Homeowners Insurance: What to Expect When Purchasing & Financing a Home

 Homeowners Insurance:  What to Expect 

When Purchasing & Financing a Home

There are a lot of moving parts to know about and consider when purchasing a home and applying for a mortgage.  There's the mortgage application itself, the requests for information and documentation, the processing and underwriting, seeking the loan approval, and finally closing.  

No doubt, it's a lot for buyers to digest at once.  So it should come as no surprise that borrowers have a boatload of questions to ask along the way.

One of the questions I hear most commonly surrounds the topic of mortgage closing costs ... most specifically those pertaining to Homeowners Insurance.   Many of my borrowers ask ... 

"Why must I pay a full year of a Homeowner policy at the time of Closing?"  

The topic of Homeowner Insurance is especially confusing for those borrowers that, moving forward, will have an insurance escrow payment as part of their new monthly mortgage payment.  The short answer to the question is rather simple ... it's mandatory.

The more complete answer is that Mortgage Lenders require that one full year of coverage is in place from the time of issuance (typically the Closing/Escrow date).  That guarantees them that they have insurance protection for the interest and investment they will hold in the property.  

A "Mortgagee Clause" naming the specific Lender providing the mortgage is required on the Homeowner Insurance policy.  This mortgagee provision grants special coverage and protections to the mortgagee (Lender).  

Those are: 

• That if there is a loss or damage to the property, the Mortgagee (Lender) will be paid/reimbursed for that loss/damage
• That if the policy is to be canceled, the Mortgagee (Lender) will receive advance notice
• That the coverage is continuous, even if the insured damages the property via some intentional act 
• That the Mortgagee can transfer/sell their rights to another Lender on the secondary market, if they choose (The acronym ISAOA is used, meaning "Its successors and/or assigns")

Now, it's true that most home buyers/borrowers choose to have their monthly insurance costs (insurance escrow) included in their mortgage payment.  But again, many of my borrowers ask me "Why this monthly escrow payment is deemed insufficient and will not meet the needs of the Lender?" 

First, it's important to know how a Homeowner Insurance policy is paid ...  

Homeowner Insurance is typically paid once a year, at the policy's renewal time.  The renewal date normally coincides with the anniversary of the mortgage Closing date or "initial activation" of the insurance policy.  

Further, when you Close on your home loan, you skip a month and then make your first monthly mortgage payment the following month.

Here's an Example:  

1. Close on your Mortgage in November 
2. No monthly payment due in December
3. 1st monthly mortgage payment is due in January

However, this means that a borrower would be shy one insurance escrow monthly payment at the end of their first year.  Only 11 monthly mortgage and escrow payments will have been collected.  

Most Mortgage Servicers pay the annual insurance premium due in advance of the actual due date (sometimes up to 4 to 6 weeks early) so that there is no lapse in insurance coverage.  That means there is a great likelihood that the escrow account would not have accumulated the required monies needed to make full payment at that point in the year, especially if the Insurance premium gets paid before the Borrower's monthly payment is made.

Mortgage Servicers have been provided a right given them in the Mortgage Escrow Provision Act (called Illinois Mortgage Escrow Act within the State of IL) to maintain a (2) two- month cushion of monthly escrow items (including insurance).  This allows for any annual changes (increases typically) in costs for real estate taxes and (HOI), Homeowner Insurance.

So what does this all mean for the borrower?  

It means that as much as 16 months and no less than 14 months of Homeowner Insurance will be "collected" or due at their time of Closing.  Of that money collected, a full year (equal to 12 months of escrow) immediately goes to the insurance company as payment to initiate the Homeowner Policy.  The remaining 2 to 4 months of collected money goes into their mortgage escrow account.

The escrow account is managed by the Mortgage Loan Servicer.  Escrow monies are held in reserve.  Subsequent monthly escrow payments are added to this reserve each month when the borrower makes their monthly mortgage payment.  The cycle renews itself each year on the insurance policy renewal date.

For those refinancing a mortgage with a Homeowner Insurance escrow in place, this process takes on a bit of a different look ...  

Much depends on the Homeowner Insurance Policy renewal date and the date of the new loan's Closing and subsequent first payment date.  I'll address the process for Refinance Escrows more thoroughly in an upcoming post.

Anyone considering a home purchase, or presently doing so, should consult with their loan officer as to the specifics and coverage needed within their own Homeowner Insurance Policy.  Once that information is secured, the search for a policy should begin.  That way the policy will be ready and in place at the time of your upcoming Mortgage Closing.

Should you have questions, reach out ...

* Are you dreaming of buying or refinancing a home or Investment Property in New Lenox - Will County - Chicagoland ... IL or WI?


Contact me today! I'll put my 40 years of mortgage experience and expertise to work on your behalf. I'm easily found at:

Gene Mundt

Mortgage Originator - NMLS #216987 - IL Lic. 031.0006220 - WI #216987

American Portfolio Mortgage Corp

NMLS #175656

Direct: 815.524.2280

Cell: 708.921.6331

eFax: 815.524.2281

gmundt@goapmc.com

www.genemundt.com

  

             

   

 

  

Gene Mundt, Mortgage Originator, an Originator with 40+ years of #mortgage experience, will offer you exemplary mortgage service and advice when seeking: 

#Conventional, #FHA, #VA, #Jumbo, #USDA, and Portfolio Loans in 

#Chicago and the greater Chicagoland region, including: 

The #LincolnWayArea, #WillCounty, (#NewLenox, #Frankfort, #Mokena, #Manhattan, #Joliet, #Shorewood, #Crest Hill, #Plainfield, #Bolingbrook, #Channahon, #Romeoville, #Elwood, #Lockport, #Naperville, #Wilmington, #Peotone, etc.), #DuPage County, the City of #Chicago, #CookCounty, and elsewhere within #IL & #Wisconsin. 

Your Referrals & Testimonials are Greatly Appreciated!

Mortgage Interest Rates are Currently "Prime Day", "Cyber Monday", & "Black Friday" Rolled Together

             Mortgage Interest Rates are 

           Currently "Prime Day", "Cyber Monday", 

          & "Black Friday" Rolled Together

 

Serious shoppers make plans when looking for hot deals, especially around the holidays ... 

Consider all that is done in their pursuit of the perfect gift and monetary savings:

• Conduct and save searches
• Earmark pages
• Cut-out ads
• Compare pricing
• Make bids
• Save rewards
• Utilize money-saving reward sites
• Use every coupon (online and paper) available

 

Some shoppers love the thrill of the hunt so much that they choose to physically stand in line at stores at the break of dawn or midnight. They make holiday shopping an occasion and event to celebrate with family and friends.

Right now, a similar scenario is playing out daily in the lending and real estate industries ...

Current low interest rates have new home and refinancing prospects extremely excited. They're shopping for homes online and then in-person. They're sprucing-up their credit and going over their finances. They're making plans and preparations ... to SAVE, to shorten mortgage terms, to utilize equity, and much much more. 

We're, in essence, experiencing what is interest rate "Prime Day", "Cyber Monday", and "Black Friday" rolled together into one.  Consumers in large number are "getting in line" to take advantage of it.

Unsure about what benefits you could find if you refinanced?

Then the best action to take is also a simple one.  Talk to a lender. It's the only way to get sound reliable information and the facts you need to make a decision.

In the meantime though, consider the following questions if you're a mortgage-holder still on the fence regarding refinancing. These (along with other questions) can provide a more defined and clear path of action for you.

Do you ...

• Want to save money?
• Would you like to lower your interest rate?
• Would you like to lower your monthly payment?
• Shorten your mortgage term?
• Pay off your mortgage note in a shorter time-frame?
• Are you hoping for "cash out" for ????
• Do you hope to eliminate PMI (Private Mortgage Insurance)?
• Do you want to consolidate or pay off credit cards, second mortgages/HELOCs, etc?
• Do you want to convert to/from an ARM?
• Take a Co-Borrower off the prior Loan?
• More ...

Again, the facts and information you need to make a final decision are available only through a mortgage lender, but the questions above are definitely a great place to start.

Now, consider these statistics ...

Did you know that according to a 2019 survey done by Zolo, North American homebuyers spent an average of 124 hours  looking for their home? 

But another survey taken the same year revealed that the average consumer spends only 5 hours shopping for a mortgage?

 

Given the direct influence a mortgage decision bears on monthly finances and overall financial health, 5 hours is staggeringly low. That is a truth when initially buying, and remains a truth when pursuing a refinance as well.

 

Still not convinced it's time to contact a loan officer?

 

Below are two examples that I think clearly prove how very important it can be to:

• Take the time to contact a lender
• Ask questions
• Weigh mortgage options 
• Consider opportunities available via current interest rates 
• Take action

 

Just this last week I refinanced a young couple.  The savings found via their refinance are going to be sizeable and immensely beneficial to their monthly finances and future.  By refinancing now they're going to save over $600 per month.  That's huge.

 

Another older couple I closed will not see quite the same drastic monthly monetary savings as the other couple.  Still, the savings will prove extremely beneficial for them.   

 

The monthly savings reaped via their refi will help pay for an expensive medicine prescribed by their physician.  Payment for that medicine would have not been possible or easily made prior to their refinance taking place.  

 

It's been said that "actions have consequences".  Many times, these words are used as a warning.  

But the two examples shared above prove that consequences can be very positive too ... and even life-changing.  These two clients vastly improved their lives last week.  I can't tell you how gratifying it was for me as their loan officer to assist them in doing that.

 

If you haven't considered or taken steps to discover whether a refinance is possible for you, now may be the time to do so.  Now may be the time to speak with a lender.

 

Why? 

 

Just as with the special shopping days mentioned above, the opportunity to save money via the current low interest rates and a refinance will eventually disappear.  While no one can make that prediction as to when that will occur, history teaches us that the window of opportunity does not remain open forever.  And when it closes, so goes great opportunity.

 

There is NO monetary cost typically associated with asking a lender questions.  There is certainly no risk in holding a conversation.  There is no reason to hesitate to reach out.  

 

You just might find your own personal "Prime Day", "Cyber Monday", and Black Friday" when you do ...

* Are you dreaming of buying or refinancing a home or Investment Property in New Lenox - Will County - Chicagoland ... IL or WI?

Contact me today! I'll put my 40 years of mortgage experience and expertise to work on your behalf. I'm easily found at:

Gene Mundt

Mortgage Originator - NMLS #216987 - IL Lic. 031.0006220 - WI #216987

American Portfolio Mortgage Corp

NMLS #175656

Direct: 815.524.2280

Cell: 708.921.6331

eFax: 815.524.2281

gmundt@goapmc.com

www.genemundt.com

  

             

   

 

  

Gene Mundt, Mortgage Originator, an Originator with 40+ years of #mortgage experience, will offer you exemplary mortgage service and advice when seeking: 

#Conventional, #FHA, #VA, #Jumbo, #USDA, and Portfolio Loans in 

#Chicago and the greater Chicagoland region, including: 

The #LincolnWayArea, #WillCounty, (#NewLenox, #Frankfort, #Mokena, #Manhattan, #Joliet, #Shorewood, #Crest Hill, #Plainfield, #Bolingbrook, #Channahon, #Romeoville, #Elwood, #Lockport, #Naperville, #Wilmington, #Peotone, etc.), #DuPage County, the City of #Chicago, #CookCounty, and elsewhere within #IL & #Wisconsin. 

Your Referrals & Testimonials are Greatly Appreciated!

  

Juggling 101: Contract Provisions, Housing Supplies, and Mortgage Volume

 

Juggling 101: Contract Provisions, 

Housing Supply, Mortgage Volume 

Are you actively pursuing homeownership and out looking at homes with a realtor?

If so, I'm sure your realtor has broached many topics with you already. There's a lot to know and stay informed of when buying and financing a home.  It can feel like your juggling lots of things at once.

One facet of the home buying process that's of real importance is the home inspection (which occurs AFTER the contract is agreed upon).  Your realtor has probably recommended that you include an inspection in any real estate contract you're considering.  

That's wise, as a home inspection serves as a form of protection for you.  

A home inspection includes a thorough assessment of the home's current condition.  The home inspector will look for any possible defects that could prove dangerous or costly to fix and identify building code violations that may exist.  

This information can prove immensely beneficial for buyers to possess.  It's important, not only in the short-term as a possible re-negotiating tool with Sellers should the inspection reveal structural or more minor issues, but in the long-term, as well.  

Why?

After the inspection is performed, a buyer has a checklist at their disposal.  They know what issues in their home may need addressing in the future ... whether that be in 1 year, 5 years or 10.  As a result, budgeting or preparation for future upgrades or repairs becomes much easier.  That can prove very advantageous.

The home inspection is typically set-up and performed soon after the buyer signs their real estate contract.  Doing this in a timely fashion is critically important, as most contracts contain a specified time period for the performance of the inspection.

There is another "clause" found within most contracts, as well.  It also requires action be taken (typically 5 to 10 days) of contract "acceptance".  That is the filing of the Loan Application if the Buyer requires Financing.

The importance and adherence to both of these contractual timelines are absolutely critical to meeting the Closing Date agreed upon by both parties within the real estate contract.  This is especially true during a high-loan-volume market such as the one we're experiencing currently.

The Mortgage Application itself leads to the next and important step in the process ... the Appraisal.  The Appraisal must be ordered (unless a waiver of the Appraisal is available) by the Lender.  

Again, time is of the essence, as the demand for homes is currently very strong.  Active buyers are finding that there is often a very limited supply of homes for viewing/sale right now.  

Low housing supply is creating appraisal evaluation issues in many housing markets.  It's driving a flurry of increased competition for homes in these markets.  

That competition is, in turn, elevating housing prices ... or the price that buyers are willing to pay for desirable homes.  

As a result, some appraisals are coming back showing values less than the contract purchase price.  Appraisers sometimes find that the comparables available for their use oftentimes do not "keep up" or justify current listing/sale prices.  

An "unwritten" issue cropping up increasingly often revolves around contract contingencies.  I say "unwritten" because contingencies are seen so rarely in contracts right now.  

That's because (again as a result of the low-inventory/high demand), Sellers don't need to offer any kind of incentives to find a buyer. But it's also true that many Sellers are simply unable to offer closing cost credits, perform repairs, or give concessions to buyers at this time.    

The current high volume of home purchases (and refinances alike) is creating an additional problem too ...  

Appraisal turnaround times have lengthened.  Appraisers are extremely busy right now, as are title companies, attorneys, mortgage providers, inspectors, and etc.

Each of these issues demands that feasible client expectations be set, both for buyer and seller.  They also showcase the importance of placing viable realistic dates on real estate contracts.  

Today's mortgage process has many working parts.  Each part should be in sync with the others for it all to work fluidly and well together.  

To help their own cause and keep stress at bay, clients must remain attentive, responsive, and thoroughly engaged throughout their entire financing process.  Time and timing is everything when seeking a "clear to Close". 

And a "clear to Close" is the ultimate goal and prize ...

* Are you dreaming of buying or refinancing a home or Investment Property in New Lenox - Will County - Chicagoland ... IL or WI?

Contact me today! I'll put my 40 years of mortgage experience and expertise to work on your behalf. I'm easily found at:

Gene Mundt

Mortgage Originator - NMLS #216987 - IL Lic. 031.0006220 - WI #216987

American Portfolio Mortgage Corp

NMLS #175656

Direct: 815.524.2280

Cell: 708.921.6331

eFax: 815.524.2281

gmundt@goapmc.com

www.genemundt.com

  

             

   

 

  

Gene Mundt, Mortgage Originator, an Originator with 40+ years of #mortgage experience, will offer you exemplary mortgage service and advice when seeking: 

#Conventional, #FHA, #VA, #Jumbo, #USDA, and Portfolio Loans in 

#Chicago and the greater Chicagoland region, including: 

The #LincolnWayArea, #WillCounty, (#NewLenox, #Frankfort, #Mokena, #Manhattan, #Joliet, #Shorewood, #Crest Hill, #Plainfield, #Bolingbrook, #Channahon, #Romeoville, #Elwood, #Lockport, #Naperville, #Wilmington, #Peotone, etc.), #DuPage County, the City of #Chicago, #CookCounty, and elsewhere within #IL & #Wisconsin. 

Your Referrals & Testimonials are Greatly Appreciated!

    

 

Changes Affect Mortgages in 2020

Changes Affect Mortgages in 2020

The year 2020 has been like no other ... 

In many ways, because of all the challenges and upheaval, time has felt like it was moving at a snail-like pace.  Frustratingly slow and perhaps at times, seemingly standing still.  

Yet, here we.  It's September and Fall 2020 has officially begun.

All that has already taken place in the year thus far brings to mind the old saying, 

"that one thing you can always count on is change" 

The year 2020 has certainly delivered in that respect in many ways.  The real estate and mortgage industries are a real reflection of that, as both have been affected and experienced a large number of changes.  

And if the rumors prove true, even more changes are on tap for the remaining part of the year.  For those consumers currently borrowing money via a mortgage, those changes that have taken place earlier in 2020 are being experienced in a variety of ways, both collectively and individually now.  

Here's a sampling of some of those changes that have taken place so far this year and those that are yet to take place shortly:

• Private Mortgage Insurance is now being quoted individually, based upon a consumer's vital financial information (Credit, Loan-To-Value or downpayment percentage, Number of Borrowers on the Loan, Money in the bank, Money left over, Property Type, and more) 
• Lenders must VERBALLY reconfirm that a Borrower is working. This confirmation must take place within 3 days before the Closing Date.  (This is performed in that time period because of the large number of job layoffs being experienced)
• In some real estate markets, Appraisals are taking longer to be conducted/submitted, sometimes up to two weeks
• Self-Employed Borrowers are now required to provide even more current year Profit and Loss Statements, current Business Bank Statements, and an affidavit within 10 days of Closing.  This documentation must prove/verify that their business is still viable, active, and profitable
• The costs of Refinancing (Conventional Loans, backed by Fannie Mae/Freddie Mac) will be going up an average of $1,250 based upon an average loan amount of $250,000, beginning November 1st, 2020

Right now, there's just a lot of "moving parts" for consumers to be aware of and juggle during their mortgage application and mortgage processing.  Lots to remember, lots to understand, lots of decisions to be made. It can all seem a bit overwhelming for them. 

And because of that, many borrowers understandably have a knee-jerk reaction.  Hoping to simplify the process, they begin to fixate on just one or two specific details of the process.  

This reaction can be risky though, as a more broad view and thorough participation are needed in order for them to make sound decisions.  Decisions that are beneficial to their larger goals and long-term needs.  

The following is a scenario that I run into with new prospective mortgage clients fairly often ...  

It showcases just why it's so very important for applicants to retain a broader view during the entire mortgage process.  Why it's to their benefit to remain open-minded as they compare interest rates and mortgage options ... and how it can pay off to do so.

Example:

A recent caller asked me for a "quote" on an interest rate.  As often happens, they'd already been provided a rate by their agent's preferred lender and were looking for a comparison quote. 

 

The caller was laser-focused on beating the previously lender's rate quote.  There was no doubt that the rate quote received was low.  

However, the Closing Costs associated with that quote were extremely high.  

For me, that was a real red flag.  Closing Costs typically go hand-in-hand with Interest Rates and that was definitely not the case in this particular situation.  

In order for me to determine what financing options would best meet the needs of the caller (and if the previous quoted rate and mortgage options met that need), I needed more information.  Questions followed.

It quickly became quite apparent that while the interest rate previously quoted to my caller was a good rate, the mortgage program quoted was an ill-fit for them.  It would also financially handcuff them pretty severely on a monthly basis.  

Plus, I also had grave doubts that they would even be approved for the loan, as previously quoted.  A conversation thoroughly explaining the menu of options available to them was called for and conducted.

That conversation described in detail the larger array of mortgage options available to them ... and the pros and cons of each.  It helped broaden the client's perspective and also helped them understand that substantial savings could be found if they looked beyond interest rates alone.   

My caller ultimately chose an interest rate and mortgage option that would be more beneficial (both in the short term and long term) for themselves.  And they opted to pass on the previous lender's quote.

What information helped them most?  

During that conversation together I found that:

• Real Estate Taxes
• Homeowners Insurance
• Private Mortgage Insurance
• Homeowners Association Dues (HOA)
• More ...

... had not been previously discussed with my caller.  

Each of the above, along with the interest rate, helps determine the principal and interest payment.  Each must be calculated and factored into monthly mortgage payments.  

They all must be kept in mind and weighed when choosing a home. Buyers must take into consideration far more than Sales Price alone when viewing homes.  Our conversation informed them of this reality and better prepared them for their home search.

The changes that have occurred so far in the year 2020 have had ramifications on buyers and mortgage applicants.  Ramifications that trickle down to home sellers and housing markets, changing them as well.

The prognosis for what lies ahead for the rest of the year and beyond appears positive at this time.  Time will tell.  

While borrowers may have a bit more documentation to tackle and closing times may be stretched out a bit more because of high volume, the very low interest rates continue to make the extra work and attention demanded worthwhile.  The financial savings can be monumental over time and make that true.

Change is constant and inevitable.  As evidenced by the savings found in current low interest rates, it can also be very positive and welcomed ...

* Are you dreaming of buying or refinancing a home or Investment Property in New Lenox - Will County - Chicagoland ... IL or WI?

Contact me today! I'll put my 40 years of mortgage experience and expertise to work on your behalf. I'm easily found at:

Gene Mundt

Mortgage Originator - NMLS #216987 - IL Lic. 031.0006220 - WI #216987

American Portfolio Mortgage Corp

NMLS #175656

Direct: 815.524.2280

Cell: 708.921.6331

eFax: 815.524.2281

gmundt@goapmc.com

www.genemundt.com

  

             

   

 

  

Gene Mundt, Mortgage Originator, an Originator with 40+ years of #mortgage experience, will offer you exemplary mortgage service and advice when seeking: 

#Conventional, #FHA, #VA, #Jumbo, #USDA, and Portfolio Loans in 

#Chicago and the greater Chicagoland region, including: 

The #LincolnWayArea, #WillCounty, (#NewLenox, #Frankfort, #Mokena, #Manhattan, #Joliet, #Shorewood, #Crest Hill, #Plainfield, #Bolingbrook, #Channahon, #Romeoville, #Elwood, #Lockport, #Naperville, #Wilmington, #Peotone, etc.), #DuPage County, the City of #Chicago, #CookCounty, and elsewhere within #IL & #Wisconsin. 

Your Referrals & Testimonials are Greatly Appreciated!