An annual check-up on your homeowners insurance can result in a healthier policy and a healthier pocketbook.
What type of coverage do I have?
The most effective type of coverage is known as “replacement cost,” which covers, up to your policy limits, what it would take today to rebuild your house and restore your belongings, says Jerry Oshinsky, a partner at Jenner & Block in Los Angeles who has represented homeowners in litigation against insurers.
“Extended” replacement cost coverage provides protection to your policy limit, say $500,000, and then perhaps another 20% of the cost after that. Percentages vary, but in this example you could recoup up to $600,000 on a $500,000 policy, assuming your losses reach that high. Extended coverage can compensate for any unanticipated expenses like spikes in construction costs between policy renewals. Now harder to find due to the industry shift toward extended replacement coverage, “full” or “guaranteed” replacement coverage covers an entire claim regardless of policy limits.
A less attractive alternative is “actual cash value” coverage that usually takes into account depreciation, the decrease in value due to age and wear. With this type of policy, the $2,000 flat-screen TV you bought two years ago will be worth hundreds of dollars less today in the eyes of your claims adjuster. Kevin Foley, an independent insurance broker in Milltown, N.J., favors replacement cost coverage unless you can save at least 25% on the premium for going with actual cash value coverage instead.
Even if you have replacement cost protection for your dwelling and personal property, don’t assume everything is covered. Structures other than your home on your property—such as a detached garage or swimming pool—require separate coverage. So too do luxury items like jewelry, watches, and furs if you want full replacement cost because reimbursement for those items is typically capped.
How much coverage do I really need?
OK, now that you’re clear on what type of policy you have, you need to figure out how much policy you truly require in dollar terms. Let’s say you purchased your home five years ago and insured it for $200,000. Today, it’s worth $225,000. Simply increasing your coverage to $225,000 may nonetheless leave you underinsured. Here’s why.
The key to determining how much dwelling coverage you need isn’t the value of your home but the money you’d have to pay to rebuild it from scratch, says Carlos Aguirre, an agent for Liberty Mutual Insurance in Arlington, Texas. Call your local contractors’ or homebuilders’ association and inquire about the average per-square-foot construction cost in your area. If it’s $150 and your home is 2,000 square feet, then you should be insured for $300,000.
There’s no rule of thumb for how much your homeowners insurance should cost. Insurers use numerous factors—age, education level, creditworthiness—to determine pricing, so the same policy could run you more than your neighbor. In recent years the average annual premium was $804. Oshinsky advises against scrimping on insurance because big increases in coverage probably cost less than you’d think. He recently purchased a liability policy that cost $250 for the first $1 million in coverage. Adding another $1 million increased his premiums only $12.50 more.
How can I lower my premiums?
The higher your deductible, the amount you pay out of pocket before coverage kicks in, the lower your premium. Landing on the appropriate deductible level requires remembering that insurance should cover major calamities, not minor incidents, says Foley, the independent insurance broker. Most homeowners should be able to absorb modest losses like a broken window pane or a hole in the drywall without filing claims. If you can, then you’re wasting money with a $250 deductible.
Foley’s rule: If you’re a first-time homeowner and don’t have a lot of savings, moving up to a $500 deductible will probably stretch your budget. However, if you live in a ritzy home and drive an expensive car, then you should be able to afford a $1,000 deductible. In Milltown, N.J., for example, the premium for a $200,000 home with a $500 deductible would be $736, according to Foley; moving up to a $1,000 deductible drops the annual premium to $672. That’s $64 in savings.
Every major insurer offers discounts to various groups, such as university employees or firefighters. Figure about 5%. Ask which affiliations would entitle you to a discount and how much. If an AARP membership would result in a $50 savings, pay the $16 dues and pocket the $36 difference. Many insurers also offer discounts ranging from 1% to 10% or more for installing protective devices like alarms and deadbolt locks, for going claim-free for an extended period, or for insuring both your car and your home with the same carrier.
By: G. M. Filisko
Published: August 28, 2009
Getting the loan that suits your situation at the best possible price and terms makes homebuying easier and more affordable. Here are seven ways to boost your credit score so you can do just that.
1. KNOW YOUR CREDIT SCORE
Credit scores range from 300 to 850, and the higher, the better. They’re based on whether you’ve paid personal loans, car loans, credit cards, and other debt in full and on time in the past. You’ll need a score of at least 620 to qualify for a home loan and 740 to get the best interest rates and terms.
You’re entitled to a free copy of your credit report annually from each of the major credit-reporting bureaus, Equifax, Experian, and TransUnion. Access all three versions of your credit report at www.annualcreditreport.com. Review them to ensure the information is accurate.
2. Correct errors on your credit report
If you find mistakes on your credit report, write a letter to the credit-reporting agency explaining why you believe there’s an error. Send documents that support your case, and ask that the error be corrected or removed. Also write to the company, or debt collector, that reported the incorrect information to dispute the information, and ask to be copied on any materials sent to credit-reporting agencies.
3. Pay every bill on time
You may be surprised at the damage even a few late payments will have on your credit score. The easiest way to make a big difference in your credit score without altering your spending habits is to diligently pay all your bills on time. You’ll also save money because you’ll keep the money you’ve been spending on late fees. Credit card or mortgage companies probably won’t report minor late payments, those less than 30 days overdue, but you’ll still have to pay late fees.
4. Use credit carefully
Another good way to boost your credit score is to pay your credit card bills in full every month. If you can’t do that, pay as much over your required minimum payment as possible to begin whittling away the debt. Stop using your credit cards to keep your balances from increasing, and transfer balances from high-interest credit cards to lower-interest cards.
5. Take care with the length of your credit
Credit rating agencies also consider the length of your credit history. If you’ve had a credit card for a long time and managed it responsibly, that works in your favor. However, opening several new credit cards at once can lower the average age of your accounts, which pushes down your score. Likewise, closing credit card accounts lowers your available credit, so keep credit cards open even if you’re not using them.
6. Don’t use all the credit you’re offered
Credit scores are also based on how much credit you use compared with how much you’re offered. Using $1,000 of available credit will give you a lower score than having $1,000 of available credit and using $100 of it. Occasionally opening new lines of credit can boost your available credit, which also affects your score positively.
7. Be patient
It can take time for your credit score to climb once you’ve begun working to improve it. Keep at it because the more distance you put between your spotty payment history and your current good payment record, the less damage you’ll do to your credit score.
Thanks Leslie, for a Raving Zillow.com Review!! ( http://www.zillow.com/profile/Bill-Heenan/Reviews/ )
This question was received on my Trulia Page.
Q. My home is for sale and I want to reduce the price. What is the best way to do this without looking desperate, but to still make a difference?
A. In regards to your home for sale, the most important question that any owner should be asking themselves is whether or not they feel that their home is getting the best exposure and representation possible.
If the answer is yes then you gauge your price by the amount of activity you are having. If there is no activity then the chances are that you will need a deeper reduction in price then if you are getting activity but no one is making an offer.
If you do not think that your home appears enough in print ads and does not have full exposure on the leading real estate websites then I would say a change is needed.
This question was received on my Trulia Page.
Q. Can you look at houses if you haven’t spoke to a bank yet?
A. Absolutely! You can look without talking to a lender but why would you? It literally takes 15 minutes of discussion to get qualified with an experienced loan officer. Then you do not risk getting frustrated. You know what they will lend you and now all you have to do is find a home!!
As far as who to use for lending. Direct lenders. Whether it is a bank or a mortgage company you just want to make sure that they are the ones lending you the money. This will cut out some unnecessary verification for the loan and you can have more confidence when they prequalify you because they are the ones lending the money.
Lending standards will remain tight in 2012, but that doesn’t mean you won’t be able to snag a mortgage with an attractive rate. Savvy borrowers who understand the rules and prepare will improve their chances of success.
These tips will help you stay on top of your game as you try to secure a mortgage in 2012.
1. Study your credit. Get copies of your credit scores and credit history from the three main credit-reporting bureaus. Study the reports carefully to make sure there are no errors or issues to resolve before applying.
2. Prepare before you start. Every lender requests certain basic documents when you apply for a mortgage. Don’t wait for them to ask.Have these documents ready when you walk into the lender’s office: your last two pay stubs, W-2s, income-tax returns and bank statements.
3. Know how much you can afford. Plan your budget, and leave room for unexpected expenses. That’s especially the case when you are buying a house. Mortgage calculators can help you determine how much house you can afford and estimate your monthly mortgage payments.
4. Shop around. Shopping around for a mortgage should go beyond comparing interest rates. Rates are important, but would-be borrowers must consider points, closing costs and different types of loans. Get estimates from three banks and three mortgage brokers before you decide which combination works for you.
5. Time is of the essence. Once you submit your mortgage application to the lender, the clock starts ticking. Make sure you quickly send in any documents requested during the approval process. For buyers, a delay in closing the loan could kill the purchase and cost them their deposits. When refinancing, a delay could mean losing the interest rate the borrower originally locked in. Ask for an expected closing date, and follow up with the lender periodically until the loan closes. Keep in mind, some lenders close more quickly than others.
6. Mortgage approved? Your credit must stay put until closing. After the lender pulls your credit and says you’ve been approved, don’t assume you’ve won the battle. Most lenders will pull your credit again before the loan closes. It’s wise to avoid any moves that may affect your credit. Don’t apply for new credit cards or credit lines. Pay your bills on time. Don’t close any accounts. Don’t finance a new car. Stay put until closing.
7. Consider refinancing with no closing costs. You don’t always have to spend money to save money when refinancing. Many lenders offer mortgages with no closing costs. No, it’s not a free ride. Lenders usually make up for those costs by charging the borrower a slightly higher interest rate.
8. Consider a shorter-term loan. Those who have a 30-year mortgage with an interest rate of 6% or higher may be able to refinance into a 20-year or 15-year loan while keeping their monthly mortgage payments close to what they pay now. Consider this option even when the short-term loan means slightly higher monthly payments. This is your chance to pay off your mortgage more quickly.
9. Receive a gift? Be ready to explain it. Did your parents or in-laws give you a few thousand dollars as a gift to help out with the down payment? If so, congratulations — but make sure you can document and explain where you got the money.
10. Be persistent. If one lender rejects your mortgage application, that doesn’t mean all lenders will. Most lenders follow Fannie Mae and Freddie Mac guidelines. In addition, they have their own internal underwriting guidelines, and some are stricter than others.
11. Appraisal isn’t enough? Try again.If the home appraisal your lender received isn’t enough to back the mortgage loan and you think the appraiser is mistaken, try another lender. You can’t order a second appraisal or pick which appraiser the lender hires, but you can dispute the first appraisal or apply with a different lender.
12. Seek help. If you are behind on your mortgage or are struggling to keep up with your mortgage payments, seek counseling.The Department of Housing and Urban Development has counseling agencies throughout the country.