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Building Wealth: First Rung on the Ladder is Housing

How Housing Matters is a joint project of the Urban Land Institute and the MacArthur Foundation. It is “an online resource for the most rigorous research and practical information on how a quality, stable, affordable home in a vibrant community contributes to individual and community success”.

A recent story they published, The First Rung on the Ladder to Economic Opportunity Is Housing, discussed the importance of having affordable housing available to as many families as possible because:

“The ladder to economic success can stretch only so high without the asset-building power of homeownership.

Home equity provides Americans with the ability to send their children to college with less student loan debt and is the primary source of funds for retirement. Half of the assets of Americans over age 55 are in their home.”

Bottom Line

We have often posted that the net worth of a family owning a home is 45 times greater than that of a family that rents. That is not a coincidence.

For when you’re ready to make the plunge of building your wealth and owning your home, contact me and let’s go over great properties in Maui.

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6 Things You Need to Know When Buying Home Insurance

Whether you’ve just begun searching for a new place or you’re waiting to close on your dream home, one important aspect of moving you can’t ignore is insuring your investment.

Enter the homeowner’s best friend: the homeowners insurance policy.

Just like any other kind of insurance, there’s no such thing as a one-size-fits-all policy. Home insurance policy costs typically depend on the home’s location and age, the size of the deductible, and the coverage level. You’ll have to look at these and other variables to figure out what kind of home insurance is right for you—and how much you’ll shell out for it.

To make sure you purchase the perfect policy that fits your budget and coverage needs— and to avoid potential pitfalls—we’ve pulled together a list of the most important things you should consider. Let’s take a look.

1. It’s all about location, location, location

Along with size, construction type, and overall condition of the house, location plays a big role in the cost of insurance and types of policies available. But unlike home buyers, insurance companies aren’t checking out school districts, awesome nearby restaurants, or your commute time.

But others factors do come into play. Homes located near highly rated, permanently staffed fire departments (and even fire hydrants), for example, may cost less to insure, says Loretta Worters, vice president of communications for the Insurance Information Institute.

And of course, proximity to the coastline is also weighed heavily. You’re likely going to pay a pretty penny for that idyllic spot near the coast.

“Because of the increased risk of catastrophic weather events resulting in claims, it will generally cost more to insure,” Worters says.

On top of a higher policy cost, coastal home insurance policies could include a separate hurricane or windstorm deductible based on the fees to rebuild a home.

2. You might want flood insurance—even if you think you don’t need it

Damage from flooding isn’t covered by typical home insurance policies. Any home located in an area prone to flooding requires separate flood insurance to cover these kinds of claims. (Flood insurance is available from the federal government’s National Flood Insurance Program as well as a handful of specialty insurers.)

Don’t live in a flood zone? Don’t assume you’re off the hook. Flood insurance may be a smart option for any homeowner, regardless of zoning—and if you’re not in a high-risk zone, you can probably snag some lower premiums.

“Ninety percent of all natural disasters in the U.S. involve flooding,” Worters says. “However, 25% to 30% of all paid losses for flooding are in areas not officially designated as special flood hazard zones.”

3. That goes for earthquake insurance, too

Californians aren’t the only ones who have to worry about earthquakes—in fact as many as 39 states have experienced tremors, according to data from the Insurance Information Institute. And the resulting damage usually isn’t covered by traditional home insurance policies.

Homeowners need to purchase an addition to their home insurance policy to cover
any earthquake-related claims. The cost varies by location, insurer, and the type of structure being covered as well as age of the building, Worters says.

4. Have a pool? Dive into extra protection

Ahh, your new home has a fabulous swimming pool and hot tub. Yay for you! We’d love to come over—but before we do, you should look into bumping up your liability insurance.

Liability coverage is the part of a home insurance policy that may pay court costs or other expenses if you’re found responsible for an accident, such as someone drowning or suffering a serious injury after doing a cannonball into the shallow end of your pool.

Another option: You can purchase an umbrella liability policy to provide a level of protection not typically available with standard home insurance policies.

5. Your home’s claim history matters—even from when you didn’t live there

Whether you’ve just begun your home search or lived in your home for years, it’s never too late to get familiar with your home’s claim history—and how it might be affecting your homeowners insurance rates.

It’s all summed up in a nifty database called the Comprehensive Loss Underwriting Exchange, or CLUE. Essentially the equivalent of a credit report for your home, the CLUE contains all kinds of records of insurance claims on the house.

That’s important to know because a claim filed for the property in the past five years could cause your rates to inch upward, even if you didn’t own the home at the time of the claim.

But take heart, dear home buyer—not all prior claims have a negative effect.

“Some recent claims can have a positive impact, because replacing a roof damaged by a windstorm could make the house more desirable to an insurance company,” Worters says.

If you’re looking to buy a home and want a copy of the CLUE report, check with the sellers (only the owner of a property may access its CLUE report). There’s no guarantee they’ll fork it over, but there’s no harm in asking. If you already own the home, you can get a free report from database giant LexisNexis.

6. A high deductible can really pay off

It should come as no surprise that you’ll want to shop around before committing to a policy. Compare the rates, deductibles, and coverage options of at least two to three companies to make sure you have adequate coverage for your situation.

Pro tip: Pay close attention to the size of your deductible.

“It’s recommended to opt for the highest deductible you can afford because most people only file a claim every eight to 10 years,” Worters says. “A higher deductible saves money year after year and encourages only using insurance in catastrophic situations when it’s truly necessary. And that also helps keep your costs affordable.”

A professional real estate agent will have proper knowledge in insurance and other investment matters. Contact me for more information in all things real estate.


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Here’s What Everyone Gets Wrong About Jumbo Loans

Jumbo loans—they’re not just for McMansions anymore! The oversize loans are becoming an increasingly viable option for entry-level home buyers in some parts of the country.

So what are they? Jumbo loan mortgages are those for amounts above the limits for government-sponsored loans. In most parts of the country, that means over $417,000, but in areas where the cost of living is extremely high, the threshold jumps to $625,000. (You can check the limit in your local market.)

But these XXL loans have a reputation of being expensive and hard to get, causing some eligible buyers to dismiss them out of hand—and stick with a more traditional conforming loan. (Conforming loans meet certain guidelines specified by Fannie Mae and Freddie Mac in terms of the size of the loan, the borrower’s debt-to-income ratio, and documentation. These loans usually have lower interest rates than nonconforming loans such as jumbos.)

While the jumbo loans of the past may have presented more barriers to home buyers, recent lending trends have made them more accessible. Read on to learn about four myths around jumbo loans—and to find out the truth!

Myth No. 1: They’re only for buying mansions

In expensive cities with a hot housing market, you’ll be hard-pressed to find much housing stock that would require a mortgage within the conforming limits. If you live in San Francisco, for example, where the median home price tops $1 million, most home buyers would qualify for jumbo loans. In other parts of the country, rising home values have pushed even some middle-class homes into jumbo territory.

“In some markets, the first-time buyer is looking at a jumbo loan,” says Bob Walters, Quicken Loans’ chief economist.

Myth No. 2: You need a huge down payment to qualify

It used to be that lenders required down payments of as much as 30% to secure a jumbo loan. That’s not always the case any more. Lenders competing for qualified buyers have loosened up on that standard, with some banks now offering jumbo loan financing for as little as 10% down. Plus, unlike with conforming loans, putting down less than 20% on a jumbo loan doesn’t automatically trigger the need for costly private mortgage insurance.

To qualify for a lower-down-payment jumbo, you will need impeccable credit and may face stricter requirements regarding your debt-to-income ratio and cash reserves—butlending requirements have been easing steadily for the past three years. As with any

mortgage product, it pays to shop around to make sure you’re getting the best rate.

Myth No. 3: You’ll get a better rate on conforming loans

During the housing boom, jumbo rates were around a half-point higher than the rates you could get on a conforming loan. Recently, however, those rates have converged, with some banks offering jumbo products at rates lower than those found on conforming loans. The average rate on jumbo loans was 3.8% in late February, while conforming loans had a rate of about 3.85%, according to the Mortgage Bankers Association.

“In markets where there is a lot of jumbo activity and all the lenders want market share, the pricing competition is fierce,” says John Pataky, executive vice president of EverBank.

Myth No. 4: There are fewer options

For a few years after the mortgage crisis, the big banks were the only ones making jumbo loans, which lenders typically keep on their books (rather than selling them to Fannie and Freddie once the loan is made). As the market has improved, however, more small lenders are returning to the space, along with online, nonbank lenders such as Quicken and startups such as SoFi.


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3 Charts That Scream ‘List Your Home Today’

In school we all learned the Theory of Supply and Demand. When the demand for an item is greater than the supply of that item, the price will surely rise.

SUPPLY

The National Association of Realtors (NAR) recently reported that the inventory of homes for sale stands at a 4.4-month supply. This is considerably lower than the 6-month inventory necessary for a normal market.

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DEMAND

Every month NAR reports on the amount of buyers that are actually out in the market looking for homes, or foot traffic. As seen in the graph below, buyer demand in February significantly outpaced the last six months.

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Many buyers are being confronted with a very competitive market in which they must compete with other buyers for their dream home (if they even are able to find a home they wish to purchase).

Listing your house for sale now will allow you to capitalize on the shortage of homes for sale in the market, which will translate into a better pricing situation.

HOME EQUITY

Many homeowners underestimate the amount of equity they currently have in their home. According to a recent Fannie Mae study, 37% of homeowners believe that they have more than 20% equity in their home. In reality, CoreLogic’s latest Equity Reporttells us that 72.6% actually do!

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Many homeowners who are undervaluing their home equity may feel trapped in their current home, which may be contributing to the lack of inventory in the market.

Bottom Line

If you are debating selling your home this year, meet with a local real estate professional who can evaluate the equity you have in your home, as well as the opportunities available in your market.