One of your main responsibilities as a homeowner is to make sure that you have liability insurance and property insurance. In case an unfortunate event happens, your liability insurance can be a huge help, and your property insurance can also make rebuilding or replacing easier for you in case an accident or an unfortunate event occurs. The information below will offer you some useful details that will increase your understanding of home insurance issues.
1Liability Insurance Is Crucial
People will sue you if you are negligent, especially if your negligence caused terrible accidents, and you can protect yourself from such issues with liability insurance. Perhaps you may think that this is a luxury that you really cannot afford, but it's a necessity today. Personal injury lawyers are becoming more and more clever about finding new ways to ensure that the lawsuits filed against property owners are viable. So, protect yourself from negligence suits with liability insurance, which can range from $100,000 to a million.
If you require better coverage, opt for umbrella insurance which is typically larger (often a million or more). Some liability insurance plans also include coverage for medical treatment. Some limits are modest, but these serve a purpose - when someone gets injured in your property, whether it was due to your negligent acts or not, the insurer will cover the medical bills.
2Property Insurance Offers Great Coverage
Having medical insurance is a huge benefit, especially if a person accidentally stumbles and injures himself, as he won't have to worry about the cost of his medical bills if he is covered. The idea is the same with property insurance - it is best to have property insurance because anything can damage your home and it will be difficult to find enough money to repair your house or buy a new one. Insurance companies, however, won't just pay any amount that you claim.
Every insurance company will always set a certain ceiling, which is the maximum amount that you can claim depending on what sort of insurance plan you obtained. So, even with insurance, it is not unusual for homeowners to also shoulder a small percentage of the loss, which is known as the deductible amount. Years before, property insurance often meant fire insurance; but things are different today since property insurance now includes other risks or damage that a certain property could sustain. The homeowner can file a claim to obtain compensation for the damage to his property that may have been brought about by natural forces or by other people.
3Mortgage Controls The Minimum Insurance
Your minimum insurance amount will be based on your mortgage. You will need enough money so that you can replace your house in case it is totally destroyed. Your land or lot will remain, but you need to get coverage for other losses, and there are no guidelines yet regarding how to figure things out.
Considering your mortgage is very relevant to liability coverage. It will be difficult to come up with a certain number that will be enough in case a future lawsuit is filed against you. Coming up with an estimate regarding how much you can lose so that you can figure out how much property insurance you likely need, particularly in the event that your property is damaged, is an easier task.
4Liability Is Difficult To Quantify
If your house is completely destroyed, you can readily calculate how much you've lost based on how much you also invested in the property. Therefore, it's easier to figure out how much you need in terms of property insurance. But, it's much more difficult to determine how much liability insurance you require because there is so much uncertainty regarding such lawsuits. To come up with a reasonable estimate, discuss your options with an expert lawyer and your insurance provider.
Often, insurance agents advise homeowners to obtain an umbrella policy that will provide them with extra liability coverage. Also, your lawyer may suggest a different type of coverage or something extra, or he could recommend organizing a corporation to protect your assets better. In case you are insuring a rental property, a non-owner occupied finance program may be your best bet.
5Avoid Having A Negative Cash Flow
Some lenders do not want anything to do with lending, especially when it's about purchasing or refinancing. But there are also others who create unique programs that aim to attract your business. It is perfectly fine to borrow, but do this prudently and see to it that the interest rate is low and the term is reasonably long.
Carefully consider the monthly payments you can afford. You do not want to be in a situation wherein there's a negative cash flow. To illustrate, let's say that your monthly payment is $1000, but you can only come up with $800. This means that your cash flow is negative.
6Ensure Positive Cash Flow
Based on the example above, the cash flow is negative as there is a $200 deficiency. So, see to it that you'll still have a positive cash flow when choosing a financing strategy. If possible, perhaps you should put up a bigger downpayment so that you won't have to borrow a lot. Remember that monthly payments are computed based on the number of payments to be made.
More often than not, landlords prefer a thirty-year and 360-month financing. There could also be a discount fee and an origination fee, and you will have to examine all financing options carefully. In essence, the origination fee is one percent of the total loan. Discount fees are often utilized in buying down interest rates. Here's an example: let's say that a lender offers a loan with a 6.5% interest rate, which means that there would be a 6% interest rate and a 1% discount fee.
7How Will Paying Points Benefit You?
Remember this: one percent is equal to one point. If, for example, the loaned amount is two percent, this means that there will be two points. Sometimes, it is more prudent to pay points, as long as you remain in the property and continue with the financing.
It is important to stay in your property for about two to four years because you can only opt for the paying points method after such time. However, you will never know what options will be best based on your situation if you don't open your mind to other offers available to you. Also, where your loan comes from, whether it's from a bank or a mortgage company, is not that big of a deal.
8Loans Can Be Sold To Other Parties
It is customary for banks and mortgage companies to sell a loan after it is acquired. Some sell them right away, while others will gather a couple of mortgages before selling these as a bundle. When your lender does sell your loan, he cannot change the original terms. If you want to succeed as a real estate investor, you must ensure that the interest rate that you get, as well as the terms, is the best considering your situation.
Moreover, you should find and choose a cost-effective loan. The offer can be from a mortgage company or a bank. In case you are trying to buy an unusual property, perhaps you're better off with local banks. Community lenders are often very interested in buyers who are considering properties that include more than four rental units or something that can be considered as prime commercial property.
By now, you have probably realized that there is so much to consider when it comes to setting up your home financing, as well as your insurance coverage. To get a fair and beneficial deal, you should research and do some comparative shopping at the onset. You should also remain prudent and careful when handling your insurance policies so that you can choose those that will shield you from financial ruin.
Jackie Wing is an Alaska native, who enjoys snowboarding more than is probably socially acceptable. She lives in Anchorage with her two dogs Reese and Peanut, or as she likes to call them "Thing 1" and "Thing 2."