Your Complete Guide to Homeowners Insurance

Q: I’m taking out a homeowners insurance policy on my new home. What do I need to know?

A: Homeowners insurance is designed to protect you and your family members from liability and cover your home, plus possessions, in the event of disaster or theft.

What kinds of plans are available for homeowners insurance?

Here are the most common types of homeowners insurance plans:

HO-2 – A policy that only protects against 16 specified perils.

HO-3 – A broad policy that protects against all perils other than those excluded in the policy.

HO-5 – A premium policy that usually protects newer homes and covers all perils except the few excluded in the policy.

HO-6 – Insurance for co-ops/condominiums, which includes personal property coverage and liability coverage.

Each plan type will also include some extent of liability coverage.

Are all catastrophes covered by insurance?

Most policies will only cover events if they are sudden and accidental. Some natural disasters, like earthquakes and floods, require a separate policy for coverage.

Should I choose a plan with a lower deductible?

A lower deductible means your insurance coverage will kick in sooner, but you’ll also have a higher premium. When choosing a plan, find one offering a deductible you can comfortably afford along with the lowest possible premium. Your Financial Institution may have a maximum amount allowed for your deductible.

Will my insurance cover all of my belongings?

Every policy will have a cap on payouts, and there are also sub-limits at play. For example, an insured dwelling that’s valued at $400,000 will typically have a 50% sub-limit. In case of a major catastrophe, the insured will only receive up to $200,000 in payouts.

Most policies will also have a replacement cap on specific items. If you own valuables, like pricey jewelry, firearms and artwork, consider purchasing a rider to separately cover these items.

Should I choose a replacement-cost plan or an actual cash-value plan?

A replacement-cost plan will pay for the full cost of replacing a damaged dwelling or your belongings up to a predetermined cap. An actual cash-value plan, on the other hand, will only offer payouts to cover what the damaged item was worth at the time of the disaster.

A replacement-cost plan offers more robust coverage, but the premiums can be a lot higher. The perfect plan for you depends on your financial standing, the value of your home and belongings, and the price you put on peace of mind.

Will all of my claims be honored?

For your claims to be honored, your property and home must be well-maintained. Be careful to take the necessary measures to ensure that your home is in excellent condition.

Should I use the insurance company my lender recommends?

You’re under no obligation to use the company your lender recommends. It’s best to get at least three different quotes before making a decision.

Tips for Recent Homebuyers

Becoming a homeowner is a major milestone. There’s a thrill in owning your own place, and you’ve got a new, large investment to maintain. Successful homebuyers are those who can perfectly balance that new freedom and responsibility.

There are several upcoming firsts for recent homebuyers. Check out these common homeowner situations, and you’ll be prepared for a possible setback.

1. Something major breaks

As a renter, if the refrigerator breaks, the landlord repairs it. In contrast, when something like an appliance or major system breaks in your home, you’ll be responsible to fix it.

If you’re counting on homeowner’s insurance or a home warranty to cover you, check your policies carefully. Most home warranties end at the walls of your house, and insurance won’t cover damage outside of a disaster. If your home needs significant work, you’ll probably be covering the costs yourself.

Consider practicing self-insurance. Start a home repair and renovation fund, and build major expenses into your monthly budget. These expenses become manageable when spread out over the course of several months. Expect to spend 1-4% of the value of your home in repairs and maintenance annually.

2. Costs increase

When considering a budget in your new location, housing costs aren’t the only thing likely to increase. If you’re moving from a smaller apartment into a larger home, utility costs will rise. If you’re moving into an older house, appliances won’t run as efficiently.

Additionally, transportation costs may rise if you’ve moved further away from work. A larger kitchen might encourage more cooking and entertaining, increasing the grocery budget. Lawn maintenance costs may appear on your budget for the first time.

During your first month as a homeowner, document your new living expenses so you can budget for them properly. If, after a month, you see that your expenses are too high, you’ll have an idea about where you can make cuts.

3. Tax bills come due

Property taxes can wreak havoc on your budget. While many mortgage companies include these costs in your regular mortgage payment, other homeowners are responsible to pay them at tax time. If that’s the case for you, it’s important to determine what your tax bill might look like.

The U.S. average property tax bill is under $3,000, or $250 per month. Here also, setting the expense aside monthly instead of paying it in one shot makes it manageable.

4. Maintenance requirements increase

There are dozens of things around the house, such as smoke alarms and toilet bowl seats, that decay with time. Some of these objects can damage your house if they don’t work properly.

Make a list of chores that need to be done monthly, weekly or annually. Keep a spreadsheet so you know the last time maintenance was performed on major items in your home. As always, it’s a good idea to fix little problems before they turn into big ones.

All You Need to Know About Selling Your Home During COVID-19

For many homeowners, the hot real estate market of spring and summer of 2020 was going to be the season they put their homes up for sale — until the coronavirus hit. With people struggling just to get by financially, selling a home seemed like a dream from another lifetime. Records of U.S. home sales for March show a sharp decline of 21% in total homes sold, according to data from the National Association of Realtors.

Now, though, the U.S. real estate market is looking very different. As the economy limps toward a recovery, national home sales climbed a record 20.7 percent in June, compared with home sales from June 2019.

However, many homeowners who have planned to sell this year are still reluctant to take that leap. Here’s all you need to know about selling your home during the COVID-19 crisis.

Are you really ready to sell?

Before putting your home on the market, consider all variables involved and be sure it’s a financially responsible move. Thanks to coronavirus, life circumstances you may have relied on, such as a steady salary, may not be dependable anymore.

Stage your home to sell

With restrictions still in place in many states and lots of people home in quarantine, many buyers will be doing their touring virtually. For sellers, this means staging and photographing a home properly is more important than ever.

Consider hiring a professional home-staging and photography service to present your home in the best light. You can also invest in virtual staging software to help you update the furniture with just a few clicks.

To make it easier for buyers to view your home, you can post a virtual tour on your online listing, and offer the option of scheduling a live tour with an agent through FaceTime.

Play it safe

If you will be allowing potential buyers into your home, set up a box of disposable masks, shoe covers and sanitizing wipes at the door for all visitors who will be tramping through your home.

Price it right

Fewer homeowners are putting their houses up for sale this year, but the pool of buyers is also smaller than usual. This means that you won’t be able to jack up the price of your home for way more than it’s worth. Work with a real estate agent to look at comparable home sales in the area and to determine a fair asking price.

Closing during COVID-19

The coronavirus pandemic will likely affect every aspect of selling your home. With many professionals working with a smaller team now, be prepared for various steps of the process to be delayed. This is especially true with lenders, as low mortgage rates have triggered a spike in refinance applications and lenders are busier than ever.

Am I Really Ready to Buy a House?

Q: I’ve saved up for a down payment and drawn up a wish list of what I’m looking for in a new home, but I’m getting cold feet. How do I know if I’m really ready to buy a house?

A: It’s normal to feel hesitant about going through with what may be the biggest purchase of your life. To help put you at ease, we’ve compiled a list of questions to ask yourself before buying a new home.

Can I afford to buy a house?

Before viewing properties, remember that purchasing a home will cost more than just the down payment. You’ll also need to cover closing costs, which typically run at 2-4 percent of the total purchase, as well as moving costs and possibly new furniture and renovations for your new home.

Can I afford the monthly mortgage?

Most lending companies will grant a loan to a homebuyer if the monthly mortgage payments do not push the buyer’s debt-to-income ratio above the recommended 43 percent. Work out the total for your pre-mortgage debt before applying for a loan so you have an idea of how much house you can afford.

Am I ready to settle down?

Buyers who don’t plan on staying in their homes long-term may end up incurring a loss. Consider factors like your career, family planning and evolving demographics of a neighborhood when trying to answer this question.

Does buying a house in my neighborhood make sense?

In some neighborhoods, rentals are relatively cheap while houses sell for far more than they are worth. In these neighborhoods, buying a home may not be the logical choice.

Is my credit score high enough?

Most lenders will only grant a mortgage to borrowers with a credit score of 650 or higher. If your score doesn’t make the cut, you can boost it by being super-careful about paying your bills on time, paying credit card bills in full each month and keeping credit utilization low.

Do I have a plan in place for repairs?

When a renter has a leaky faucet, they call the landlord and the problem becomes theirs. When a homeowner has a leaky faucet, it’s their own problem. They can either fix it or hire someone to do the job, but it’s a good idea to have a plan in place before the first thing in a new home needs fixing. If you’re handy enough to make repairs on your own, you’ll need to be willing to give up some free time to tend to such things. Otherwise, it’s best to have a tidy sum put away to pay for necessary repairs before purchasing a home.

If you’re ready to get started on your home loan application, contact Olean Area Federal Credit Union today to hear about our fantastic home loan options.