Home Investing Tips - Insurance, Cost of Owning and Market Value

By: Submissions

Boris Dzhingarov writes: Home buyers often overlook or do not understand the details and ramifications of three critical aspects when buying a home:

• Insurance
• Cost to Own a Home
• Market Value

Yet each of these components can significantly affect a property’s worth and its sale from seller to buyer. If you are a new buyer unfamiliar with these terms, here is an easy-to-digest overview of how each factors into your purchase.

1. Insurance

The first area many home buyers do not understand or correctly budget for is insurance. Because there are typically several types of insurance required for a home and mortgage, the policies and types of insurance can be confusing. Some of the most common types of insurance include:

• Homeowner’s insurance
• Title insurance
• Mortgage insurance
• Fire insurance

Title insurance is designed to protect a buyer, owner, or a lender against loss of any interest in real property stemming from title defects, property liens, or other possibilities such as a lawsuit against the title. Frequently real property interests are protected or insured as fee simple ownership or a mortgage. Most mortgage lenders require title insurance.

Mortgage insurance protects lenders against losses from borrowers defaulting on home mortgages. The FHA requires mortgage insurance predominantly for borrowers who borrow more than 80% of the property value or make a down payment of less than 20%. The lenders have less risk with mortgage insurance because the FHA pays the lender in the event of a homeowner's default. If you can afford to make more than a 20% down payment on a home, you can generally avoid the cost of this insurance.

Banks or mortgage lenders commonly require property insurance to protect against losses from fire, storm, and other causes of damage or loss. This is known as homeowner’s insurance. The value of the home, deductible amount chosen, and other factors determine the cost of this insurance. Many lenders require the monthly premium costs to be included as part of the mortgage payment and placed in escrow to pay these insurance premiums.

2. Cost of Owning a Home

The second aspect of investing in a home that numerous buyers fail to correctly assess is the overall cost of their home. The general public’s lack of knowledge about mortgages contributed to the real estate crash and economic downturn at the end of the last decade. Knowing the total cost of a mortgage, the difference between a fixed and adjustable interest rate, the hidden costs and other mortgage terms is imperative to optimizing this investment.

Often first-time buyers are elated that they have qualified for their purchase and focus only on the monthly payment amount. Many are surprised to learn they owe almost as much on their mortgage after three to five years of making payments as they originally borrowed.

This occurs when the homeowner does not take the time to understand amortization and the payment scale of principal and interest. Such mistakes can cause some homeowners to become upside-down on their mortgage, and not realize it until they need to sell. An upside-down mortgage means they owe more than the property is worth, especially if there has been little or no value appreciation.

3. Market Value

This is the third item a great deal of home buyers overlook when investing in a home. They fail to correctly assess the market for their home, assuming property values will always naturally appreciate.

Evaluating the neighborhood, city, industries, and area of a real estate purchase can help predict the likelihood of appreciation versus depreciation. Keeping up to date annually with trends in these same areas can help determine if the property is depreciating or appreciating in value.

By Boris Dzhingarov Founder of http://www.monetarylibrary.com/.

© 2013 Copyright Boris Dzhingarov - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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