Not everyone is an expert in the home buying process; there will be many questions and concerns that arise during your purchase. This section will offer advice from experts in the industry regarding various topics that will be of interest when buying a new home
Title insurance is a policy of insurance that protects the buyer and/or mortgage lender against loss or damage sustained if a claim covered under the policy terms is made. These terms typically involve defects in the title or survey that might affect your right of ownership and ability to resell the property.
This includes unpredictable or undetectable issues such as conflicting interests or ownership of the land, and mortgages or other encumbrances affecting title. Plus, this insurance covers compliance risks such as noncompliance with restrictive covenants, the existence of work orders and major encroachments, as well as access-related problems due to right-of-way or easements, or other defined rights and defects. Other issues that are covered include fraud and missing heirs.
- Title insurance transfers the risk associated with title from the homebuyer, lending institution, or lawyer to the title insurer. If a problem with title is discovered after closing, the title insurer may rectify the problem or compensate the holder of the policy, as long as that type of problem is covered by the policy.
- Risks or losses the policy will cover
- Risks or losses the policy will not cover
- General terms governing the insurance coverage
Title is a legal term that refers to ownership of a property. As a homebuyer, you want to be sure you own the property and have the right to convey it to someone else at a future date.
Prior to your home closing, public records are searched to determine the previous ownership of, and dealings relating to, the property. For example, there may be an existing mortgage on it, liens for outstanding taxes, etc. The property should be free of these items at closing. Occasionally, defects regarding the title are discovered after closing, or are not handled before closing, which can at some future date negatively affect the marketability of the property, or even cost the buyer money to remedy. For example, if the property was conveyed to the previous owner fraudulently, the real owner may demand his/her rights of ownership. Other risks that may be covered under the policy include the forced removal of existing structures on the property, unregistered rights-of-way, and zoning and set back non-compliance.
Generally, there are certain types of risks that are not to be covered, such as environmental hazards, native land claims, and problems agreed to in the purchase agreement or not disclosed to the lawyer. Discuss with your lawyer what risks are and are not covered, as well as the parameters of the policy, which remain in effect as long as the insured buyer, or their heirs, retain title to the land. Title insurance is available for new and resale homes, condominiums, cottages, rural properties, residential rental properties up to four units, and farms.
Mortgage fraud in the United States is expected to increase as more people enter the homeownership market. Whether you buy a new or resale home, pursuing home title insurance may be in your best interest, depending on the circumstances of your purchase. You may also be required by your lender to buy the insurance. Discuss it with your tax professional and lender, and reap the benefits of being an informed consumer.
Buying a home is one of the most exciting steps in life - and it is also one that carries with it the largest price tag most Americans will ever encounter. Understanding how much you can afford to spend, and figuring out how to finance your home purchase, are critical to your success in obtaining the most home for your money.
Americans are among the best-housed people in the world, and most own their own homes. This situation has not happened by chance. FANNIE MAE (Federal National Mortgage Association), FREDDIE MAC (Federal Home Loan Mortgage Corporation), Veteran's Administration (VA) and the Federal Housing Administration (FHA) are the country's largest national housing agencies, which among many other things assists homebuyers in accessing a wide range of innovative and affordable financing choices.
Among the many services are:- Mortgage Loan Insurance, to help lenders offer mortgages at the lowest possible rates, enabling borrowers to purchase a home with as little as 3.5% down. See "What is Mortgage Loan Insurance?"
- Help in ensuring a steady supply of low-cost funds for residential mortgages by guaranteeing timely payment on a range of mortgage-based securities.
Your best approach to deciding on financing, especially if you are looking at buying your first home, is to figure out early on how much you can afford to pay. This involves taking a good look at your income, expenses, savings, investments and how much debt you have. Be realistic, too - do you have budget-draining events on the horizon such as a wedding, a new car purchase or a baby on the way?
A first step is to know your credit rating. This will help lenders verify your repayment history, and, if your credit rating is good, it increases your chances of obtaining a mortgage. To check your history, ask for a copy of your credit rating from Equifax Information Services, Experian, and Trans Union. A small fee applies.
There are formulas that can help you categorize these items and determine how much you can afford. Before you embark on this exercise, remember to see the big picture. There will be other expenses, referred to as closing costs and pre-paids. These include legal fees, mortgage insurance, etc., and will typically add between 1.5% and 3% to your cash due at closing.
Most people today apply for a pre-qualified mortgage, which allows them to shop knowing exactly what price range they can comfortably afford. Another option is to check with your builder as to whether they offer cap-rate mortgages, which may be available at rates that are guaranteed for a year or longer. Many new home sales offices have a representative from a financial institution on call to help with your financing questions.
You will also discover many down payment options:- Conventional mortgage (5% down)
- FHA mortgage (minimum 3%. As of October 1, 2008 3.5% down.)
- VA mortgage (100% financing for qualified veterans)
Private Mortgage Insurance (PMI) is insurance that insures the lender that, in the event that the borrower defaults on the loan, the mortgage lender is paid. Mortgage insurance is typically required when the downpayment is less than 20%.
- Private Mortgage Insurance is available for everything from new condominium suites to townhomes, semi-detached homes and fully detached homes. There is no upper limit on the purchase price of a home that can qualify for purchase with a small down payment.
- Usually, the purchaser will have at least 5% (single-family and two-unit dwellings) or 10% (three- or four-unit dwellings) of the purchase price available for a down payment. The Private Mortgage Insurance premium is a percentage of the loan and is calculated based on the amount of your down payment. The higher the percentage you borrow, the higher the percentage you will pay in premiums. This cost is typically offset by the fact that, without Private Mortgage Insurance, you would pay higher interest rates and additional administrative fees.
- Check with your lender to work out the amount of the mortgage loan you can afford. There are mortgage calculators available online, but it is best to have the figure calculated by your lender according to your unique situation.
- Check with your lender for the criteria on the types of funds that can make up your down payment.
- Remember - Private Mortgage Insurance is not mortgage life insurance, which ensures that your remaining mortgage is paid off at the time of your death.