When Is the Best Time to Get a Mortgage? Your ability to land a great mortgage will determine if now is the time to purchase a home. THERE IS NO SINGLE TIME that is best when it comes to buying a home. Rather, your individual circumstances help determine when the time is right. Most crucially, having your credit in order is the best way to get a great home loan that will make a home purchase affordable. What Are Closing Costs? The vast majority of homebuyers require a mortgage. A 2018 report from the National Association of Realtors found that 88% of recent homebuyers financed their purchase. Here's what you should do to make yourself a more attractive borrower:
Is Your Credit Score Ready? To qualify for a great home loan at the lowest mortgage rates, you need a solid credit score. Most lenders use your FICO score when determining how risky it is to lend to you. FICO scores range from 300 to 850, and higher scores can help you get the best mortgage rate offers. Joanne Gaskin, vice president of scores and analytics at FICO, says knowing your FICO score should be the first step in shopping for the right home loan. While you can pay to access your credit score, many banks, credit card issuers and other institutions now offer free access to your score as a perk. "Be empowered and understand what your score is before you go in and start the application process," she says. "Because that way, you'll have a better sense of what you'll qualify for." For example, if you learn your score is low, you might want to "take some time to work on your score before you start applying" for mortgages, Gaskin says. Greg Plechner, a Paramus, New Jersey-based partner and senior financial advisor at Greenspring Advisors, recommends prospective homebuyers have a credit score of at least 620. With this score, you can likely qualify for a conventional home loan. Note a 620 FICO credit score falls within the fair range. You don't necessarily need to have good or excellent credit to qualify for a mortgage, though it does help in obtaining the best terms. Can You Demonstrate Stable Income? The typical home loan is 15 or 30 years, so your long-term income potential matters. Lenders are likely to consider your current income and look for indications that it will continue. "Is your income predictable and growing?" Plechner asks. "Do you have at least two years of employment with the same company?" Having consistent employment at jobs that issued W-2 tax forms could help pave the way for approval, but it isn't a requirement. Self-employed borrowers are typically held to the same standards as employees and should expect lenders to require at least two years of stable income. Have You Saved Enough? Having enough savings is also crucial to successfully buying and maintaining a home. Plechner recommends prospective homebuyers have enough savings to make a 20% down payment. With a 20% down payment, you can avoid private mortgage insurance and may qualify for better rates than a similar borrower with a lower down payment. But be careful not to wipe out your savings for a down payment. You could lose your job or go through another life-altering experience that makes it difficult to keep up with mortgage payments. A savings buffer can help you maintain your loan until you get back on your feet. Plechner recommends having cash reserves of at least 1% to 3% of a home's value. "Another approach is six to nine months of living expenses in cash," he says. Also consider savings to manage ongoing costs. Clarissa Hobson, certified financial planner and director of financial planning at Carnick & Kubik Personal Wealth Advisors in Denver, says homeowners should prepare to spend about 1% of their home's value per year on routine home maintenance projects. How Is Your Overall Debt? Lenders will consider any other debt obligations you have when approving your home loan. This factor is known as your debt-to-income ratio, and it measures the total of all your monthly debt payments divided by your gross monthly income. Lenders may be less willing to give you a conventional mortgage if your debt-to-income ratio exceeds 43%. In that case, it might make sense to delay a home purchase for a little while as you work on paying off debt and lowering the ratio. "It is helpful to pay off other debts – particularly high-interest debt such as credit cards – prior to obtaining a mortgage," Hobson says. Paying off other debts, such as auto loan and student loan obligations, before you pursue a mortgage is also smart, Hobson says. "Go after the highest-interest-rate debt first, and then pursue the others," she says. Plechner says if you are having trouble paying down debts, you may need to find – or create – other sources of cash so you can whittle down your debt before you consider buying a home. "Increase your income," he says. "Ask for a raise at work. Take on a part-time job, or freelance." Factor in Taxes Recent changes to tax laws mean that for some people, the cost of financing a home might be higher than it would have been in the past. For example, the Tax Cuts and Jobs Act of 2017 roughly doubled the standard deduction that taxpayers can take on their tax returns. As a result, fewer homeowners now have the financial incentive to itemize their deductions on their tax return. And if you do not itemize, you cannot deduct mortgage interest or property tax payments. In addition, you can only deduct new interest on up to the first $750,000 of your mortgage debt. Plechner says these changes will "undoubtedly increase the after-tax cost of homeownership" in states with high property and income taxes. He adds that taxpayers with large mortgages and high property taxes likely will realize a lower return on their home investment going forward. Is Homeownership Right for You? A mortgage is a major commitment and shouldn't be entered into lightly. Ask a few additional questions before deciding whether it's a good time to buy. Hobson says homeowners should start by considering how long they plan to stay in the new home. "If it's less than five years, they may want to consider renting instead," she says. Closing costs can easily add several thousand dollars to your home buying costs. If you're not planning to live in the home very long, you might not recoup those costs. You also might need to pour money into making fixes – both minor and major – after you purchase the home. And there is no guarantee that home values will not decline at some point, as they have in the past. Taken together, these factors are important to consider as you make your decision
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Would you know what to do if you were involved in a fender bender?
Even if the damage doesn’t seem significant, you might have a time-consuming and stressful process ahead of you and it’s important to proceed carefully. If it’s a serious wreck, call 911. Otherwise, here’s what to keep in mind in the event of a minor accident. What should you do at the scene? If you accidentally bump another car (or if they bump you), here are a few steps to take:
What if the other driver leaves the scene? If the other driver doesn’t cooperate, doesn’t share their information or refuses to stop altogether, you should still stop and call the police. Try to remember as many details as you can (the color, make and model of the car, details from the scene, etc.) and share them with the police. If you have any questions about how to handle a fender bender or any other claim, reach out today Accidents happen on the road. A deer could dart across your path, a tree branch could come crashing down or you could make a simple mistake as you hurry to get to work. Does your policy kick in after these kinds of events? Let’s look at five things that could easily happen to any driver and see if they’d be covered. Your Friend Wrecks Your Car Your friend’s car is in the shop, so you lend them yours for the day. What happens if they end up involved in a fender bender? Your insurance typically follows your vehicle. If you have collision insurance, the damage may be covered. If your friend caused the accident, your liability insurance could help cover the losses others suffer, too. A Tree Falls on Your Truck A storm rages through the night and you wake up to find a big tree lying across the hood of your truck. Not to worry — comprehensive auto insurance most likely covers damage from storms. A Pothole Takes Out Your Muffler What looks like a shallow puddle ends up being a massive pothole, resulting in a jolt, a thud and some serious damage. Though your deductible may be too high to cover minor issues, in a situation where significant repairs are needed, you may choose to file a claim. Your Car Is Vandalized Someone keyed your car and damaged your paint job pretty badly. Your comprehensive insurance should cover you, so you might want to file a claim if the damage exceeds the amount of your deductible. Oops! You Backed Into Something In a rush to get to work, you forget to open the garage door and backed right into it. (Hey, it happens.) With collision insurance, you can file a claim for the damage. Need to adjust your coverage? Have questions about your deductible? Reach out today to discuss your policy. 1. Find out how much it would cost to rebuild your home.The amount of insurance you buy should be based on rebuilding costs, not the price of your home. The cost of rebuilding your house may be higher (or lower) than the price you paid for it or the price you could sell it for today.
Your insurance agent or company representative generally can calculate rebuilding costs for you or you can hire an appraiser to do the job. Your local real estate agent will be able to give you the names of appraisers. The cost of rebuilding your house is based on local construction costs and the kind of house you own. This includes the type of exterior wall construction – frame, masonry or veneer; the square footage of the structure; the style – ranch or colonial, for example; the number of bathrooms and other rooms; the type of roof and the materials used; and whether it was custom built. Other things that affect the rebuilding cost are an attached garage, a fireplace, exterior trim and special features, like arched windows. A good way to get a ballpark estimate of the cost of rebuilding is to calculate the square footage and multiply it by local building costs per square foot for your type of house. For example, suppose your home is 2,000 square feet (1,200 square feet on the ground floor and 800 on the second floor) and that building costs in your community and for your type of house are $80 per square foot. The cost to replace your home would be approximately $160,000. You can ask a real estate agent or appraiser for average building costs in your area. 2. It's a good idea to insure your home for the cost of rebuilding it.Few homes are totally destroyed by a disaster, but yours could be one of those few. If it's insured for less than the rebuilding cost, you run the risk of not having enough money to replace it with one of similar size and quality. Make sure your insurance agent knows about any improvements or additions to your house since you last talked about your insurance policy. If you don't increase your limits to cover the cost of rebuilding a new deck, a second bathroom, a larger kitchen or other improvements that have increased the cost to rebuild your home, you may save a little money on your insurance premium but you risk being underinsured. If you don't have sufficient insurance, your insurance company may only pay a portion of the cost of replacing or repairing damaged items. Look at your homeowners insurance policy to see the maximum amount your insurance company would pay if your house was damaged and had to be rebuilt. The limits of the policy typically appear on the Declarations Page under Section I, Coverages, A. Dwelling. Your insurance company will pay up to this amount to rebuild your home. Some banks require you to buy homeowners insurance to cover the amount of your mortgage. If the limit of your insurance policy is based on your mortgage, make sure it's enough to cover the cost of rebuilding. 3. Make certain that the value of your insurance policy is keeping up with increases in local building costs.If the limits of your policy haven't changed since you bought your home, then you're probably underinsured. Many insurance policies include an inflation guard clause that automatically adjusts the limit to reflect current construction costs in your area when policies are renewed. If your policy doesn't include this clause, see if you can purchase it as an endorsement. 4. Find out whether you have a "replacement cost" policy for the dwelling.Most policies these days cover replacement cost for structural damage, but it's wise to check with your insurance agent or company representative. A replacement cost policy will pay for the repair or replacement of damaged property with materials of similar kind and quality. The insurance company won't deduct for depreciation -- the decrease in value due to age, wear and tear, and other factors. If you own an older home, you may not be able to buy a replacement cost policy. Instead, you may have a modified replacement cost policy. This means that instead of repairing or replacing features typical of older homes, like plaster walls and hard wood floors, with similar materials, the policy will pay for repairs using the standard building materials and construction techniques in use today. Insurance companies differ greatly in how they insure older homes. Some won't insure older homes for the replacement cost because of the expense of re-creating special features like wall and ceiling moldings and carvings. Other companies will insure older homes for the replacement cost as long as the dwelling is in good condition. If you can't insure your home for the replacement cost or choose not to do so -- in some cases, the cost of replacing a large old home is so high that you might not want to replace it with a house of the same size -- make sure the limits of the policy are high enough to provide you with a house of acceptable size and quality. 5. Find out whether building codes in your community have changed since your home was built.Building codes require structures to be built to minimum standards. If your home were damaged, you might have to rebuild it to comply with the new standards. In some cases, complying with the code may require a change in design or building materials and may cost more. Generally, homeowners insurance policies won't pay for the extra expense but insurance companies offer an endorsement that pays a specified amount toward these costs. (An endorsement is a form attached to an insurance policy that changes what the policy covers.) 6. Consider buying an extended or guaranteed replacement cost policy.An extended replacement cost policy will pay a certain percentage over the limit to rebuild your home -- 20 percent or more depending on the insurer -- so that if building costs go up unexpectedly, because there's a shortage of building materials or construction workers, for example, you will have extra funds to cover the bill. Some companies offer a guaranteed replacement cost policy that will pay whatever it costs to rebuild your home as it was before the fire or other disaster, even if it exceeds the policy limit. This gives you protection against sudden increases in construction costs but it generally doesn't cover the cost of upgrading the house to comply with building codes. A guaranteed replacement cost policy may not be available if you own an older home. 7. Your homeowners insurance policy does not cover flood damage.Ask your insurance agent or insurance company representative if your home is in an area that is likely to be flooded. If it is, your agent may be able to help you get flood insurance, or contact the National Flood Insurance Program (NFIP) by telephoning (899) 379-9531 or by accessing its Web site at www.floodsmart.gov. Flood insurance is available from the NFIP. 8. Make a list of all your personal possessions and keep it up to date.Include everything you own in your home and in other buildings on the property. Don't forget to list indoor and outdoor furniture; appliances, stereos, computers and other electronic equipment; hobby materials and recreational equipment; china, linens, silverware and kitchen equipment; and jewelry, clothing and other personal belongings. If you have a claim, the more information you have about the damaged items -- a description of each and the date and place of purchase -- the faster the claim can be settled. Videotape or take photographs of rooms and their contents. Note where and when you bought each item. Write down the brand names and model numbers of appliances and electronic equipment. Add new items as you buy them. Keep receipts with the list. Be sure you store your home inventory somewhere safe off the premises -- in a bank deposit box or with a neighbor or relative -- so that it isn't destroyed if your home is damaged. 9. Estimate the value of your personal possessions at current prices.The total is the amount of insurance you would need to replace the contents of your home with new items if everything was destroyed. 10. Find out how much insurance you have for the contents of your home in your homeowners insurance policy.The limit of the policy is shown on the Declarations Page under Section I, Coverages, Personal Property. Most companies provide coverage for 50 percent to 70 percent of the amount of insurance on the dwelling. Now compare the Personal Property limit with the total value of the items on your list of personal possessions. If you think you're underinsured, discuss this problem with your insurance agent or insurance company representative. 11. Consider replacement cost insurance for your personal possessions.There are two ways of insuring your personal possessions. If you already have a homeowners insurance policy, find out whether claim payments for damage to your personal property would be based on replacement cost or actual cash value. Check your policy under Section I, Conditions, Loss Settlement, or ask your agent. As with insurance for the structure, a replacement cost policy generally pays the dollar amount needed to replace a damaged item with one of similar kind and quality without deductions for depreciation. An actual cash value policy pays the amount needed to replace the item, minus depreciation. Suppose, for example, a fire destroyed a five-year-old TV set. If you had a replacement cost policy for the contents of your home, the insurance company would pay to replace the TV set with a new one. If you had an actual cash value policy, the company would pay only a percentage of the cost of a new TV set because the TV had been used for five years and would be worth less than its original cost. 12. Check the limits on certain kinds of personal possessions, such as jewelry, silverware and furs.This information is in Section I, Personal Property, Special Limits of Liability. Some insurance companies also place a limit on what they'll pay for computers. If the limits are too low, consider buying a special personal property "endorsement" or "floater." (A floater is a form of insurance that allows you to insure valuable items separately.) Terms you may need to knowEvery effort has been made to define special terms whenever they are used in the text. For your convenience, however, several common insurance terms are defined below as well. Actual Cash ValueThe current value of property measured in cash, usually arrived at by taking the replacement cost and deducting for depreciation brought about by physical wear and tear, age and other factors. Endorsement A written form attached to a policy that alters the policy's coverage, terms or conditions. Extended and Replacement Cost Insurance Homeowners policies that cover part, or all, of sudden increases in construction costs that push the expense of rebuilding above the policy limit. An extended replacement cost policy pays a certain percentage above the limit. A guaranteed replacement cost policy pays to rebuild a home as it was before the disaster without regard to the limit. FloaterA policy that applies to movable property whatever its location, commonly used to insure items that have a special value such as expensive jewelry. Replacement Cost Dwelling Insurance Insurance that pays for the cost of replacing the home without deduction for deprecation, but limited by the dollar amount displayed under Section 1, Coverages, A. Dwelling on the Declarations Page of the policy. Replacement Cost Contents Insurance Insurance that pays the dollar amount needed to replace damaged personal property with items of similar kind and quality without deducting for depreciation. |
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