Buying a Home: Closing, Signing, Escrow

Buying a Home: Closing, Signing, Escrow

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Homeowners Insurance: Protect Against the Unexpected

May 9, 2016
Home Ownership Costs, Mortgage Process, Mortgages
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own.
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Homeowners Insurance: Protect Against the Unexpected

May 9, 2016
Home Ownership Costs, Mortgage Process, Mortgages

When you buy a home, chances are the first thing on your mind isn’t the notion that a visitor might slip and fall in your kitchen and sue you. But it’s for just that type of scenario, among others, that it’s important to get homeowners insurance. (Not to mention your mortgage lender will generally require it.)

Finding the right insurance can be tricky because of the variety of policies available. Different types of policies will have different terms, conditions and exclusions. For instance, you might expect stolen valuables to be automatically replaced under a general policy, but, depending on your particular policy, that may not be the case. Here’s how to make sure you’re fully covered for the risks associated with owning a home.

What’s covered in homeowners insurance?

To know how much coverage to buy, you’ll need an estimate of how much it would cost to replace your home (not including the land value) and a detailed inventory of your personal items. A basic home insurance policy typically provides four areas of coverage:

  • The structure of your home: In the event that a natural disaster such as a wildfire damages or destroys your home, your policy will generally cover the cost to repair or rebuild it, as long as you’ve bought enough coverage. (Specifically, you’re covered for damage to both your house and structures attached to your house. This includes damage to plumbing, electrical wiring, heating and permanently installed air-conditioning systems.) Other natural disasters, such as flooding, are not included, so pay attention to exclusions.
  • Personal belongings: If any of your personal belongings are stolen, you can receive a payout between 50% and 75% of your home’s value to replace those items. (You’re also generally covered if your possessions are damaged — or if they’re not on your property but with, say, your child at college.) Policy limits might not be high enough to cover some valuables, such as jewelry, art and electronics. Policyholders should also pay attention to whether their insurance compensates them for new replacement items (“replacement cost”) or for their depreciated value (“actual cash value”).
  • Liability protection: Should an accident occur in your house or on your property, you could be held liable for damages and injuries. Homeowners insurance typically covers between $100,000 and $300,000 for lawsuits or expenses resulting from an accident such as a mail carrier slipping on your driveway.
  • Displacement: If you’re unable to live in your house because a fire or other disaster has rendered it uninhabitable, your insurance will cover your additional living expenses. Most insurance companies will cap these expenses at 20% of your policy limits and require that it be used within one year of the disaster.

What’s not covered?

Most insurance policies will cover damages and stolen goods that result from a fire, theft, lightning, explosions, vandalism and riots. But for other perils, you’ll have to find extra coverage through a separate policy.

For example, you’ll have to purchase separate policies for flood and earthquake insurance. Earthquake insurance premiums vary depending on what kind of house you have and where you live. Homeowners in low-risk areas may pay a few hundred dollars a year for earthquake insurance, while California homeowners may pay thousands.

Your insurance company may also refuse to pay out for damages caused by poor maintenance, termites, sinkholes, sewer backups, identity theft or running a business from your home. Other exclusions include war, nuclear spills and acts of terrorism.

Be aware that insurance policies may also have limits for valuables including jewelry, damage from mold or liability costs for dog bites or injuries from the use of swimming pools or trampolines. To get extra coverage for your valuables, consider a floater policy, which covers property that’s considered easily movable, such as jewelry. To increase liability coverage, you’ll want to buy what’s called an umbrella policy, which can cover you for $1 million or more.

How to find quality insurers

Start your comparison shopping for home insurance by first deciding exactly what you want covered and the size of the policy you’d like, so you can make an apples-to-apples comparison of prices and services. You can look up insurers in your state and customer complaints at your state insurance department here. For more information, you can check out an insurer’s ratings in Moody’s, Standard & Poor’s or A.M. Best.

House insurance premiums will fluctuate wildly even within the same ZIP code for the same insurer. Many factors affect your rates, including your age, marital status, what kind of house you have and even how close you live to a fire hydrant; and companies give different weights for each risk. So it’s best to research a few companies before choosing.

It’s also a good idea to periodically review your insurance policy and adjust it as your financial situation changes. You may find that you can save by raising your deductible, for example, or investing in a renovation that will make your home more eco-friendly.

You’re covered

Insurance is something you hate to buy but love to have when you need it. And it doesn’t require much more than just occasional attention. Once you wade through the choices and get your coverage in place, you’ll have a good feeling that your biggest purchase is protected.

More from NerdWallet:
How Much House Can I Really Afford?
Compare Mortgage Rates
Find a Mortgage Broker

Buying a Home: Closing, Signing, Escrow

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How to Navigate the Mortgage Loan Closing Process

June 29, 2016
Mortgage Process, Mortgages
How to Navigate the Mortgage Closing Process
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own.
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How to Navigate the Mortgage Loan Closing Process

June 29, 2016
Mortgage Process, Mortgages

Mortgage closing, sometimes known as a settlement, is when you sign the documents to buy a home. Remember the amount of paperwork you had to sign to buy a new car? Multiply that by a factor just under infinity to get an idea of how much paperwork you’ll face during the mortgage closing process.

Some settlement agents have adopted paperless closings, but the industry has been slow to change. More than likely, a printer will be spitting out a pile of warm paper on your behalf.

» MORE: Mortgage closing costs, explained

The 30-year decision

You may not plan to stay in your home for 30 years, but if you take out a traditional mortgage, you’re committing to paying a 30-year debt. Take a moment to consider the interest you’ll pay just in the first five years. That’s when it will hit you: This really is a big deal — so big that you might not want to go it alone.

The closing attorney represents the seller or the lender, but not you. If your state does not require a buyer’s attorney to be present at closing, take with you a real estate agent or someone who knows the process. This definitely is a time when no question should go unanswered. Make sure you understand the details of everything you sign.

What to expect during the mortgage closing process

From start to finish, here’s a checklist for the closing period. The time from signed contract to loan closing typically spans 30 to 60 days.

  • Take the signed sale contract to your lender and begin the finalization of your loan. At that time, you’ll consider whether you want to lock in your interest rate. The lender will give you a loan estimate (mandated by the “Know Before You Owe” TRID regulations) detailing the terms and costs of your loan within three days.
  • Order a home inspection, and perhaps a radon and termite inspection. Try to schedule them so you can tag along.
  • Confirm that your lender has ordered an appraisal.
  • Follow up on matters uncovered by the home inspection.
  • Track deadlines on any contingencies, which are conditions of a sale that are negotiated as part of the contract, such as the seller fixing the roof or the buyer arranging financing.
  • Contact your insurance agent to establish a homeowners policy to go into effect the day of closing.
  • Schedule utility transfers and complete a change-of-address form. Attend to other moving details.
  • Has the closing date been set? Make sure you know where the closing will be held — and how to get there.
  • Read the official closing disclosure before the closing date to review all the terms and the fees that will be due at signing. Compare it to the loan estimate you received previously. If there’s a discrepancy, talk to your lender right away.
  • Know how much you’ll have to pay in closing costs — and how you’ll be paying (cashier’s check, certified check, wire transfer, etc.).

» MORE: Calculate your closing costs

  • Close out any contingencies.
  • Confirm with the lender that the mortgage loan process is on track for the scheduled closing date.
  • A day or so before closing, conduct a walk-through of the home to be sure it’s in proper condition. If there’s a problem, your agent will need to contact the seller immediately to discuss possible remedies or adjustments at closing.
  • Determine whether any additional information or documentation will be required at closing.
  • Bring a photo ID and closing funds.
  • Sign a mountain of paperwork.
  • Get the keys!

What’s the deal with a home warranty?

As a part of the mortgage closing process, you might be offered the option of purchasing a home warranty. A typical basic warranty can run about $500 per year, according to Realty Times. As with any other service contract offered with a major purchase, it has pros and cons:

  • Pros: You’re likely to receive discounted (but probably not free) service calls as well as the repair or replacement of appliances and major systems such as electrical, plumbing, air conditioning and furnace. Having a home warranty can provide some extra peace of mind, especially if you’ve purchased a distressed property.
  • Cons: There’s always fine print. Be sure to read the exclusions and limitations. You probably won’t be able to choose your service provider, and some services might require additional fees.

Prepare for the unexpected

Gathering around a table with stacks of documents to sign can be intimidating. Have a cup of coffee, chat a few moments and settle in. Take as much time as you need to read everything closely.

There might be last-minute glitches. A fee here or there may vary from the original estimate, and you deserve a full explanation of any changes. And your interest rate could change, unless you paid for a rate lock. (Do you have it in writing?) Most of the time, the closing goes smoothly, but if things spiral out of control, remain calm. You can’t be forced to close the deal if you suddenly become uncomfortable with the process.

If you decide to walk away, ask how much money it will cost you. Almost certainly, you’ll lose the earnest money in escrow — and there can be additional damages for a contract default. It’s not a decision to make lightly.

Now that you’ve had that little moment of drama, relax. Expect things to go well. You’re just that much closer to getting the keys to your new home.

More from NerdWallet
Compare mortgage rates
How much house can I really afford?
Find a mortgage broker

Hal Bundrick is a staff writer at NerdWallet, a personal finance website. Email: [email protected]. Twitter: @halmbundrick.

This article was updated June 29, 2016. It was originally published April 7, 2016.