Hints for first-time homebuyers, Part 2
By Ron Thompson
Welcome Home Loan originator Ron Thompson continues his hints for first-time homebuyers.
My last blog presented three of the six most-common topics I discuss with first-time homebuyers: working with Realtors, seller credits and home inspections/appraisals. Here are the second three:
Title insurance and home insurance are two different things. Home insurance covers you in the event your home or its contents are damaged. Title insurance ensures that your home has a clear and marketable title on the day you purchase it.
A clean title is crucial. Without it, a former owner or their descendants could claim an ownership interest in your home. Remember, also, that lender's title insurance (purchased by the lender at your expense) protects the lender only. Owner's title insurance is optional and an added expense, but I highly recommend you purchase it.
Escrow of taxes and home insurance
Many lenders "escrow" your taxes and home insurance. That means the lender pays your taxes and home insurance when they come due, and you pay 1/12 of your annual taxes and 1/12 of your annual home insurance premium as part of each mortgage payment you make.
These monies are placed into an escrow account, and the lender draws from this account when paying your taxes and home insurance premiums.
Even when you escrow your taxes, your town/city will still send you a tax bill twice a year. Don't pay it—your lender will also get a copy of the bill and will pay it for you.
Another important thing to remember is that towns adjust taxes and tax rates on homes all the time. So your lender will re-analyze your escrow each year to determine if they are collecting too much or too little for your escrow account. If they determine they're collecting too little, you will have the option of either making a lump sum payment to the lender to cover the amount of the increase, or increasing your monthly mortgage payment.
Likewise, if the town lowers both the value of your home and your taxes, your lender will decrease the portion of your mortgage payment that goes toward escrow.
Your Realtor will place a closing date on the contract you sign to purchase a home. You may think this date is set in stone because you see it on the contract, but hold off, for now, on telling your landlord you're moving out or scheduling a moving truck. Lenders can never guarantee a closing date until they have received all the conditions they need from you to close the loan. These conditions are listed on the commitment letter you receive from the lender. Once all conditions are received and signed off on, closings are scheduled by the title company in the order they are received.
The Consumer Financial Protection Bureau has a great new Web site , with helpful checklists and explanations for first-time homebuyers. It's worth spending some time with.
Happy house hunting!
Ron Thompson is a Welcome Home Loans Mortgage Loan Originator at the Community Loan Fund.
NMLS #225348. Licensed by the New Hampshire Banking Department.