Cover your A$$ets
When making the step to buy a home which may be one of the most expensive things you will ever buy, it is important to give yourself peace of mind so that you don’t find you are continually having to dump money into it for repairs and other catastrophic events.
There are many ways to insure yourself and take risk of huge unforeseen expenses OUT of the equation.
Example #1: A buyer bought a condominium that came with two parking spots. Shortly after moving in, another owner claimed ownership of one of the spots. Upon looking back through deeds, it was determined that the buyer did NOT own the second spot.
Since parking spots at the complex were selling for $20,000 at the time, the title insurance company sent a check to the buyer for $20,000 and they were able to buy a second spot that was very important to them.
Example #2: Joan loved her new home. She was especially thankful for the fact that the seller replaced the roof so she would not have to spend money for the unexpected surprise of a leaking roof. She had that problem with her prior home.
Much to her surprise as it turned out the seller never paid the roofing contractor. Surprise turned to frustration when the roofing contractor insisted he had a mechanics lien (you might call it a construction lien) which he could foreclose against Loretta's new home.
Imagine the relief when Loretta learned she could tender the problem to her title insurer to take care of the whole problem. She had a comprehensive ALTA Residential Policy that provided coverage for such liens.
Her insurer contacted the roofing contractor and after a few months of negotiation, the lien claim was settled and resolved. In the end, Loretta was safe and secure under her new roof and she never had to fret over the contractor's mechanics lien claim.
Both of these issues were resolved by a title insurance policy purchased when buying the properties. If the owner did not purchase a policy, these unforeseen problems could have led to $20,000 or higher in additional costs and possibly even losing the home through foreclosure.
Title policies are a one-time fee paid at closing that make sure that you own the property and that it is exactly as was stated in the purchase contract.
Buyers, sellers and their respective agents don’t want to worry about things that break or malfunction in the home after the sale closes. A Home Warranty is an insurance policy that pays for issues at the property with the major structures and appliances within the first year.
It is important to review and understand the service contract — specifically, what is covered and what is not, as well as service fees — in order to avoid later misunderstandings and disappointment.
Some claims may be denied, usually due to improper maintenance, code violations, unusual wear and tear, or improper installation. Policy provisions and the service provider assessment will be the determining factors.
Most policies are annually renewable and many homeowners choose to pay the annual premium to protect against paying a potentially huge replacement cost of a major item.
Some examples of items that may be covered by a home warranty plan are: electrical systems, inside plumbing, appliances, heating and air conditioning, water heater, roof, pool and spa, septic pumping, as well as code and permit coverage. Plans are available for larger residences and multi-unit properties.
Home warranty plans help with these challenges giving homeowners and real estate agents peace of mind. Approximately 90 percent of real estate transactions in California now include a home warranty plan upon the close of escrow and we include them in all offers we submit on behalf of our clients.
There are several basic types of home insurance that offer different levels of coverage. Each type of home insurance policy provides coverage for certain perils. A peril is the particular event that causes the damage or destruction of the home.
Some types of home insurance policies will name the perils specifically, and others will exclude them. What you need out of homeowners insurance depends on your home and what you want to cover.
If there is a peril that is not covered or the limits of your policy are too low, you can ask about adding a home insurance rider to your policy to make sure you get the appropriate coverage.
Buying the best homeowner's policy requires that you understand the different types of homeowner's policies above. Know your risk and discuss any risk with a reputable insurance agent that can guide you in making these decisions.
Common perils covered by Homeowners Insurance are:
- Dwelling Coverage: Covering the main structure of the house, this provides you with the ability to repair or rebuild your home if the damage is a covered cause of loss.
- Other Structure Coverage: Includes payment for damages to structures separate from the house, or connected to the house by a fence, wire, or other form of connection, but not attached to the dwelling.
- Personal Property Coverage: The contents of your home—furniture, appliances, clothing, etc.—are covered if damaged or destroyed by covered causes of loss.
- Loss of Use Coverage: Applies when a loss occurs that causes the dwelling to become uninhabitable. This includes reimbursement for additional living expenses necessary for maintaining a normal standard of living.
- Liability Insurance: Protects your assets and covers defense costs if you or your family members are responsible for injuries or damage to other people or their property.
- Hail: Most property insurance policies include coverage for losses from hail
- Tornadoes: Most property insurance policies include coverage for tornadoes under the umbrella of windstorms. However, some deductibles may apply to tornadoes that don’t apply to other types of windstorms.
- Wildfires: All property insurance policies cover losses resulting from fires. Depending on the level of exposure to potential wildfires, you may need to consider a higher deductible to get coverage or make it affordable.
Flood insurance is required by lenders for homes that lie in a designated Flood zone. Information about Flood insurance can be found at https://www.floodsmart.gov/floodsmart/
Private Mortgage Insurance (PMI)
Mortgage lenders make many borrowers purchase mortgage insurance to protect the lender if the borrower is unable to pay the mortgage. In other words, mortgage insurance guarantees your lender will get paid if you default.
For the borrower, it has a benefit, too: Getting mortgage insurance allows you to purchase a home before you have the full 20 percent down payment saved up. Mortgage insurance is only required if your lender requires it, so discussing this with your lender even before you put in an offer, is advisable.
The cost varies by lender and usually by the amount of your downpayment. If you have a 3% downpayment, expect your PMI to be more than if you put down 10%.
Californians bear the brunt of earthquakes. The probability that one or more 6.7 magnitude or greater earthquakes will strike California in the next 30 years is 99 percent, according to an April 2008 study released by experts from the U.S. Geological Survey (USGS), USC's Southern California Earthquake Center and the California Geological Survey. The chance of a 6.7 magnitude quake hitting the Los Angeles area is 67 percent by 2028.
Home insurance, condo and renters insurance policies generally do not cover damage caused by an earthquake, but coverage can be purchased as an endorsement to your home insurance or a separate earthquake policy.
The cost of earthquake insurance varies from company to company. Contact your home insurance agent to find out what the costs would be for your home.
Residents of California can buy insurance from the California Earthquake Authority (CEA) through participating insurance companies. The CEA is a state-sponsored private-public partnership providing earthquake insurance to California homeowners, renters and condominium owners.
The 17 insurance companies that participate in the CEA offer a standard earthquake insurance policy with a 10 percent or 15 percent deductible.
Having said all of this, only 12 percent of Californians who carry fire insurance also buy earthquake insurance.
So, to summarize, it is important to consider insurance and the costs as they relate to home buying. We can help guide you through understanding all of these and can put you into contact with trustworthy professionals to give you quotes to protect you and your investment.