Financing and Mortgages
ARMs also could be a good choice for someone who knows that his or her income will rise and at least keep pace with the loan rate’s periodic adjustment cap. If you plan to move in a few years and are not concerned about the possibility of a higher rate, an ARM could be a sound solution.

Most lenders now are requiring that buyers use an escrow account. The lender automatically places a portion of the homeowner’s monthly note into an account specifically designated to pay for insurance and taxes. From that account, the lender is responsible for paying the annual bills.

Types of loans can include the following.

— Conventional
This is the traditional 15- or 30-year home loan. Variations include jumbo loans (loans for more than $417,000), conforming loans (loans under $417,000) and ARMs.

— FHA
The Federal Housing Administration (FHA), part of the U.S. Department of Housing and Urban Development (HUD), administers various mortgage loan programs. FHA loans have lower down-payment requirements and are easier to qualify for than conventional loans, but FHA loans cannot exceed a statutory limit. Reasons cited by FHA for pursuing this option, include the following:
  • Easier qualification: Because FHA insures your mortgage, lenders are more willing to give loans with lower qualifying requirements.
  • Less-than-perfect credit: Even if you have had credit problems, such as bankruptcy, it’s easier for you to qualify for an FHA loan than a conventional loan.
  • Low down payment: FHA has a low 3-percent down payment, and that money can come from a family member, employer or charitable organization. Other loans don’t allow this.
  • Lower cost: FHA loans often have competitive interest rates because the loans are insured by the federal government. Always compare an FHA loan with other loan types.

Learn more at www.fha.com.

— Veterans Administration (VA)
VA loans partially are guaranteed through the U.S. Department of Veterans Affairs (VA). The VA recently expanded its qualifying criteria to include more veterans so all veterans should contact the VA for the most current information at www.homeloans.va.gov.

TITLE INSURANCE
Title insurance is a contract in which the title insurance company, in exchange for a one-time premium at close of escrow, protects against future losses resulting from defects in the title to real property that exist at the time of purchase but are unknown or undisclosed.

Title insurance is significantly different from homeowners insurance and other casualty insurance. Homeowners insurance provides protection from losses due to unknown future events, such as fire or theft for a specified period of time (e.g., an annual premium for a year of coverage). Casualty insurance reduces the homeowner’s liability should someone be injured on their property.

Title insurance provides protection with a one-time premium for an indefinite period of time from future losses because of events that already have occurred (e.g., claims of ownership). Because of this, title insurers eliminate risks and prevent losses in advance through extensive searches of public records and thorough examination of the title.

There are two types of title insurance policies: the owners and lenders. The owner typically will purchase the standard coverage form in the amount of the purchase price of the property. It does not cover increases in value unless you purchase an endorsement, but it covers the buyer’s interest in the property for as long as the buyer or the heirs have an interest in the property, subject to certain limitations.

The lender typically will purchase the extended coverage form equal to the mortgage loan. It covers the lender’s interest in the property for the life of the loan and provides additional coverage, such as unrecorded easements and boundary discrepancies, not found in a typical owners policy.

Owners may elect to purchase a homeowners policy of title insurance instead of the standard coverage form. Introduced in the 1990s, this policy includes the standard coverage of a typical owners policy and additional coverage, such as forgery occurring after the policy’s effective date and increases in the property value.

A title insurance policy protects you from financial loss due to covered claims against your title, pays your legal costs if the title insurance company must defend your title against covered claims and pays successful claims against your title.

Claims typically covered under an owner’s title insurance policy are the following:
  • Someone other than the insured who owns an interest in the property
  • Forgery, fraud, undue influence, duress, incompetency, incapacity or impersonation
  • Defective recording of a document
  • Restrictive covenants
  • Undisclosed liens due to a deed of trust, unpaid taxes, special assessments or homeowners association charges
  • Unmarketability of title
  • Lack of access to and from the land

Ask your title insurance agent to explain what is and is not covered under your title insurance policy.

   
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