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Miscellaneous Can I set up a direct debit to make my monthly payment? The interest rate you offer is just a little less than what I am paying now. How do I know if it makes sense to refinance? What is a credit score and how will Shearsons Mortgage use credit scoring to evaluate my application? Will Shearsons Mortgage's inquiry about my credit affect my credit score? What should I know about buying a home? How much house can I afford? Why should I refinance? What are the costs of refinancing? What determines the cost of a mortgage? Why should I tap into my home's equity? Do I have to have an impound account? Down Payment Assistance Programs How Does PMI Make Low Down Payment Loans Possible? Mortgage Insurance: Government Mortgage Programs vs. PMI Qualifying for a Low Downpayment Loan Secondary Mortgage Markets and PMI Build Home Equity Faster by Shortening the Term Get Some Cash From Your Refinancing 12 Ways to Save Money on Homeowners Insurance PMI Cancellation Title Insurance Basics 10 Biggest Home-Buying Mistakes Can I set up a direct debit to make my monthly payment? Most of our services allow you to set up a direct debit to make your monthly payment. Upon receiving notification regarding the servicer for your loan, contact the toll-free number provided to set up your direct debit. The interest rate you offer is just a little less than what I am paying now. How do I know if it makes sense to refinance? The simple rule of thumb for determining if it makes sense to refinance is to analyze the amount that it will cost you to refinance compared to the monthly savings you'll have by reducing your payment. By dividing the cost of refinancing by the monthly savings you can determine how many monthly payments you'll have to make before you've recaptured the initial refinance cost. If you plan on staying in your home longer than the recapture time it may make sense for you to refinance. If you are looking to obtain cash for some of the equity in your home, but the interest rate on your current first mortgage is near or lower than current mortgage rates, you may want to consider a home equity loan. With a home equity loan you can obtain the cash you need without paying off your existing first mortgage. If you don't need cash right now or want to have easy access to funds in the future, a home equity line of credit may be just what you are looking for! To fully analyze whether it's the time to refinance or to obtain a home equity loan you'll have to look deeper. The remaining term of your current loan must also be considered, as well as your tax bracket. There are some calculators in our Calculator or FAQ Section to help you determine if it's the right time to refinance. What is a credit score and how will Shearsons Mortgage use credit scoring to evaluate my application? A credit score is one of the pieces of information Shearsons Mortgage will use to evaluate your application. Banks and other financial institutions have been using credit scores to evaluate credit card and auto applications for many years, but only recently have mortgage lenders begun to use credit scoring to assist with their loan decisions. Credit scores are based on information collected by credit bureaus and information reported each month by your creditors about the balances you owe and the timing of your payments. A credit score is a compilation of all this information converted into a number that helps a lender to determine the likelihood that you will repay the loan on schedule. The credit score is calculated by the credit bureau, not by the lender. Credit scores are calculated by comparing your credit history with millions of other consumers. They have proven to be a very effective way of determining credit worthiness. Some of the things that affect your credit score include your payment history, your outstanding obligations, the length of time you have had outstanding credit, the types of credit you use and the number of inquiries that have been made about your credit history in the recent past. Credit scores used for mortgage loan decisions range from approximately 300 to 900. Generally, the higher your credit score, the lower the risk that your payments won't be paid as agreed. Using credit scores to evaluate your credit history allows us to quickly and objectively evaluate your credit history when reviewing your loan application. However, there are many other factors when making a loan decision and Shearsons Mortgage never evaluates an application without looking at the total financial picture of a customer. Will Shearsons Mortgage's inquiry about my credit affect my credit score? An abundance of credit inquiries can sometimes affect your credit scores since it may indicate that your use of credit is increasing. But don't over react! The data used to calculate your credit score doesn't include any mortgage or auto loan credit inquiries that are made within the 30 days prior to the score being calculated. In addition, all mortgage inquiries made in any 14-day period are always considered one inquiry. Don't limit your mortgage shopping for fear of the affect on your credit score. What should I know about buying a home? Here are some tips that could save you a lot of time, money and trouble. Plan ahead. Establish good credit and save as much as you can for the down payment and closing costs. Get pre-approved online before you start looking. Not only do real estate agents prefer working with pre-qualified buyers; you will have more negotiating power and an edge over homebuyers who are not pre-approved. Set a budget and stick to it. Our Online Calculator can help you determine a comfortable price range. Know what you really want in a home. How long will you live there? Is your family growing? What are the schools like? How long is your commute? Consider every angle before diving in. Make a reasonable offer. To determine a fair value on the home, ask your real estate agent for a comparative market analysis listing all the sales prices of other houses in the neighborhood. Choose your loan (and your lender) carefully. For some tips, see the question in this section about comparing loans. Consult with your lender before paying off debts. You may qualify even with your existing debt, especially if it frees up more cash for a down payment. Keep your day job. If there is a career move in your future, make the move after your loan is approved. Lenders tend to favor a stable employment history. Do not shift money around. A lender needs to verify all sources of funds. By leaving everything where it is, the process is a lot easier on everyone involved. Do not add to your debt. If you increase your debt by financing a new car, boat, furniture or other large purchase, it could prevent you from qualifying. Timing is everything. If you already own a home, you may need to sell your current home to qualify for a new one. If you are renting, simply time the move to the end of the lease. How much house can I afford? How much house you can afford depends on how much cash you can put down and how much a creditor will lend you. There are two rules of thumb: You can afford a home that's up to 2 1/2 times your annual gross income. Your monthly payments (principal and interest) should be 1/4 of your gross pay, or 1/3 of your take-home pay. The downpayment and closing costs - how much cash will you need? Generally speaking, the more money you put down, the lower your mortgage. You can put as little as 3% down, depending on the loan, but you'll have a higher interest rate. Furthermore, anything less than 20% down will require you to pay Private Mortgage Insurance (PMI) which protects the lender if you can't make the payments. Also, expect to pay 3% to 6% of the loan amount in closing costs. These are fees required to close the loan including points, insurance, inspections and title fees. To save on closing costs you may ask the seller to pay some of them, in which case the lender simply adds that amount to the price of the house and you finance them with the mortgage. A lender may also ask you to have two months' mortgage payments in savings when applying for a loan. The mortgage - how much can you borrow? A lender will look at your income and your existing debt when evaluating your loan application. They use two ratios as guidelines: Housing expense ratio. Your monthly PITI payment (Principal, Interest, Taxes and Insurance) should not exceed 28% of your monthly gross income. Debt-to-income ratio. Your long-term debt (any debt that will take over 10 months to pay off - mortgages, car loans, student loans, alimony, child support, credit cards) shouldn't exceed 36% of your monthly gross income. Lenders aren't inflexible, however. These are just guidelines. If you can make a large downpayment or if you've been paying rent that's close to the same amount as your proposed mortgage, the lender may bend a little. Use our calculator to see how you fit into these guidelines and to find out how much home you can afford. Why should I refinance? If you have a low, 30-year fixed interest rate you're in good shape. But if any of these Five Reasons applies to your situation, you may want to look into refinancing. Decrease monthly payments. If you can get a fixed rate that's lower than the one you currently have, you can lower your monthly payments. Get cash out of your equity. If you have enough equity you can get cash out by refinancing. Just decide how much you want to take out and increase the new loan by that amount. It's one way to release money for major expenditures like home improvements and college tuition. Switch from an adjustable to a fixed rate. If interest rates are increasing and you want the security of a fixed rate, or, if interest rates have fallen below your current rate you can refinance your adjustable loan to get the fixed rate you're looking for. Consolidate debt. You can refinance your mortgage to pay off debt, too. Simply increase the new loan amount by the amount you need and the lender will give you that cash to pay off creditors. You'll still owe the lender but at a much lower interest rate - and that interest is tax-deductible. Pay off your mortgage sooner. If you switch to a shorter term or a bi-weekly payment plan, you can pay off your home earlier and save in interest. And if your current interest rate is higher than the new rate, the difference in monthly payments may not be as big as you'd expect. Is refinancing worth it? Refinancing costs money. Like buying a new home, there are points and fees to consider. Usually it takes at least three years to recoup the costs of refinancing your loan, so if you don't plan to stay that long it isn't worth the money. But if your interest rate is high it may be smart to refinance to a lower interest rate, even if it is for the short term. If your mortgage has a prepayment penalty, this is another cost you will incur if you refinance. Use the reasons above as a guideline and determine whether or not refinancing is the right thing to do. You can also use our refinance analysis calculator to help you decide. What are the costs of refinancing? Here's what you can expect to pay when you refinance: The 3-6 Percent Rule Plan to pay between 3% and 6% of the amount of the new loan amount (if want cash-out, the loan amount will be larger). Yet some lenders offer no-cost refinancing in exchange for a higher rate. Getting to the Points Points play a big part in how much it'll cost to refinance - the more points you pay, the lower your interest rate. Points are a good idea if you're planning to stay in your home for a while, but if you'll be moving soon you should try to avoid paying points altogether. Negotiate the Fees Be aggressive and investigate the fees your lender is asking you to pay. You may not need an appraisal, or your loan-to-value may be such that you no longer need Private Mortgage Insurance. Sometimes if you refinance with your current lender they won't need a credit report. With a little research it's amazing how much you can save. Here, we've explained the different loan refinancing fees. Application Fee: This covers the initial costs of processing your loan application and checking your credit. Appraisal Fee: An appraisal provides an estimate or opinion of your property's value. Title Search and Title Insurance: A Title Search examines the public record to discover if any other party claims ownership of the property. Title Insurance covers you if any discrepancies arise in ownership. (A reissue of the title can save 70% over the cost of a new policy.) Lender's Attorney's Review Fees: In any financial transaction of this scope, a lawyer's participation ensures that the lender isn't legally vulnerable. This fee is passed on to you. Loan Origination Fees: This is the cost of evaluating and preparing a mortgage loan. Points: These are basically finance charges you pay the lender. One point equals 1% of the loan amount (for example, one point on a $75,000 loan is $750). The total number of points a lender charges depends on market conditions and the loan's interest rate. Prepayment Penalty: Some mortgages require the borrower to pay a penalty if the mortgage is paid off before a certain time. FHA and VA loans, issued by the government, are forbidden to charge prepayment penalties. Miscellaneous: Other fees may include costs for a VA loan guarantee, FHA mortgage insurance, private mortgage insurance, credit checks, inspections and other fees and taxes. How to Save Money Refinancing: Research all costs and fees. Don't be afraid to negotiate with your lender. Shop around for the lowest rates. Check with your current lender for lower rates with costs that are reduced or waived. What determines the cost of a mortgage? There are five factors that determine the ultimate cost of a mortgage. The principal, or amount of the loan, is the total amount you borrow (the purchase price minus your downpayment). The interest rate adds significantly to the cost of your mortgage. Fixed or adjustable, the interest paid at the end of the loan can exceed the original cost of the home itself. For instance, a $100,000 loan balance at 8.5% for 30 years will cost you $277,000 by the time the loan is retired. The term of the loan is the length of time until the loan is paid off. A longer term means more interest and higher cost. Points are interest paid on the loan and they're purely optional. You pay points at closing if you want to reduce the interest rate and make your monthly payments smaller. One point equals one percent of the loan amount. Fees are paid to the lender at closing to cover the costs of preparing the mortgage. They can vary according to where you live and what type of loan you're securing. While points and fees are not financed, they still contribute to the cost of the mortgage. Why should I tap into my home's equity? It's far less expensive to borrow money from the equity in your home than to pay the high interest rates charged by credit card companies. You can use the equity in your home for major expenditures like home improvements, automobiles, weddings, college tuition or a dream vacation. You may also use it to consolidate high-interest credit card debt. Furthermore, the interest on home equity loans and lines of credit is often tax-deductible. Consult your tax advisor for more details. Do I have to have an impound account? None of our programs require you to have an impound account unless the Loan-to-Value ratio is over 80%. Even then, impounds can be waived on some programs. Down Payment Assistance Programs The best-kept secret behind the sustained strength of the residential real estate market is the creation of a new pool of buyers who can afford their mortgage payments but lack the cash for a down payment. In the past these potential buyers had little hope of owning a home. Today, thousands of these individuals are becoming homeowners. According to both HUD and the Minneapolis District of the Federal Reserve, the #1 barrier to homeownership in the U.S. is the lack of sufficient funds to make the down payment. With President Bush's initiative to increase minority homeownership by 5.5 million by the year 2010, there is an increased need for organizations that can provide assistance through the use of private capital. Through the use of private capital, the non-profit down-payment industry now makes possible over 17,000 home purchases each month for low- to moderate-income buyers. Today these Downpayment Assistance Programs (which are not just for 1st time homebuyers) are helping many people live the dream of home ownership. These organizations are supported through contributions made by home sellers. The donations help to replenish the pool of funds that are used for future buyers. Additionally the non-profits charge a small service fee, the proceeds of which allow them to stay operational. Buyers are provided with gifts from the non-profits, which can be used towards their downpayment and/or closing costs. These are true gifts that do not need to be repaid. The grants range from 2%-10% of the purchase price of the home. Home sellers typically agree to participate because they believe that they are receiving a fair offer for their home while at the same time they are benefiting from making a donation to a non-profit organization. Benefits of the Downpayment Assistance Program to Home Buyers: Get into a home Begin building equity Start taking advantage of tax benefits May not have to deplete their entire savings Benefits to Home Sellers Expose their home to a larger pool of buyers Typically will receive full price offers Sell their home faster Added benefit of making a donation to a non-profit The organizations differ slightly with some providing additional benefits for the homebuyer. For instance the Home Downpayment Gift Foundation has a program called "Home Mortgage Protection Plus". This Program covers gift recipient who are enrolled in the Platinum Program against involuntary loss of employment. Should the gift recipient(s) lose their job during their first year of home ownership, the Foundation will provide for up to six months of mortgage payments (maximum of $1800.00 per month in P.I.T.I.) on their behalf. The non-profits strongly encourage Home Ownership Counseling prior to the home purchase and some provide post-purchase counseling to its gift recipients. The Gift Programs generally participate with FHA, Conforming, and Non-Conforming Loan Products. The downpayment assistance program can be used for Single Family (1-4 unit) homes, Manufactured/Modular Homes, Condominiums, Townhouses, Existing or New Construction, Rehab and Non-Conforming. While they do not provide any lending services, they can make available local mortgage professionals who are familiar with their Program. For more information about these programs you can contact the Home Downpayment Gift Foundation at 1-888-856-4600 or visit their website at www.homedownpayment.org. How Does PMI Make Low Down Payment Loans Possible? Simply put, mortgage insurance protects the mortgage company against financial loss if a homeowner stops making mortgage payments. Mortgage companies usually require insurance on low down payment loans for protection in the event that the homeowner fails to make his or her payments. When a homeowner fails to make the mortgage payments, a default occurs and the home goes into foreclosure. Both the homeowner and the mortgage insurer lose in a foreclosure. The homeowner loses the house and all of the money put into it. The mortgage insurer will then have to pay the mortgage company's claim on the defaulted loan. For this reason, it is crucial that the family buying the home can really afford it, not only at the time it is purchased, but throughout the time period of the loan. Although the cost of the mortgage insurance is paid by the home buyer, or borrower, the mortgage insurer works directly with the mortgage company. Mortgage insurance is available to commercial banks, savings & loans and mortgage bankers, all of whom offer mortgage loans to home buyers. Remember that mortgage insurance is not the same as credit life insurance, also called mortgage life insurance. This type of policy repays an outstanding mortgage balance upon the death of the person who took out the insurance policy. Mortgage Insurance: Government Mortgage Programs vs. PMI Now that we have explained how mortgage insurance works and why it is necessary, let's look at the basic kinds of mortgage insurance. Low down payment mortgages can be insured in two ways -- through the government or through the private sector. Mortgages backed by the government are insured by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA) or the Farmers Home Administration (FmHA). Although anyone can apply for FHA insurance, the other two government mortgage guarantee programs are much more targeted. The VA program is limited to qualified, eligible veterans and reservists. This program is very specialized, so contact your mortgage professional for the details. The FmHA insures loans for the construction and purchase of homes in rural communities. Obtaining conventional financing is the alternative to obtaining a home loan backed by the government. Conventional mortgages are all home loans not guaranteed by the government, including those guaranteed by private mortgage insurers. Although government and private insurance are based on the same concept of allowing families to get into homes with less cash down, there are many differences between the two. Often, your mortgage professional will play an important role in suggesting and deciding which insurance is selected. Homebuyers must make a down payment of at least 5% of a home's value to be considered for private mortgage insurance. However, under some special programs, the down payment requirement allows the buyer to use a gift or grant to cover 2% of the 5% down payment required by private mortgage insurers. The gift or grant may come from a friend, relative, community group or other organization. Private mortgage insurance is available on a wide variety of home loans and there is no pre-set limit on the loan amount. Although differences such as these may affect whether the mortgage company prefers to work with government or conventional mortgages, your mortgage professional will discuss which one would be better for your situation. With the wide variety of loans available, homebuyers have the freedom to choose the type of loan that best suits their needs. Early on in the home buying process, it is a good idea to meet with several companies to compare the types of mortgages they offer and shop for the best price and terms. Best of all, working with a mortgage insurer can be very easy, whether your loan is insured by the FHA or a private mortgage insurance company, because your mortgage professional handles all of the arrangements. By making lending money to homebuyers safer, mortgage insurance helps more families get into homes of their own. Qualifying for a Low Downpayment Loan To be considered for a low down payment loan, you generally need to have: Sufficient income to support the monthly mortgage payment Enough cash to cover the down payment Sufficient cash to cover normal closing costs and related expenses (explained below) A good credit background that indicates your payment history or "willingness to pay" Sufficient appraisal value, which shows that the house is at least equal to the purchase price In some instances, a cash reserve equivalent to two monthly mortgage payments Closing costs, or settlement costs, are paid when the homebuyer and the seller meet to exchange the necessary papers for the house to be legally transferred. On the average, closing costs run approximately 2% to 3% of the house price. This percentage may vary, depending on where you live. Closing costs include the loan origination fee (if not already paid), points, prepaid homeowner's insurance, appraisal fee, lawyer's fee, recording fee, title search and insurance, tax adjustments, agent commissions, mortgage insurance (if you are putting less than 20% down) and other expenses. Your mortgage professional will give you a more exact estimate of your closing costs. Points are finance charges that are calculated at closing. Each point equals 1% of the loan amount. For example, 2 points on a $100,000 loan equals $2,000. Companies may charge 1, 2 or 3 points in up-front costs in addition to the down payment. The more points you pay, the lower your interest rate will be. In some cases, you may be able to finance the points. Secondary Mortgage Markets and PMI The "Secondary Market"; One Reason that Mortgages Require PMI The mortgage company's decision to use mortgage insurance is driven by the requirements of investors in the mortgage market. Because of the losses that could occur, major investors require mortgage insurance on all loans made with low down payments. The three primary investors in home loans are Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac) and Government National Mortgage Association (Ginnie Mae). By purchasing and selling residential mortgages, Fannie Mae and Freddie Mac help keep money available for homes across the country. Unlike Fannie Mae and Freddie Mac, Ginnie Mae does not actually buy mortgages. It adds the guarantee of the full faith and credit of the U.S. Government to mortgage securities issued by mortgage companies. Build Home Equity Faster by Shortening the Term Many borrowers use a refinance to shorten the term of the mortgage. And brace yourself: Even at low rates, a shorter term means a higher monthly payment. The benefit is that you'll build up equity faster and pay far less in total interest over the life of the loan. Consider Jim Neill, 48, a real estate broker and his wife Merrilyn, 55, a psychotherapist. Recently, the couple took out a 15-year fixed-rate loan at 6.75% to replace an 8.13% ARM with a 30-year term. Their monthly payment jumped by $200, but now they will own their own home outright by the time they retire. In addition, the total interest on the 15-year loan will come to $95,447, vs. $222,234 on the remaining life of the ARM -- and that assumes their adjustable rate would have held steady at its current 8.13%. "This is forced savings," says Jim. "When we retire, we can scale down and take equity out of the house." If you can't afford the payments on a 15-year mortgage, your next best means of building equity is to refinance for less than 30 years. To do so, ask your mortgage company to customize your new loan's term to match the years that are left on your old loan -- if you are five years into a 30-year mortgage, for example, ask for a 25-year loan. Get Some Cash From Your Refinancing Another way to make a refinance work for you is to refinance for more than the balance remaining on your old mortgage -- in effect, tapping your home equity, or "cashing out," in mortgage speak. Thanks to favorable rates, you may be able to do so without boosting your monthly outlay. For example, at 8.5%, the payment on a $200,000, 30-year fixed-rate mortgage is $1,538. But at 7.5%, that same payment lets you borrow nearly $20,000 more. The best use for the extra cash is to pay off any higher-rate loans you may have. Let's say that you are carrying a $15,000 car loan at 10% and making minimum payments on a $10,000 credit-card balance at 17%. Your monthly payments on those debts would total $680. Then assume you refinanced your mortgage, taking out an additional $25,000 to pay off your car and credit-card loans. Result: At 7.5%, your additional monthly mortgage payment would total only $175, so you would come out $505 ahead ($680-$175=$505). Of course, all the extra cash needn't go for paying off debts. When the Menards swapped their ARM for a fixed-rate last December, they also increased their mortgage load by $34,000, from $106,000 to $140,000. They used $3,000 of the proceeds to pay their refinancing costs and another $17,000 to pay off a 10% home-equity loan, which had been costing them $250 a month. Then they spent the remaining $14,000 to build a garage for Roger's antique-car collection -- and they did all this for just another $19 a month. 12 Ways to Save Money on Homeowners Insurance SHOP AROUND Friends, family, the phone book and Internet are some of the sources you can use to find homeowners insurers. Get a wide range of prices from several companies. But don't consider price alone. The insurer you select should offer both a fair price and excellent service. Quality service may cost a bit more, but you buy insurance in case you need to make a claim, so it's important to get a company with a good reputation. Talk to a number of insurers to get a feeling for the type of service they give. Ask them what they would do to lower your costs. Check the financial ratings of the companies with AM Best or Standard and Poor's. RAISE YOUR DEDUCTIBLE Deductibles are the amount of money you have to pay toward a loss before your insurance company starts to pay. Deductibles on homeowners policies typically start at $250. Increase your deductible to $ 500 -- save up to 12 percent $1,000 -- save up to 24 percent $2,500 -- save up to 30 percent $5,000 -- save up to 37 percent BUY YOUR HOME AND AUTO POLICIES FROM THE SAME INSURER Some companies that sell homeowners, auto and liability coverage will take 5 to 15 percent off your premium if you buy two or more policies from them. WHEN YOU BUY A HOME... Consider how much insuring it will cost. A new home's electrical, heating and plumbing systems and overall structure are likely to be in better shape than those of an older house. Insurers may offer you a discount of 8 to 15 percent if your house is new. Check the home's construction: In the East brick is better, because of its resistance to wind damage, and in the West frame is better, because of its resistance to earthquake damage. Choosing wisely could cut your premium by 5 to 15 percent. Avoiding areas that are prone to floods can save you about $400 a year for flood insurance. Homeowners insurance does not cover flood-related damage. The closer your house is to firefighters and their equipment, the lower your premium will be. INSURE YOUR HOUSE, NOT THE LAND The land under your house isn't at risk from theft, windstorm, fire and the other perils covered in your homeowners policy. So don't include its value in deciding how much homeowners insurance to buy. If you do, you'll pay a higher premium than you should. IMPROVE YOUR HOME SECURITY AND SAFETY. You can usually get discounts of at least 5 percent for a smoke detector, burglar alarm, or dead-bolt locks. Some companies offer to cut your premium by as much as 15 or 20 percent if you install a sophisticated sprinkler system and a fire and burglar alarm that rings at the police station or other monitoring facility. These systems aren't cheap and not every system qualifies for the discount. Before you buy such a system, find out what kind your insurer recommends and how much the device would cost and how much you'd save on premiums. STOP SMOKING Smoking accounts for more than 23,000 residential fires a year. That's why some insurers offer to reduce premiums if all the residents in a house don't smoke. SEEK OUT DISCOUNTS FOR SENIORS Retired people stay at home more and spot fires sooner than working people and have more time for maintaining their homes. If you're at least 55 years old and retired, you may qualify for a discount of up to 10 percent at some companies. SEE IF YOU CAN GET GROUP COVERAGE Alumni and business associations often work out an insurance package with an insurance company, which includes a discount for association members. Ask your association's director if an insurer is offering a discount on homeowners insurance to you and your fellow graduates or colleagues. STAY WITH AN INSURER... If you've kept your coverage with a company for several years, you may receive special consideration. Several insurers will reduce their premiums by 5 percent if you stay with them for 3 to 5 years; by 10 percent if you remain a policyholder for 6 years or more. COMPARE THE LIMITS IN YOUR POLICY TO THE VALUE OF YOUR POSSESSIONS AT LEAST ONCE A YEAR You want your policy to cover any major purchases or additions to your home. But you don't want to spend money for coverage you don't need. LOOK FOR PRIVATE INSURANCE FIRST If you live in a high-risk area, one that is especially vulnerable to coastal storms, fires, or crime, and have been buying your homeowners insurance through a government plan, you should check with an insurance agent or company representative. You may find that there are steps you can take that would allow you to buy insurance at a lower price in the private market. PMI Cancellation The homebuyer can usually cancel mortgage insurance after he or she has at least 20 percent equity in the home. Borrowers should contact their servicer to find out the procedure for canceling mortgage insurance when they think they have achieved 20 percent equity. Guidelines for canceling private mortgage insurance are set by investors. Typically, investors will require an appraisal on the property. The servicer can recommend qualified local appraisers Title Insurance Basics A policy of title insurance is a contract of indemnity between the insured and the insuring company relating to the title to the land described in the policy, protecting the insured against loss of damage by reason of defects, liens or encumbrances of the insured title existing at the date of the policy and not expressly excepted from its coverage. The policy is issued after a complete search and examination of the public records and shows the condition of the record title, including any money obligations outstanding against the property, easements and other matters which may affect the rights of ownership, possession and use of the property. Title insurance protects the "record" title, insuring it is good subject only to the exceptions expressly set out in the policy. lt also insures against certain matters which do not appear of record, such as forgery, identity of parties, incompetence of former owners, interest of missing heirs, and status of individuals not having the "right" to sell property. There are different types of policies. Owner's policies are issued to real estate owners. Purchaser's policies are issued to purchasers of real estate under contract. Mortgage policies are issued to mortgage companies. In addition there are several other special forms of policies. There is a type of policy to meet the requirements of almost any form of real estate transaction. 10 Biggest Home-Buying Mistakes Not doing your homework. Knowledge is power. Tremendous information is available on the Internet. There is no excuse for entering the market unprepared. Trying to make a shrewd investment. People need to buy based on what fits their family. Don't try to guess what will happen to the market. Choosing a poor location. Even within a neighborhood, location matters. Is it on the busiest street? Is there a shopping center out the back window? Overlooking an inferior floor plan for an attractive exterior. It may have gorgeous curb appeal, but you don't live on the lawn. No matter how attractive the exterior, you need a livable home. Overlooking how the house will function for your family. How do you really live? Do you really need a formal dining room and living room? Would you be happier with an eat-in kitchen and a great room and a den to use as a home office? The house only needs to fit one family -- yours. Not having the home properly inspected in a resale. This is not the time for surprises. Get an inspection from a qualified, respected professional. Not checking out the builder's reputation on a new home. Talk to three or four people who live in the builder's homes and see what they have to say. If one builder did all the houses in a neighborhood, talk to the residents and get their input. (It's also a great way to see what your neighbors would be like.) Not getting what you want because you're impatient. This is a big decision. You need time. Impatient decisions can lead to mistakes. Waiting for a better market and interest rates. Warren Buffett says the rear view mirror is always clearer than the windshield. Not buying at all. If you can afford a home and you don't make that purchase, you'll lose the benefit of tax deductions, building home equity and the appreciation in value. Equal Housing Lender. Casa Blanca Mortgage, Inc., DBA Shearsons Mortgage. Some products may not be available in all states. ©2005 Shearsons Mortgage. All rights reserved. About Us| Contact Us| Terms of Use| Privacy Policy| Careers| Licensing|