open trades difficult. The platform’s Open Trade Dashboard makes tracking multiple positions a breeze with charts, graphs, and tools that help you plan profitable exits. 

Disadvantages of TradeBench

There aren’t many disadvantages to speak of when it comes to TradeBench. While some users may find it annoying to click an ad from time to time, the vast majority would likely rather click a few ads than shell out hard-earned cash for the service. 

  • Centered Around Trading. The only real drawback to the service is that it’s focused on trading, a high-risk process. Nonetheless, while the service is geared toward the active trader, long-term investors will also benefit greatly from some of the features available, especially the automated trading journal. 
  • Unrelated Scam Dinged TradeBench’s Reputation. For some time, TradeBench.Digital ran a scam called TradeBench. While TradeBench.com is a legitimate service that had nothing to do with the scam, the fact that a scam shared a name with the company dinged its reputation. 

How TradeBench Stacks Up

One of TradeBench’s biggest competitors is TraderSync. Check out the table below to see how the two compare:

TradeBench TraderSync
Price TradeBench is always free for all features.  Pro. $29.95 per month Premium. $49.95 per month Elite. $79.95 per month13% discount when billed annually 
Risk Management & Trade Setup Tools Yes Yes
Trading Simulator Yes Yes
Share Trade Data Share your trading journal with a single person or group of people.  Share customized trading reports with your mentor or followers. 

Final Word

TradeBench is a phenomenal tool that gives traders an edge on the competition. Beginners and experts alike can use the automated trading journal, risk and money management tools, and trade planning and research tools to become more successful traders. 

While the TradeBench tool has the potential to increase your profitability, it’s not a silver bullet. It’s important to remember that trading is a short-term, speculative process that always comes with a higher level of risk than long-term investing based on well-researched fundamentals. 

If you haven’t tried your hand as a long-term investor and earned a strong understanding of the mechanics of the stock market, it’s best to avoid trading entirely until you have more experience under your belt. 

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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.

Editorial Note:
The editorial content on this page is not provided by any bank, credit card issuer, airline, or hotel chain, and has not been reviewed, approved, or otherwise endorsed by any of these entities. Opinions expressed here are the author’s alone, not those of the bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved, or otherwise endorsed by any of these entities.
Joshua Rodriguez has worked in the finance and investing industry for more than a decade. In 2012, he decided he was ready to break free from the 9 to 5 rat race. By 2013, he became his own boss and hasn’t looked back since. Today, Joshua enjoys sharing his experience and expertise with up and comers to help enrich the financial lives of the masses rather than fuel the ongoing economic divide. When he’s not writing, helping up and comers in the freelance industry, and making his own investments and wise financial decisions, Joshua enjoys spending time with his wife, son, daughter, and eight large breed dogs. See what Joshua is up to by following his Twitter or contact him through his website, CNA Finance.

Source: moneycrashers.com

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

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Dig Deeper

Additional Resources

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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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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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