As a responsible property owner, you have probably purchased homeowners insurance to protect your investment. In fact, it is probably required by your mortgage lender. While homeowners insurance can be an important lifeline in the event of a disaster, there are certain situations where you may be left paying out of pocket.
Even though mold is both unsightly and a health hazard, most homeowners policies limit or exclude coverage for mold-related damage. Your best defense is to address issues that can lead to the development of mold as quickly as possible. If the mold affects more than a small area of approximately 10 square feet, it is best to contact a professional mold remediation company.
Cracked or aging sewer lines, torrential rains, or blockages caused by tree roots or debris can allow storm water or even raw sewage to enter your home. This can cause thousands of dollars in damage to everything from your walls and flooring to your furniture and electrical system. If you live in an area that is prone to sewer backups, you may be able to purchase a policy endorsement to cover this type of damage, but you should expect to pay extra.
A sinkhole occurs when groundwater dissolves the bedrock under the earth’s surface. As cracks and pores develop in the bedrock, the earth starts to settle to fill in the voids. Eventually, the ground gives way to create a sinkhole. This phenomenon is most common in Florida, Alabama, Kentucky, Tennessee, Texas, Missouri, and Pennsylvania.
The majority of states exclude damages caused by earth movement, including sinkholes and earthquakes. Florida is an exception and mandates coverage for sinkhole damage as part of all standard homeowners policies. Homeowners in Tennessee have the option of purchasing sinkhole coverage at an additional cost.
A termite infestation can leave you shelling out thousands of dollars to repair the damage. Since most homeowners policies do not cover termite or other pest infestations, prevention is your best course of action. You can start by preventing moisture from accumulating around your foundation and in your crawlspace and removing wood, plant, and paper debris from around your home. This forces the termites to look elsewhere for their food and water. You should also consider investing in termite protection services with a pest control company.
If you live near a nuclear power plant, you may be surprised to find out that your homeowners policy will not cover you in the event of a nuclear accident. The federal government does provide some protection through the Price-Anderson Act of 1957. The act covers the following in the event of a nuclear accident:
- property damage and loss,
- bodily injury, and
- disease resulting in death.
If you are evacuated from your home because of a nuclear incident, you can also be reimbursed for certain reasonable living expenses beyond what you would normally pay.
If a terrorist act causes smoke or fire damage to your home, there is a good chance that you will be covered. On the other hand, incidents involving chemical, biological, nuclear, or radioactive weapons are considered acts of war and are not covered.
Despite the fact that dog bites are one of the most common causes of lawsuits against homeowners, insurance companies may exclude coverage for dog bites if you own a breed of dog that is considered to be dangerous or aggressive. Some companies are slightly more lenient and look at the history of the specific dog instead of the breed.
If you live in a flood-prone area, your homeowners policy will not cover damages caused by torrential rains or overflowing rivers. Your best option is to purchase a policy through the National Flood Insurance Program.
The time to find out the extent of your homeowners coverage is before you suffer a loss. If you are unsure about what is covered under your homeowners policy, you should contact your insurance carrier as soon as possible to verify your coverage.
Buying a house is a much more in-depth process of simply swiping your card. In fact, there are lists of contingencies and disclosures to keep in mind for your own safety. As defined, contingencies are clauses that are included in a contract to allow one to back out of a contract if certain conditions are not up to terms. As well as disclosures, which are a seller’s main responsibility to reveal property details to the buyer. Together, these two main components protect the buyer and the seller from financial and obligatory harm.
The Full Meaning of a Contingency
Contingencies are best thought of as a “cause and effect” proposition. The contingencies main job is to prevent the buyer from getting stuck buying a house if it is not up to their standards. So, when looking through real estate offers, always make sure that there is a contingency in place.
One of the most common ways a contingency comes into play is through financing. For example, if you put an application in for a specific home, but do not qualify for a home loan, you won’t be in charge of paying for the home out of your wallet if your application is approved.
Another example of a common contingency placeholder is when your new home is being professionally inspected. After your new home is checked by an inspector, any abnormalities or factors of your home that are not up to code can be resolved via an inspection contingency which makes the seller pay for the repairs.
Contingencies That are Out of Your Control
Reasonable ways a contingency may entirely be out of your control is during the time a lender approves your loan or if your home’s appraisal comes with a more than sufficient value. Another example is home insurance in which you would need to inquire in case you have to approve the property for certain coverage that you cannot control.
What Can You Control When Buying A House?
You should also get your home inspected. This way, you can back out of the deal if serious issues are discovered. If significant improvements are necessary, you may be able to renegotiate the sale price. Sometimes buyers opt in for a pre-inspection report before even making an offer.
If you want to reduce the number of delays when you are closing the deal, you may choose to accept the house “as is.” You can do this by letting a contingency deadline pass. In the worst case, the sale can be canceled. This is only allowed when one party violated a contingency.
What Is Wrong With The Property?
When buying a house, the seller must disclose all known environmental hazards, damage, defects, and homeowner association issues before the sale. These are known as disclosures. This point marks an important juncture in the home buying process and is the first opportunity to opt-out. Disclosure laws are different in each state and sellers are not required to tell you every nuance or nuisance of the property. Your agent should get the required disclosure documents for you a few days after the signing of the sales agreement. If you do not receive these disclosure documents, you can choose to pursue legal action.
The background of a property can tell a lot about a number of conditions from minor nuisances to on-site deaths. Unfortunately, it can be difficult to know what conditions the owner is legally required to tell you. Thanks to local and national laws, you may need a lawyer to figure it out. Here are the four main types of disclosures.
- Standard Disclosures: A majority of state regulatory bodies provide checklists of common issues for owners. They can indicate what is a problem and what is not. These forms only include major issues, not details of homeowner association obligations, stigmatized properties, or missing mechanical parts.
- Natural Hazards: The document will lay out environmental hazards like flood, fire, and earthquake zones.
- Lead Paint: In accordance with federal law, if a house was built prior to 1978, the owner must disclose the use of all known lead-based paints in the home.
- Sold “As Is” Exemption: Sellers are required to disclose all known defects of the property. In an “as is” transaction, the buyer is waiving their right to charge the seller for any repairs, replacements, or other changes, no matter what is found in the inspection. This is a gamble for the buyer.
Keep Track Of Time
Keep a close eye on your contingency deadlines so you don’t miss any crucial dates. Create a calendar of all your deadlines to help you stay on top of things. You may also want to consult with an agent to help you through the process or, in more complicated cases, an attorney. They can explain some of the jargon and provide solid advice.
Planning to sell your home? There are plenty of costs that go along with it, and knowing what you’ll need to pay ensures that you don’t get caught by surprise. You’ll obviously need to pay whatever amount remains on your mortgage. In addition, you should budget 10 percent of your home’s price for additional costs. Your selling costs could be less, but this is a safe amount that will keep you covered.
Here are the selling costs you can expect, along with a few optional costs.
Commission for Your Real Estate Agent
Expect your real estate agent to charge between 5 and 6 percent of however much your home sells for. While that’s the standard amount, you may be able to negotiate something lower or a flat rate instead of a commission. You should look up plenty of agents and ask people you know for recommendations. Once you find one, get a contract that stipulates their commission amount.
Keep in mind that cheaper isn’t always the better choice. You also need to consider which agent you trust to sell your house. It doesn’t do you any good to save 1 percent on your agent’s commission if it takes them months to sell your house.
Title insurance is necessary to protect the lender and the buyer for any home sale, and it kicks in if the title company finds any problems with the ownership record of the home. The buyer purchases a policy for the lender and the seller purchases a policy for the buyer. This typically runs between $500 and $1,000.
Taxes and Fees
You need to pay your prorated share of that year’s property taxes. If you just paid them, you won’t owe much, but if they’re due soon, you’ll need to pay the bulk of them. There could also be a local transfer tax, depending on your area, which is a tax to transfer the home’s title. This is usually between 0.01 and 2 percent of your home’s selling price.
Fees for a homeowner’s association (HOA) work the same way as property taxes, as you’ll need to pay a prorated amount in membership fees. There could also be a fee to transfer the HOA membership from you to the buyer.
Note that the amount to pay off your mortgage likely won’t be the amount listed on your statement as the balance due, as paying it off early means you won’t pay as much interest. There could be a prepayment penalty, though. To know exactly what your payoff amount will be, contact your lender.
Home inspections are common, and your buyer’s inspection could turn up issues. The buyer could request that you cover the cost of certain repairs by taking it off the asking price of the home, although this is less likely if you listed the home as-is.
There are a few extra items that you may consider to sell your home faster. If your home is older, you may want to pay for six months to one year of a home warranty that will cover major repairs. These typically cost a few hundred dollars.
The nicer your home looks, the more people will want to buy it. While tidying up could be sufficient, your home will look best if you have it staged. Home stager rates can vary quite a bit, but they’re usually between $250 and $1,000.
Buyers have closing costs of their own to handle at the end of the purchasing process, including fees for getting a mortgage, the cost of the home inspection and appraisal expenses. To sweeten the deal, you can cover a portion of those costs.
None of those extras are necessary, so you’ll need to decide how much you want to spend selling your home. If homes are selling quickly in your area, it makes sense to wait a couple weeks and see if your home sells before putting any extra money towards selling it.
It is 98 degrees outside, and your air conditioner breaks down. Your next step will likely be to search for a repair company. Many companies charge a fee just to come out and see what is wrong with the air conditioner. You will have to pay a lot of money to get your air conditioner fixed, but it is worth it.
You may think about getting a home warranty after you get through this ordeal. However, you may also wonder if the money that you spend is really worth it. There are things that you should keep in mind when you get a home warranty.
Peace of Mind
Dealing with an unexpected repair can be stressful. However, it will be easier to handle if you have a home warranty. You will be able to save a lot of money on repairs if you have a home warranty.
Home Warranties Have Mixed Reviews
If you did a Google search for home warranty reviews, then you would likely find mixed reviews. The Consumer Reports recommend that people avoid getting home warranties because of the high cost of the contracts. They also recommend that people simply buy reliable appliances and make sure that they are properly-maintained. Additionally, Consumer Reports recommend putting the money that you would spend on a home warranty in a savings account. You will be able to pay out of pocket if your air conditioner happens to break down.
However, other financial experts have stated that home warranties are worth the money. Home repairs can be expensive, and you can save more money in the long run by having a home warranty. Furthermore, it is a good idea to have a home warranty if you do not trust the repair companies in your area.
If are confident enough to do your own home repairs, then a home warranty may be something that you can do without. You may also be able to do without the warranty if you trust the repair companies in your area.
If you decide that you want to get a home warranty, then it is a good idea for you to shop around. Consumer Affairs has information that allows you to compare the costs and features of different insurance companies. You can contact the companies that you are interested in and ask them for a price quote. After that, you can purchase the policy over the phone or online.
Buying a home is one decision you should never rush into. It may be the biggest purchase you ever make, and you’ll be paying it off over decades. While it’s important that you carefully evaluate any potential home so you know you’re buying one that you’ll be happy with in the years to come, it’s equally important to find a home you can afford. You may love the idea of one home, but living there will be unpleasant if you’re going into debt or working extra hours to make your mortgage payment every month.
How can you know if a home is within your budget? There are a few simple guidelines to follow which will keep you from overextending yourself.
1. Save a Sufficient Down Payment
To get the best interest rate on your mortgage, you’ll need two things: a high credit score and a large-enough down payment. How much is enough for a down payment? A good target amount is 20 percent of the home price, so on a $300,000 home, you’re looking at a down payment of $60,000. This is quite a bit of money, but you’ll have a smaller loan principal to pay off, saving you money over the term of the loan. Being able to save that kind of money is also a sign that you’re financially responsible enough to own a home.
There’s another reason to have a 20-percent down payment ready, and that is to avoid paying for private mortgage insurance (PMI). If your lender sees you as a high default risk, they will require that you pay for PMI, so you end up covering an insurance policy that doesn’t benefit you at all. With high credit and that 20-percent down payment, you won’t need to pay for PMI.
2. Make Sure the Monthly Home Costs Fit into Your Budget
When you own a home, you have four new costs to add to your budget, which are the loan principal, the interest, property taxes and homeowner’s insurance (PITI). Lenders typically will only approve your loan application if your PITI is 28 percent or less of your total income. Figure out how much you’d be paying per month for your PITI to see if it will be under that threshold.
Another guideline you can use is comparing your PITI to the rest of your monthly expenses. Your PITI generally shouldn’t account for more than 25 percent of your living expenses every month. There are exceptions, though. If you’re good at cutting costs and you live a frugal lifestyle, your mortgage may end up being more than 25 percent of your living expenses simply because you’ve lowered those other expenses so much, and that’s fine.
3. Set Aside Money for Home Maintenance Every Month
Once you go from a renter to a homeowner, there’s no more calling a landlord because something needs to be fixed. You’ll need to take care of that yourself, either by making the repair or hiring a contractor who can. This can be a good thing, especially if you’re tired of waiting for landlords to get around to fixing your sink or air conditioning.
To prepare for these maintenance costs, it’s a good idea to save 1 percent of your home’s cost per year for maintenance. If you own a $300,000 home, that means you should save $250 per month for a total of $3,000 per year. It’s another item to add to your budget, but you’ll be happy you did when a major repair is necessary.
Getting a Home You Can Afford
Saving a 20-percent down payment and setting aside money for home maintenance every month may sound difficult, and they can be, but they will put you in a more financially stable position. Emergencies and unexpected issues will happen, the only thing you can control is whether you’re prepared. Focusing on saving money and purchasing a home that fits your budget will ensure that you can afford your bills every month and if something breaks, you have the money to cover it without going into debt.