My Personal Finance Blog

What is the one thing that everyone wants to have?

A car? Money in the bank? A house? Right!

Each one of us wants to have his own home. Be it an individual starting out with their very first job, or a family who has continuously rented houses, to parents in the prime of their lives who don’t want to share houses with their children…all of these, all of us…we all want our own homes.

When you start out, fresh from college, about to enter your first day in the job, you already would create your own wish list, and that would include having your own home in about five years.

Working parents who make ends meet, paying for the house rental, and preparing for the children’s future by saving up for the college education, would still come up with a plan of having their own home in about five to ten years time.

A home is a basic need. Once you have your very own home, it is quite easier, not easy, but easier to attain other needs, as long as you have your own roof above your head, other things can be considered next, and not quite so important, as long as you have a steady income.

Here is where President Obama comes in. He knows how difficult it is with the current economy, so he makes and finds a way to make it work for every American citizen. How? The government is currently offering grants to legal citizens of the United States of America. These grants offer a new roof at ten thousand dollars, a two thousand dollar assistance to pay late mortgage payments, and fifteen thousand dollars down payment for a new house.

These are tax free, no interest, no need to pay loans offered by the government for every legal citizen who wish to get assistance. Obama understands the need of every individual, who want to make sure this dream can be achieved.

So for now that the economy is weak, with so many individuals losing jobs, or getting laid off, this new program offered by the government is a great help. Should you need help in fixing your current household, or payment for that late mortgage, and even aid to make that down payment…all these are of big help.

It is quite difficult coming up with a good credit, because of the current situation, and since you need documents to back you up for that bank loan, it might be tricky and difficult to have that loan granted. So take time to browse through and read more articles about this grant offered by the US government, and make the most out of what you get, should your application be approved.

Insurance policy for the house is often a single important investment most people make after actually buying a home of their own. An insurance policy is used for protecting the house, its contents and visitors from different circumstances that otherwise can be quite hard on your wallet. When you first start looking for a policy to insure your house with the number of options and providers can be overwhelming, making it hard to find exactly what you need. There are a lot of types of policies, different coverage options and amounts, special provisions and other elements that you may include in your policy. So it’s evident that learning more about home insurance is crucial before you start looking for an actual policy for your house.

Consider your options

When looking for a policy to insure your home with, always keep in mind the following tips as they will be very helpful for finding the right offer for a reasonable price:

• Take some time for comparison shopping – look for insurance quotes online, ask your agent or friends, who have purchased home insurance for their house. The more information you get from different sources – the better. Remember to get as much insurance quotes as possible before actually buying a policy. The difference between two companies can be impressive.
• Try purchasing home and other types of insurance from the same provider – this usually lets you get about 15% discount for each type of insurance you get.
• Increase the amount of your deductible – a higher deductible means that your premiums will be lower. However, always make sure that you can afford paying the amount of deductible you have chosen when needed.
• Make your house more durable – anything you do to improve the durability of your house that will help it resist a disaster will be a welcome action from the part of your homeowners insurance provider. Ask the company what you can do to improve your house and receive discounts.
• Make your house more secured – any improvement you make to your house that increases its security can give you a discount from the insurance provider. The best options are installing video systems, alarms, special locks, anti fire and smoker alarms. However, ask your provider about these improvements first because each company has its own requirements regarding security features of their customers.
• Always try to keep a good credit score – the price you pay for home insurance is directly linked to your credit score. If you have a good score your rates will be much lower than if you have bad credit rating. Review your credit record, make everything possible to improve it and maintain a good score. This will lower your other insurance like auto and health insurance too.
• Try staying with the same provider – if the company you get home insurance from has good rates and fair conditions, staying with the same provider for several years can qualify you for a special long-term customer discount, most insurance providers have. Ask your insurance company about that and see if you qualify.
• Review your policy on a regular basis – always make sure that your policy is adequate to your exact insurance needs. And if needed, modify it so that your house would be properly insured.

For most of us buying a home is the biggest investment to mike during the whole lifetime. And it seems reasonable that such an important investment needs reasonable coverage. That’s why you need home insurance.

What’s included in your homeowners insurance?

In case you finance your house purchase through a mortgage, your lender is most likely to require you buying basic homeowners insurance. The basic homeowners insurance includes coverage against the following risks:

• Theft
• Fire and lightning
• Smoke
• Frozen pipes
• Ice and snow

Basic insurance policies also usually include liability coverage for cases when someone is injured in your house. In case there are legal actions taken against you it will also pay for court fees. Basic insurance will also cover your costs in case it’s impossible to live in the house due to fire or any other accident.

What’s left out of coverage?

To learn what is not included into the coverage you should read through your policy, especially the Exclusions part. Things not covered by standard policies vary from one insurer to another, but most likely they will include damage due to earthquake, flood, nuclear accident (very useful isn’t it?), war, act of terrorism and similar. Of course, you can buy additional coverage for such events to be included into your home insurance policy. Wear and tear damage is never included into the policy because it’s considered to be maintenance, which is the owner’s sole responsibility.

How much coverage do I need?

When buying a house through mortgage loan your lender will require you to purchase minimum home insurance coverage (which is usually the purchase value of your home). However, it’s usually not the amount of coverage to meet your insurance needs. Instead, try calculating how much money it would require to rebuild your house entirely and use this amount as the base for getting the right coverage amount. Speak to your agent when completing the insurance policy to calculate the exact amount, or even run a full inspection for qualified appraisal.

Typically, liability limits are around $100,000, however it’s too little to protect your assets in case of legal action. You may opt to raise your limits up to $500,000 for an additional price. Sometimes it may be useful to get umbrella coverage, which pushes your limits beyond $1 million, however such coverage is typically offered only when you have both your auto and home insurance from the same carrier.

Money saving tips

Of course homeowners insurance can be quite costly sometimes. Especially when you have many items under additional coverage. In order to keep the coverage you need while still having reasonable rates you might want to consider raising your deductibles first. Deductibles are the amount of money you will have to pay out of your own pocket for the damage before the insurance policy kicks in. and the higher is that amount the lower will be your premium. The usual deductible within standard policies is $250. Try raising it to $500 or even $1000, and your rates will go down by up to 15%.

Another good way to make your home insurance cheaper is installing security features such as alarm or video, special locks and so on. This way you protect your assets and the insurance company is likely to give you a good discount for that.

Home ownership is the second biggest financial commitment most people ever make – the biggest being children. Home ownership has great benefits as well as heavy responsibilities. Following are items to consider when taking the plunge into home ownership.

Plan to Stay Put

Home ownership is probably not the best option for you if you can’t commit to remaining in one place for 3 to 4 years. Given the transaction costs, you may end up losing money if you sell a home within a few years. And, if you happen to make money on the deal, you’ll pay capital gains taxes if you’re in the house less than two years.

Clean up Your Credit

Take steps to ensure your credit history is as clean as possible. Prior to house hunting, get copies of your credit report and make sure the facts are correct. Contact Experian, Equifax or TransUnion to receive a copy of your credit report. Fix any issues you discover by contacting the agencies directly (this can take up to 3 months to resolve). Be prepared to explain any past issues to a loan officer.

Find a Home You Can Afford

As a general rule of thumb, look for homes where the asking price is no more than two-and-one-half times your annual salary. Find online tools and calculators at CNNMoney.com or Quicken.com for a better understanding of your income, debts and expenses for determining what you can afford.

Don’t Worry About the 20 Percent Rule

If you qualify, there are public and private lenders who offer low-interest mortgages that require down payments as low as 3 percent of the purchase price. For more information, check out FannieMae.com or Freddiemac.com. Note: For down payments under 20 percent, you will probably be required to pay for private mortgage insurance (PMI). PMI protects the bank in case you fail to make payments. It generally adds 0.5 percent of the loan amount to your mortgage payments for one year.

If you’d rather pay the 20 percent, you have some options. First-time homebuyers can withdraw up to $10,000 from an Individual Retirement Account (IRA) without a penalty (though you must pay taxes on the amount withdrawn). You can also receive a cash gift up to $12,000 per year from each of your parents (without incurring a gift tax). Another method is to withdraw money from a 401k or similar retirement plan for a personal loan.

Buy a Home in a Good School District

This rule still applies even if you don’t have children or school-age children. From a resale perspective, strong school districts are a top priority for many home buyers. Good school districts boost property values.

Understand Points and Rate

Points (also known as a loan’s “origination fee”) are interest charges paid up-front when you close on your loan. They are a one-time fee paid to the lender as a percentage of the loan amount (one point is equal to one percent of the loan amount). In general, the more points a loan has, the lower its interest rate should be. Points paid for on a mortgage are deductible in the year you pay them. However, if refinancing your home, the points paid for when refinancing must be amortized over the life of the loan. For example, you could deduct one-thirtieth of the points on your taxes each year if you get a 30-year mortgage when you refinance.

The mortgage rate is the most expensive part of buying a house. With a 30-year mortgage, you’ll probably pay more in interest than the price of the house. There are fixed rate loans, which lock in a monthly payment amount that remains consistent throughout the life of the loan (even if interest rates rise). If rates fall, you could refinance (though you would pay additional closing costs). An adjustable-rate mortgage (ARM) has an interest rate that rises or falls with the financial index. There are also hybrid loans which offer a fixed rate for the first 5 to 10 years then converts to an adjustable rate for the remaining term.

Which choice is better? This depends on what you can afford to spend every month and on how long you plan to stay in the house. It also brings into question the possibility of refinancing the loan if rates tumble in the future. When deciding between points and rate, it is helpful to determine the break-even point, or the month when you will have saved exactly as much in monthly payments as you spent at closing.

To determine this, divide the cost of the points you would pay at closing by the potential monthly savings. Also, don’t forget to factor in tax write-offs, inflation or alternative investment options. Consult your tax attorney, accountant or financial planner.

Seek Professional Guidance

Although the Internet provides buyers with access to home listings, it’s still wise to use an agent. Find an “exclusive buyer agent” where the “seller” agrees the fee to be paid to the listing agent for selling the home. The listing agent shares this fee 50/50 with the agent representing the buyer. Agents will assist with strategies during the bidding process and may be able to negotiate to have the seller pay the points.

Get Pre-Approved

Getting pre-approved will put you in a better position to make a serious offer when you find the right house. Pre-approval is based on your income, debt and credit history (pre-qualification is based on an initial review of your finances).

Research Prior to Bidding

Before making an offer, research the sale prices of similar homes in the neighborhood in the last three months. If you find that homes have recently sold at 5 percent less than the asking price, consider making a bid that’s about 8 to 10 percent lower than what the seller is asking.

Have the Home Inspected

Although your lender will require a home appraisal anyway (as a way of determining whether the house is worth the price you’ve agreed to pay), you should hire your own home inspector. Find an engineer with experience in conducting home surveys in the area where you are buying. The home inspector will point out potential problems that could require costly repairs down the road.

The biggest financial decision you are likely to make is buying a home, closely followed by less expensive must-haves like a vehicle. But the one deal you should aim to get right is the decision on life insurance. This is the difference between leaving your dependents with an adequate amount of cash to see them through the times of economic hardship after your income is lost, and leaving them with nothing. In this, the decision on term as against permanent insurance is the key. Put the wrong key in the lock and you open a door into real financial hardship. So what’s wrong with term insurance? Think of this as like a bet. If you die within the term, your dependents are the winners. If you prove healthy and live too long, you lose the premiums you paid and your dependents get nothing. Now, when it comes to permanent insurance, this builds up a cash value. The longer you have the policy in place, the more valuable it comes as the premiums you pay attract investment returns. During your own life, you can take some of this money back or borrow using the fund as collateral. When the sad day finally comes, the benefits are paid out to your dependents less whatever drawings or borrowings you have made.

From these short sentences, you will immediately suspect the other difference between the products. Term life insurance is the cheap option. It gives you security in the amount of the benefits for the number of years you select. If you buy one term policy after another, the premiums are higher each time because your life expectancy is less on each renewal. Permanent insurance premiums are higher because a percentage of what you pay is invested on your behalf to generate the cash value. So your fund receives the benefit of the interest, dividends and other returns the investments generate. This makes the total of the cash value the key factor. Do you want a higher rate of return on the premiums? This can be for your own benefit should there be an emergency during your life. Or it can build up over the years for your dependents. If the answer is yes, you must be prepared to pay more to start off the policy – the first year’s premiums often disappear into a black hole representing set-up costs and the selling agent’s commission. But the amount you pay stays the same throughout the lifetime of the policy. So, with inflation, what starts out a struggle slowly grows easier to pay.

The real problem is the uncertainty of the future. Who knows how inflation may affect different aspects of life. What may be cheap now, may be expensive tomorrow and vice versa. So here are a few simple rules. If all you want is cover over the next few years (no more than ten), get life insurance quotes for a term policy. Ten years is not a long enough period of time to build up a worthwhile cash value. Estimate what benefits might be needed, e.g. your daughter will need $50,000 to cover her college tuition fees, and the total will set the amount of the insurance. If you are looking at a period of at least twenty years, you should think seriously about permanent insurance. Again, get life insurance quotes but you should also take advice on the different types of policy available and create or review your estate plan. Between ten and twenty years is a gray area and whichever way you decide is not going to be wrong.