The American Express® Green Card, with valuable bonus categories and a strong collection of benefits, now has the highest welcome offer we’ve seen publicly available.
This is a great card for those who spend a lot on travel and dining and want to earn American Express Membership Rewards points.
Keep reading for more details on the card and how to access the offer.
Amex Green current welcome offer
New cardholders will earn 60,000 Membership Rewards points after spending $3,000 in purchases on the card in the first six months of cardmembership. They’ll also earn 20% back on eligible travel and transit purchases in the first six months (up to $200 back).
The usual offer sits between 40,000 and 45,000 American Express Membership Rewards points, so now is a great time to apply to earn 60,000 points.
The fact that you can take six months to earn the bonus — instead of the usual three months that most cards require — means this is an easy offer to access, including for those on lower incomes. You need to spend just $500 each month for six months to earn the bonus.
Furthermore, you’ll maximize the $200 back if you spend $1,000 on travel and transit purchases in the first six months.
To put the bonus in perspective, 60,000 American Membership Rewards points transferred to one of their many transfer partners can usually get you a one-way business-class flight to Europe.
Amex Green card benefits
With the Amex Green Card, you’ll earn 3 points per dollar on travel, restaurants and transit.
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They’re very broad categories, with travel and transit including everything from the usual flights, hotels and car rentals to cruises, tours, ride-hailing and parking. The restaurant category includes dining establishments worldwide, and takeout and delivery in the U.S.
Cardholders also receive an up to $189 annual credit when they use their American Express Green Card to purchase a CLEAR Plus membership (fully covering a membership) and another up to $100 annual credit for LoungeBuddy access, all for a $150 annual fee (see rates and fees).
Other perks include trip delay insurance, car rental loss and damage insurance, access to the Global Assist Hotline, baggage insurance, purchase protection and no foreign exchange fees.
Bottom line
Although this card is built primarily for points and miles beginners, this is also a good choice for experienced points and miles gurus to pair with another Amex card to earn points on non-flight purchases, restaurant spending and transit. 60,000 Membership Rewards points is a solid bonus and one the highest we’ve seen on the card, and can be maximized by taking advantage of one of Amex’s frequent transfer bonus promotions.
Learn more in our full review of the Amex Green card.
Official application link: American Express Green Card with a 60,000-point bonus and 20% back on eligible travel and transit purchases (up to $200 back) in your first six months.
For rates and fees for the Amex Green, click here.
If you’ve spent any time around TPG, you know that the Chase Sapphire Preferred Card is one of our most beloved cards. We often recommend it as a great travel rewards card for beginners and travel rewards veterans alike for its solid earning potential, excellent point redemption options and relatively low annual fee.
We love the card so much that it made multiple appearances on our list of cards TPG staffers can’t live without.
If (for some reason) you haven’t gotten it yet, make that your next move.
Official application link: Chase Sapphire Preferred Card with a sign-up bonus of 80,000 points after you spend $4,000 in your first three months of account opening
But if you’ve already listened to us and gotten the Chase Sapphire Preferred, your next card decision might seem more daunting. If you ask a few of us which card you should get next, you will likely hear different answers. It can feel like choosing your next card is complicated when, in reality, there are just a lot of really good options of cards you can get to take you to the next phase of your points and miles journey.
Today we’re going to break down the three major schools of thought on which card you should get to pair with your trusty Chase Sapphire Preferred.
Three approaches
Your options fall into three categories:
There’s no single right answer that applies to everyone, so you’ll want to consider your own situation to identify which makes the most sense.
Related: The power of the Chase Trifecta
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Option 1: A card to earn additional Ultimate Rewards points
This is a great choice if you love the options to redeem and transfer the Chase Ultimate Rewards points from your Sapphire Preferred. With one of the Chase Freedom cards, you can maximize your spending categories to earn even more of these points from your everyday spending.
On their own, the Chase Freedom Unlimited and Chase Freedom Flex are marketed as cash-back cards. If you also have the Chase Sapphire Preferred, though, you’ll be able to combine your Chase Ultimate Rewards points and transfer them to the full range of Chase transfer partners.
Chase Freedom Unlimited
Annual fee: $0.
Sign-up bonus: Earn an extra 1.5% on all purchases up to $20,000 spent in your first year.
Rewards rate: Earn 5% on travel booked through the Ultimate Rewards portal, 3% on dining and drugstores, and an unlimited 1.5% on all other purchases.
Why this card pairs well: This card is excellent to pair with your Chase Sapphire Preferred because it earns 1.5% (or points per dollar spent) on all purchases, which is 50% more than the Chase Sapphire Preferred (1 point per dollar spent on purchases outside of its bonus categories).
Even with my own more advanced card portfolio, this is a card I reach for often. It allows me to earn a decent return on purchases that don’t fall under most bonus categories, such as auto repairs and specialty items. With a current bonus of earning an additional 1.5% back on all purchases (up to $20,000 spent) in your first year, it’s a no-brainer for most Chase Sapphire Preferred cardholders.
Related: Chase Freedom Unlimited: A great card for beginners and pros alike
Official application link: Chase Freedom Unlimited
Chase Freedom Flex
Annual fee: $0.
Sign-up bonus: Earn $200 cash back after you spend $500 on purchases in the first three months from account opening.
Rewards rate: 5% (or 5 points per dollar) cash back on up to $1,500 in combined purchases in bonus categories each quarter you activate. You’ll also get 5% cash back on travel purchased through Chase Ultimate Rewards, 3% on drugstore purchases and dining, and 1% on all other purchases.
Why this card pairs well: With this card, you’ll get 5 points per dollar on qualifying purchases in merchant categories and at specific retailers that change each quarter. For example, during the second quarter of 2023 (April 1 through June 30), the bonus applies to Lowe’s and Amazon purchases — perfect timing for your spring cleaning and graduation gift purchases. This card gives you a great way to earn more Chase Ultimate Rewards points on different spending categories.
If you find yourself ready to juggle a few cards but want to keep earning Chase Ultimate Rewards points, you can use all three cards (Sapphire Preferred, Freedom Unlimited and Freedom Flex) to maximize your points earning potential on all your purchases. Just be sure to time your applications carefully to maximize your approval chances.
Option 2: A card to earn additional points with a Chase transfer partner
If you consistently transfer your Chase Ultimate Rewards to a specific transfer partner, like United MileagePlus or World of Hyatt, you can get a cobranded card to maximize your points.
United Quest Card
Annual fee: $250.
Sign-up bonus: Earn 60,000 bonus miles and 500 Premier qualifying points after you spend $4,000 on purchases in the first three months your account is open.
Rewards rate: Earn 3 miles per dollar spent on United Airlines purchases (immediately after earning the $125 United purchase credit) and 2 miles per dollar on all other travel, including airfare, trains, local transit, cruise lines, hotels, car rentals, taxicabs, resorts, ride-sharing services and tolls. You’ll also earn 2 miles per dollar on dining and select streaming services and 1 mile per dollar on all other purchases.
Why this card pairs well: Since United is one of the most valuable Chase travel partners, this card will greatly improve the value you receive when you transfer your Ultimate Rewards points to United. For example, when you have a United Quest card, your miles will go much further due to the additional award availability offered to all United cardholders.
You’ll also receive a free first and second checked bag for yourself and a companion, priority boarding and access to Premier upgrades on award tickets. Other benefits include two 5,000-mile anniversary award flight credits, 25% back on United inflight purchases and up to a $100 Global Entry or TSA PreCheck fee credit. A $125 annual United purchase credit will take the sting out of this card’s $250 annual fee.
If you fly United regularly, the United Quest card and Chase Sapphire Preferred combination offers valuable flexibility.
Related: 4 reasons to get the new United Quest Card
Official application link: United Quest Card
World of Hyatt Credit Card
Annual fee: $95.
Sign-up bonus: Earn up to 60,000 bonus points, including 30,000 points after you spend $3,000 on purchases within three months from account opening and another 30,000 points by earning 2 points per dollar on purchases that normally earn just 1 point per dollar in your account’s first six months (on up to $15,000 spent).
Rewards rate: Earn 4 points per dollar spent at Hyatt properties; 2 points per dollar at restaurants and on airline tickets purchased directly from the airline, local transit and commuting as well as fitness club and gym memberships; and 1 point per dollar on all other purchases.
Why this card pairs well: The World of Hyatt program is easily the most valuable hotel transfer partner offered by Ultimate Rewards, so you’ll want to enjoy as many perks as possible when redeeming your rewards for stays at Hyatt. You’ll receive Hyatt Discoverist status for as long as your account is open and five qualifying night credits toward your next tier status every year. Plus, you can earn two additional qualifying night credits every time you spend $5,000 on your card, making it much easier to reach the next tier of elite status even if you’re not on the road constantly.
Another popular benefit on the card is the annual free night you receive after your cardmember anniversary (valid at any Category 1-4 Hyatt hotel or resort), as well as an additional free night at any Category 1-4 Hyatt hotel or resort if you spend $15,000 in a calendar year.
Related: The most award-friendly hotel program: Everything you need to know about World of Hyatt
Official application link: World of Hyatt Credit Card
Option 3: A card that diversifies your rewards
This is the one that opens the door to other options.
Suppose you feel comfortable using your Chase Ultimate Rewards and want to unlock even more possibilities. In that case, you’ll want to open a card that will build you another set of transferable points. Here are some great choices:
American Express® Gold Card
Annual fee: $250. (See rates & fees)
Welcome bonus: Earn 60,000 Membership Rewards points after spending $4,000 within six months of account opening. However, check the CardMatch Tool to see if you’re targeted for an even higher welcome offer (subject to change at any time).
Rewards rate: Earn 4 points per dollar spent on restaurants and 4 points per dollar spent at U.S. supermarkets (up to $25,000 per calendar year; then 1 point per dollar). Earn 3 points per dollar spent on flights booked directly with the airline or on Amex Travel and 1 point per dollar spent on all other purchases.
Why this card pairs well: The Sapphire Preferred doesn’t offer a grocery bonus, so this is an excellent card to use at U.S. supermarkets.
Most importantly, you diversify your rewards by accessing American Express Membership Rewards, including unique transfer partners that Chase doesn’t have, such as Hilton, Delta Air Lines, ANA, Hawaiian Airlines and Qantas. Other benefits include up to $120 in annual dining credits and up to $120 each year in Uber Cash that you can use toward Uber Eats purchases or Uber rides in the U.S.
Related: American Express Gold card review
Official application link: American Express® Gold Card
Capital One Venture Rewards Credit Card
Annual fee: $95.
Sign-up bonus: Earn 75,000 bonus miles when you spend $4,000 on purchases in the first three months from account opening.
Rewards rate: Earn 2 miles per dollar spent on all purchases.
Why this card pairs well: The Sapphire Preferred has incredible transfer partners, but they can’t account for all travel purchases. However, the miles you earn from your Capital One Venture can be redeemed for statement credits toward nearly any travel purchase.
Capital One also offers you the ability to transfer your miles to a lengthy list of airline and hotel programs, which have little overlap with Chase’s partners. Valuable additions include Wyndham Rewards, Turkish Airlines, Qantas and Choice Privileges. However, you also have access to some shared transfer partners like British Airways and Avianca LifeMiles, so pairing the Venture with the Sapphire Preferred could accelerate your potential earnings with these programs.
This card also offers you up to $100 in Global Entry or TSA PreCheck fee credit.
Related: Capital One Venture Rewards credit card review
Official application link: Capital One Venture Rewards Credit Card
Citi Premier® Card
Annual fee: $95.
Sign-up bonus: Earn 60,000 bonus ThankYou points after you spend $4,000 in purchases within the first three months of account opening.
Rewards rate: Earn 3 ThankYou points per dollar spent at restaurants, supermarkets, gas stations, air travel and hotels, and 1 point per dollar spent on all other purchases. For a limited time, earn 10 points per dollar spent on hotels, car rentals and attractions (excluding air travel) when you book through the Citi Travel portal through June 30, 2024.
Why this card pairs well: The Citi ThankYou Rewards program offers several transfer partners that Chase doesn’t, such as Qatar, Etihad and Turkish. It also offers valuable bonus earning rates at supermarkets and gas stations, which the Sapphire Preferred doesn’t. This card also comes with a hotel savings benefit worth $100 off a $500 single hotel stay (excluding taxes and fees), once each calendar year. However, that stay must be booked through Citi’s travel portal, limiting its utility to some extent.
Related: Sizable rewards, manageable annual fee: Citi Premier credit card review
Official application link: Citi Premier® Card
Bottom line
The Chase Sapphire Preferred Card is excellent on its own, but it’s even better when paired with other cards. Whether you want to focus on earning more Chase Ultimate Rewards points, build out your stash of points or miles with one of Chase’s transfer partners or diversify into another set of transferable points, you have great options available to you.
Remember, there is no wrong choice when choosing your next card. Regardless of your choice, you’ll build on the knowledge you’ve obtained through the Chase Sapphire Preferred and take another step toward paying for your next trip with points and miles.
Related: Why the Chase Sapphire Preferred should still be the first rewards card in your wallet
Additional reporting by Jason Steele.
For rates and fees of the Amex Gold Card please click here.
Alabama may be known for Southern hospitality, Gulf Coast beaches and some serious football fans, but it also has a few hazards to look out for. Alabama homeowners should make sure they have insurance coverage for hurricanes, tornadoes and other natural disasters that could strike their homes.
NerdWallet analyzed rates from insurers across the state to determine the best homeowners insurance in Alabama.
Note: Some insurance companies included in this article may have made changes in their underwriting practices and no longer issue new policies in your state.
Why you can trust NerdWallet
Our writers and editors follow strict editorial guidelines to ensure fairness and accuracy in our writing and data analyses. You can trust the prices we show you because our data analysts take rigorous measures to eliminate inaccuracies in pricing data and may update rates for accuracy as new information becomes available.
We include rates from every locale in the country where coverage is offered and data is available. When comparing rates for different coverage amounts and backgrounds, we change only one variable at a time, so you can easily see how each factor affects pricing.
Our sample homeowner had good credit, $300,000 of dwelling coverage, $300,000 of liability coverage and a $1,000 deductible.
The best homeowners insurance in Alabama
If you’re looking to buy homeowners insurance from a well-rated national brand, consider one of these insurers from NerdWallet’s list of the Best Homeowners Insurance Companies.
More about the best home insurance companies in Alabama
See more details about each company to help you decide which one is best for you.
Farmers
Those seeking benefits like diminishing deductibles and claims forgiveness may want to consider Farmers.
Coverage options
More than average
Average set of discounts
NAIC complaints
Fewer than expected
Farmers
Those seeking benefits like diminishing deductibles and claims forgiveness may want to consider Farmers.
Coverage options
More than average
Average set of discounts
NAIC complaints
Fewer than expected
Homeowners policies from Farmers may include two valuable types of insurance: extended dwelling and replacement cost coverage. Extended dwelling coverage gives you extra insurance for the structure of your house, while replacement cost coverage offers higher reimbursement for stolen or destroyed belongings.
Some Farmers policies also come with perks that can save you money. For example, with claim forgiveness, Farmers won’t raise your rate for a claim as long as you haven’t filed one within the past five years.
State Farm
Well-established insurer with a lengthy list of coverage options.
Coverage options
More than average
Average set of discounts
NAIC complaints
Fewer than expected
State Farm
Well-established insurer with a lengthy list of coverage options.
Coverage options
More than average
Average set of discounts
NAIC complaints
Fewer than expected
As America’s largest insurer, State Farm stands out for its long list of coverage options. Its policies generally include extra dwelling coverage in case it costs more than expected to rebuild your home after a covered disaster. You may also be able to add coverage for things like identity theft, damage from backed-up drains and personal injury liability.
State Farm offers a free Ting device as a perk for home insurance policyholders. Ting is a smart plug that monitors your home’s electrical network to help prevent fires.
Cincinnati Insurance
Sells homeowners policies through local independent agents across the U.S.
Coverage options
More than average
Average set of discounts
NAIC complaints
Far fewer than expected
Cincinnati Insurance
Sells homeowners policies through local independent agents across the U.S.
Coverage options
More than average
Average set of discounts
NAIC complaints
Far fewer than expected
Cincinnati Insurance sells homeowners policies through independent agents, with various options for standard and high-value homes. You may be able to add coverage for issues like identity theft, personal cyberattacks or certain types of water damage.
Cincinnati may offer you a discount for bundling home and auto insurance, having a newer home, installing a centrally monitored alarm system or going a certain amount of time without filing a claim.
Country Financial
Best for those who prefer to have a personal conversation with an agent when choosing coverage.
Coverage options
More than average
Great set of discounts
NAIC complaints
Far fewer than expected
Country Financial
Best for those who prefer to have a personal conversation with an agent when choosing coverage.
Coverage options
More than average
Great set of discounts
NAIC complaints
Far fewer than expected
Country Financial has three levels of homeowners coverage to help you choose the package that’s best for you. You also have the option to add extra coverage for the structure of your home, in case inflation drives up the cost of rebuilding more than you expect.
Country Financial sells homeowners insurance through local representatives. The company has drawn far fewer complaints than expected to state regulators, according to the National Association of Insurance Commissioners.
Nationwide
For shoppers seeking a broad range of coverage options, Nationwide may fit the bill.
Coverage options
More than average
Great set of discounts
NAIC complaints
Close to expected
Nationwide
For shoppers seeking a broad range of coverage options, Nationwide may fit the bill.
Coverage options
More than average
Great set of discounts
NAIC complaints
Close to expected
Nationwide’s standard homeowners policies include ordinance or law coverage, which pays to bring your home up to the latest building codes after a covered claim. They also include coverage for unauthorized credit or debit transactions. For an extra cost, you may be able to add coverage for things like water backup, identity theft and stronger materials to replace your roof.
The Nationwide website offers plenty of ways to manage your policy, including filing and tracking claims, paying bills and getting quotes.
USAA
Offers perks and affordable rates for the military community.
Coverage options
Below average
Average set of discounts
NAIC complaints
Far fewer than expected
USAA
Offers perks and affordable rates for the military community.
Coverage options
Below average
Average set of discounts
NAIC complaints
Far fewer than expected
USAA sells homeowners insurance to veterans, active-duty military members and their families. If that description fits you, you may want to consider a USAA policy. The company’s homeowners insurance has certain features that other insurers may charge extra for.
For example, USAA automatically covers your personal belongings on a “replacement cost” basis. Many companies pay out only what your items are worth at the time of the claim, which means you may not get much for older items. USAA pays enough for you to buy new replacements for your stuff.
How much does homeowners insurance cost in Alabama?
The average annual cost of home insurance in Alabama is $2,385. That’s 31% more than the national average of $1,820.
In most states, including Alabama, many insurers use your credit-based insurance score to help set rates. Your insurance score is similar but not identical to your traditional credit score.
In Alabama, those with poor credit pay an average of $4,420 per year for homeowners insurance, according to NerdWallet’s rate analysis. That’s 85% more than those with good credit.
Average cost of homeowners insurance in Alabama by city
How much you pay for home insurance in Alabama will depend on your ZIP code. For example, the average cost of homeowners insurance in Birmingham is $2,270 a year, while homeowners in Mobile pay an average of $2,690 per year.
Average annual rate
Average monthly rate
Albertville
Birmingham
Enterprise
Huntsville
Montgomery
Phenix City
Prattville
Tuscaloosa
The cheapest home insurance in Alabama
Here are the insurers we found with average annual rates below the Alabama average of $2,385.
What to know about Alabama homeowners insurance
Alabama faces more than its share of risks for homeowners. When shopping for homeowners insurance, you’ll want to consider hurricanes, flooding and tornadoes.
Hurricanes and tropical storms
With its Gulf Coast location, Alabama is susceptible to hurricanes and the property damage that comes with them. For example, in 2004, Hurricane Ivan passed through Alabama, causing 117 tornadoes over three days due to the high winds. These severe weather events can cause significant damage to your home.
Review your policy to see what coverage you have. Your policy likely covers wind damage, but you may have a separate wind, hail or hurricane deductible. (A deductible is the amount subtracted from your claim payout.)
For example, your policy may have a $1,000 deductible for most claims and a 1% deductible for wind claims. So if your house has $200,000 worth of dwelling coverage, you’d be responsible for the first $2,000 of wind damage yourself.
Hurricanes can also cause flood damage, which most homeowners insurance doesn’t cover. If you live in a high-risk area, you’ll likely need a separate policy for flood insurance as well.
Flooding
Beyond the hurricanes and tropical storms mentioned above, Alabama homeowners may experience flooding due to any type of heavy rain. Because standard homeowners insurance policies don’t pay for flood damage, you’ll want to consider purchasing flood insurance if you live in a flood-prone area.
To find out whether you’re at risk, check the Federal Emergency Management Agency’s flood maps or visit RiskFactor.com, a website from the nonprofit First Street Foundation. Because flooding can happen anywhere if it rains hard enough, you may want to consider buying flood insurance even if you’re in a relatively low-risk location.
Note that while you can purchase flood coverage anytime, there’s typically a 30-day waiting period before the insurance takes effect.
Tornadoes
Parts of Alabama are likely to experience tornadoes, as the state sits in Dixie Alley, Tornado Alley’s Southeastern counterpart. The forceful winds from a twister can damage or even destroy a house.
Your homeowners insurance policy probably covers tornado damage. Still, as with the hurricane wind damage discussed above, it’s important to review your policy to determine how much coverage you have. Some policies have a separate deductible for wind damage, meaning potential extra costs for you in case of a claim.
Alabama insurance department
The Alabama Department of Insurance oversees the state’s insurance industry and provides consumer protections. On its site, you can search for licensed insurance companies and access information for homeowners. If you have a complaint about your insurance company, you can file it online with the department. You can also call the agency’s consumer services hotline with insurance questions at 800-433-3966.
Looking for more insurance in Alabama?
Frequently asked questions
Is homeowners insurance required in Alabama?
Homeowners insurance isn’t required by Alabama state law, but your mortgage lender will likely require you to have it.
How can I save money on home insurance in Alabama?
There are several ways to save money on homeowners insurance in Alabama:
Shop around for the best rate. An independent insurance agent can help.
Choose a higher deductible. In case of any claims, you’ll pay more out of pocket, but you’ll pay less in annual or monthly premiums.
Does Alabama home insurance cover flooding?
A standard home insurance policy in Alabama won’t cover flooding. That means you may want to buy separate flood insurance if your home is in a high-risk area.
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They don’t call it a global economic slowdown for nothing: Evidence is mounting that the BRICs –the world’s big, fast-growing developing economies — are slowing down. Growth in Brazil, Russia, India, and China is expected to slow considerably in 2012, dampening an already weak global economy.
Since the 2008 financial crisis, it’s been powerhouses like China that have helped keep the global economy from total collapse. But if the BRIC economies sputter, what will help sustain the world’s growth engine?
What does BRIC Mean?
The term “BRIC” was first coined about a decade ago by Goldman Sachs, as a way to describe the large, emerging economies which were believed to represent the economic wave of the future. These rapidly growing economies would lift millions out of poverty and provide new markets and growth for developed-world businesses.
For several years, that premise has been mostly right – countries like China and Brazil have grown rapidly, seeing their middle class expand and providing American businesses and investors with greater returns. And they’ve weathered the global financial crisis much better than the US or Europe, continuing to post impressive growth and maintaining budget deficits lower than the developed world’s.
American investors have the BRICs to thank for the relatively buoyant stock market performance of the past year or two, as American businesses’ overseas profits have translated into higher corporate earnings and stock prices at home.
The Future of BRIC Economies
But all that may be coming to an end, suggest some analysts. Not only is growth slowing markedly in some of these economies, but increasing inflation in places like Brazil and India, for example, means that their central banks have a lower margin for reducing interest rates and boosting growth. That means it’s unlikely the large stimulus programs enacted in some BRICs during the 2008 crisis are likely to be repeated soon.
And with the developed world still struggling, these countries may, indeed, need such a stimulus for continued growth. After all, if American and European pocketbooks are still in a fragile state, who will buy all of the products produced in China or Russian commodities?
There’s another, darker view on the BRICs, too, that goes beyond thinking this is a mere slowdown. One line of thought suggests that the rapid growth these countries have experienced in the past 15 years was a one-time phenomenon unlikely to repeat itself. China, for example, benefitted largely from its low wages to lure production facilities and create an export-oriented economy. But wages are now rising in China, and production is moving to even lower-wage countries (and in some cases, even back to the US).
In Brazil and Russia, corruption and commodity dependency continues to plague many sectors of the economy and may stunt growth; already, Brazil’s Q1 2012 GDP growth rate was a mere 0.8%. China’s GDP, which had been growing at or above 10%, is projected to increase only 7.5% this year.
The Bottom Line
Sure, a 7.5% growth rate is still great by US standards, but for a country like China, it may be insufficient to keep reducing poverty at a rapid clip or encourage a transition from an export to a consumption-based economy. And if fears of a housing bubble popping come true, China will need to clean up its own economy, let alone help boost the ailing West.
In such a world, “BRIC” may just be another one of those fashionable terms from a more optimistic era. Just like “globalization” and “Internet”, it may no longer hold the promise of a brighter economic tomorrow.
“Is the Show Over for the BRIC Economies?” was written by Janet Al-Saad, MintLife Managing Editor.
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There are plenty of reasons active-duty service members and veterans prefer to use VA loans. With the benefit of the VA guaranty, home buyers are able to get a home without having to make a down payment. This is thanks to the VA’s commitment to 100% financing.
But what happens if the home is being sold for more than the VA is willing to commit? This can happen, specifically when the VA appraisal doesn’t come back the way the buyer and the seller expected.
This is where the VA’s little-known “mandatory escape clause” comes in.
Click to check today’s rates (Apr 26th, 2023)
The VA Mandatory Escape Clause
The VA wants to protect its members, and one of the ways it does that is with the mandatory escape clause.
The mandatory escape clause states that a home buyer does not have to follow through with a purchase if the VA appraisal comes in lower than the asking price for the home.
What’s more, the escape clause even protects the home buyer from any fees or penalties.
According to the VA, “It is expressly agreed that, notwithstanding any other provisions of this contract, the purchaser shall not incur any penalty by forfeiture of earnest money or otherwise or be obligated to complete the purchase of the property described herein, if the contract purchase price or cost exceeds the reasonable value of the property established by the Department of Veterans Affairs. The purchaser shall, however, have the privilege and option of proceeding with the consummation of this contract without regard to the amount of the reasonable value established by the Department of Veterans Affairs. (Authority: 38 U.S.C. 501, 3703(c)(1))”
In other words, the home buyer is allowed to back out of the purchase without incurring any type of penalty, whatsoever.
Who does the escape clause help?
With some loan products, backing out of a deal can mean penalties. For buyers looking to save as much money as possible, that’s a good thing.
In a hot market where homes are selling for way above market prices, low appraisals are more common. With other loan types, the buyer would have to include an appraisal contingency in their offer to ensure they can back out of the sale in the event that the house does not appraise for the purchase price. These contingencies can make an offer less attractive to a seller, especially in a competitive market. So, if you’re looking to buy a home, don’t worry about the clause; it’s there to protect you – and your earnest money – in the event that the house doesn’t appraise at the expected price.
Click to check today’s rates (Apr 26th, 2023)
Can you avoid the mandatory escape clause?
Just because a home buyer signs the clause doesn’t mean they must back out if the appraisal comes in lower than the asking price.
The final part of the mandatory escape clause allows a home buyer to waive the clause and pay the additional money if they want. The only “mandatory” part of the clause is that home buyers must sign it – but that doesn’t mean they’re required to follow it.
There could be plenty of reasons why a home buyer might decide not to back out. For example, a VA appraisal that comes in barely lower than the asking price could mean just a few thousand out of the home buyer’s pocket. If that’s doable, then proceeding with the purchase might be the right move.
VA loans are largely designed to protect the buyer, but VA home buyers still have freedom in the process. The escape clause is there to protect you, but only if you want it to.
VA escape clause FAQ
What is a VA escape clause?
A VA escape clause allows a buyer to walk away from the deal if the home’s appraised value is less than the contract price. If the buyer walks away for this reason, they will get their earnest money deposit back.
Does the VA require an escape clause?
Yes, the VA requires an escape clause. With this mandatory escape clause, the buyer can back out of the deal without losing their earnest money if the home appraises for less than the contract price.
What is the purpose of the VA mandatory escape clause?
The goal of the VA mandatory escape clause is to protect a VA home buyer if a home appraises for less than the contract price. If an appraisal determines that the value of the home is lower than the contract price, the VA buyer can back out without losing their earnest money.
Since the Department of Veterans Affairs backs the VA loan, it makes sense that the government agency wants to protect the interests of veteran buyers who meet specific eligibility requirements.
Can a VA buyer waive the appraisal contingency?
You cannot waive the appraisal contingency if you are a VA buyer. The Department of Veterans Affairs requires buyers to keep both the appraisal contingency and escape clause in the contract.
If the home appraises for less than the contract price, the VA will only back a loan for up to the appraised amount. But the buyer will have the opportunity to make up the difference out of their own pocket.
When is the VA escape clause not required?
A VA escape clause is required for all VA home loan sale contracts. FHA loans have a requirement in the amendatory clause.
However, other loan types, such as conventional loans, are not subject to this requirement.
Who is required to sign the VA escape clause?
Both the buyer and the seller must sign the VA escape clause form. If you have questions about the VA amendatory escape clause for your home sale, discuss the details with your real estate agent. A qualified real estate professional can help you set the right sales price to avoid any underwriting issues due to this clause.
Does a seller have to sign the VA escape clause?
No, a seller doesn’t have to sign the VA escape clause. But by refusing to sign, the seller cannot accept the offer of the veteran buyer.
It is worth pointing out that many buyers with all kinds of loans will insist on an appraisal contingency. After all, buyers don’t want to be locked into a deal where the valuation of the property doesn’t match the sale price. With that, most sellers will decide to sign this clause even if it is not ideal.
What if buyers don’t use the escape clause?
The buyer doesn’t have to use the escape clause. However, the VA will only back the loan for up to the guaranteed amount. With that, borrowers who waive the escape clause will have to come up with the additional funds on their own.
Unfortunately, a hot real estate market may require more buyers to waive the escape clause.
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