A lot of costs beyond price of your home

This was originally published on Monday, July 17, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Once you decide to purchase your home, there’s more to consider than just the purchase price or your monthly mortgage payments. It’s easy to let emotions get in the way of reality, especially if it is something we want.

There may be some things you need to consider before signing for that dream home. Some of concerns may be financial, while others require a little investigating on your own.

Down payment. The amount you contribute to your home will determine how much your total mortgage loan will cost. Depending on the type of loan you get, you can pay anywhere up to 20 percent of the home’s sale price.

Private mortgage insurance. Depending on how much of a down payment you make, you may be required to purchase private mortgage insurance. In most cases, it will be rolled into your monthly mortgage payment. Your loan provider usually requires you to have private mortgage insurance to protect lenders against loss if a borrower defaults.

Homeowner’s insurance. Many banks require a homeowner’s insurance policy be purchased before closing on the home. The policy covers personal liability and hazard insurance to cover the home and the contents within it. It may also cover special conditions to which your house may be exposed, such as flood or earthquakes. Ensure you read your policy carefully and understand exactly what it covers.

Title insurance. On Guam, it’s common for property to be passed down from generation to generation without being recorded or going through the proper legal channels. Title insurance ensures the property you are buying is free and clear of any claims, taxes or property disputes.

Appraisal fees. Lenders will require a potential buyer to hire an appraiser to determine the value of the home. They take into account similar properties in the area, market trends, house amenities, square footage, defects and structural concerns. The fee is usually paid by the buyer prior to the sale being finalized.

The appraised value could greatly impact your down payment, loan terms, monthly payments and, in some cases, even your ability to buy that particular house.

Home inspection fee. Although not common on Guam, you may decide to hire a home inspector to look at electrical wiring, plumbing and cooling systems to determine if there are any defects. As a buyer, you can request the price be lowered or that the seller fix the defect before you purchase the home.

Escrow fees. An escrow is a third-party that will hold the money while the buyer and seller finalize the contract. Generally you’ll have a portion of the monthly mortgage payment held in escrow to pay for property taxes and insurance.

Credit report fees. Some loan institutions will charge a fee to check your credit worthiness.

Survey fee. A survey is a drawing or map showing the precise legal boundaries of a property and other details. If an existing survey of the land can’t be obtained, a new survey will have to be conducted. Your lender may require you to have the land surveyed to ensure the boundaries are where they are supposed to be and there are no legal issues.

Loan origination fee. This fee covers the lender’s administrative costs of preparing the required documents for the loan and the closing paperwork. Average cost of the fee is usually 1 percent to 2 percent of the loan amount.

Recording charges. The state and local governments charge this fee to record your deed, mortgage and loan documents regarding the sale.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

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Selling a home usually will cost you some money

This was originally published on Monday, March 23, 2015, in the Pacific Daily News.  Click here to subscribe to the PDN.

When you sell your home the money from the sale will help pay certain costs and fees. This should be factored in, especially if you plan on using the money to purchase another home.

• Commission: Real-estate professionals work on commission. It is the seller’s responsibility to pay the commission on the sale of the home. A typical commission is usually 4 to 6 percent.

• Mortgage: Unless your home is paid off and is free and clear of any liens, you are responsible for paying off all debts on your home. You cannot sell your home unless the property has a clear title. The money from the sale will pay off your original loan first. If you have a second mortgage, any money left will be used to pay it off. If the sale of your home is not enough to cover the complete amount of the second mortgage, you have several options.

The first option is a short sale. A short sale happens when both lending agencies agree to accept less than what is owed. Another option is converting the balance of your second mortgage into a line of credit or an unsecured loan.

Because you paid your loan off early you may have to pay a prepayment penalty. Your lending agency may also charge you a loan payoff fee for all the administrative work associated with the sale

• Recording fees: After your debts have been cleared and you have sold the property you will record this with a government agency. This agency may charge a fee to record and document these changes.

• Escrow fees: Escrow is when a third party is used to complete a monetary exchange between two parties. The buyer and seller sign a purchase agreement and the escrow starts. The escrow ensures all terms are met. The fees usually are paid based on a percentage of the sale price.

• Title search fees/insurance: To ensure that the title is free and clear of any past liens or debts, a title company will research the property’s history through public records. A clear title gives you the legal right to sell the home. The title company offers insurance that their work is free of errors. If a lender is used to help buy a home, the buyer pays for a lender’s title insurance policy. A buyer or property owner may also purchase an owner’s title insurance policy. If an error occurs, the title company is responsible for compensation. Title fees and insurance costs are a onetime payment. A small payment now can save you big in the long run.

• Taxes: Because the selling of your home is an exchange of money for goods there may be taxes that you pay when transferring ownership of the home. If your property tax is not up to date you will have to pay the delinquent taxes and maybe late fees before you can sell the home.

• Notary fees: During the sale of your home you will be inundated with paperwork. Most are official documents and may need to be notarized. If you want official copies of all the paperwork have the documents notarized.

• Other expenses: As a seller you want to make your buyer happy. Sometimes it may mean going the extra mile. Buyers may ask for termite treatment and certification to empty a septic tank or new appliances. These requests must be met before the exchange of money happens so it will be out of pocket. Most of our homes may require painting or minor repairs even before you start the selling process. A little money spent sprucing up the home can translate into more money in your pocket later.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Homeowner’s, title insurance both necessities

This was originally published on Monday, April 21, 2014, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: I am about to purchase my first home but need advice on homeowner’s and title insurance.

Answer: Congratulations on your new home! Buying a home is a huge responsibility and probably going to be one of your largest expenses. When buying a home, it’s important that both insurances are used to cover your property and home.

Title insurance ensures that the property which you are buying is free and clear of any legal issues with regard to ownership of the property.

This covers back property taxes, omissions in deeds, clerical errors and fraud. Title insurance is available for lenders as well as the owners. Lenders require a lender’s title insurance policy to protect it while there’s a loan. If you obtain a mortgage, a lender’s policy is based on the loan amount. Once the loan is paid, the lender’s title insurance ceases. This is why an owner’s title insurance policy is critical. As long as you own the property, the owner’s title insurance policy will be in place. You have the right to choose your title insurance company. Be sure to choose a company that has a good reputation and you feel will be in business for years to come.

Homeowner’s insurance is a necessity to protect you financially. Like most insurance it can be difficult to understand. Many do not read their coverage until they have a claim. Understanding your insurance policy will ensure that you can rebuild your home and replace your belongings in case of a loss. Depending on what type coverage you have, your policy may cover your home and/or personal belongings in the home, such as appliances, furniture, etc. Here are two homeowner’s insurance options on the structure:

• Replacement cost pays you the cost of replacing the home up to the insured amount. Usually, there’s no deduction for the depreciation of home and is based on the face amount of the policy; and

• Actual cash value covers the cost to replace your home minus the depreciation cost at the time of the loss.

Once you decide which homeowner’s policy is best for you, there are other options to consider:

• Contents or personal property coverage covers the valuables within your home. It will reimburse you the depreciated value for clothes, furniture, appliances, electronics and more. Theft and burglary of property are covered under this option.

• Personal liability covers you for bodily injury and property damage claims that occur on your property.

• Medical payments helps pay medical expenses for those who are injured on your property.

• Temporary housing eases the burden of living in a place until your home is rebuilt.

Check with your insurance company to see what kind of disasters are covered. Usually, homes that are in flood zones, earthquake zones or typhoon zones may require special insurance to cover those disasters.

Know exactly what you are buying and ask questions about your policy. Work with your insurance representative to help you find an insurance policy that fits your needs and budget.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.