Tag Archives: housing

3 Places to Stash Your Savings for a Down Payment on Your Home

Once you decide you would like to own a home, it may be several more years before you are actually able to buy one. One of the biggest hurdles is saving for the down payment.

Of course, you could try to get a loan with less than 20% down, and in some areas of the country where basic homes can run $500,000 or more, that may be what you need to do. However, if you live in an area of the country where you can buy a nice home for $300,000 or less, aiming to save the 20% down first is a worthwhile goal.

You’ll not have to pay private mortgage insurance (PMI), which can save you quite a bit of money over the course of your home loan.

As you save, you’ll want to keep your down payment fund liquid, but you’ll likely want to put it somewhere that you can earn interest, at least more than you can in a savings account. Here are 3 places you could consider:

1. Term Deposits. Compare banks and look for those like Heritage that offer fairly high term deposits. The longer you keep your money in the term deposit, the higher interest rate you’ll receive, generally. However, be conservative with your time estimate. If you think you won’t buy a house for 3 more years, you may want to put your money in for a shorter amount of time than that so you don’t have to pay a penalty if you decide to withdraw the money sooner.

2. Money market accounts. Money market accounts usually pay a higher interest rate than regular checking or savings accounts, and you are allowed to write a certain number of checks a month against the account. While you won’t make as much in interest as you will with term deposits, you have greater access to your money.

3. Your IRA. You can also funnel some of your down payment savings into your IRA. You are generally allowed to withdraw $10,000 penalty free for the purchase of your first home.

Saving 20% down for your home takes time, but doing so is well worth it when you consider how much you will save in PMI. Just make sure to stash your money in a safe investment that will also give you a fair interest rate in return.

What’s The Difference – Realtor vs. Real Estate Agent

Say you’re about to buy your first home and you want to work with a licensed professional to guide you along the way. You’ve basically got two options: a Realtor or a real estate agent (sometimes called a real estate broker). The one title is well-known and carries the aura of prestige and expertise in the field; after all, it starts with a capital letter. On the other hand, there’s the relatively generic title that connotates a basic understanding of the industry. Based on these generic assessments, you – like me, like most laypeople out there – probably assume that the Realtor is the better of your two options.

Well, you know what they say about people who assume… (You don’t? I’ll fill you in: ass = u + me)

The Data

Although the National Association of Realtors reported a membership of just over one million in 2011, the Bureau of Labor Statistics says there are only half a million active real estate agents currently working in the U.S.; in many cases, NAR members keep their real estate license current, but are not actively working in the industry.

Interestingly, the federal government doesn’t differentiate between the two titles, lumping all of these professionals under the more generic title for statistical purposes.

It’s got to make you wonder, if the government doesn’t put real estate agents and Realtors in separate categories, why should you?

The Definitions

So what is the difference? Largely, it’s one of semantics… and also one of access.

In order to be called a real estate agent or broker, you must first obtain your real estate license. Requirements for this license vary from state to state, although some states have reciprocal programs, similar to those state-to-state transference agreements you might find when it comes to teaching licenses or passing the bar exam. All 50 states and our nation’s capital require real estate professionals to have a license prior to working in the industry.

After having received your license, you can then choose to become a Realtor. To do so, you simply have to become a member of the National Association of Realtors, the largest professional organization of real estate professionals in the world.

Think of real estate agents as rectangles, and Realtors as boxes. In pure geometry terms, all boxes are rectangles, but not all rectangles – or in this case, real estate agents – are boxes.

The Benefits

I said that the difference between a real estate agent and a Realtor is one of access – and somethingthat just happened in my own house just proved that.

As I sat here typing this post – with the television playing in the background – a commercial from the National Association of Realtors came on the screen, touting the benefits of home ownership to millions of Americans. That’s the point I’m making about access. If you’re a Realtor, you get to take advantage of this type of nationwide promotion. You’re also eligible to join brokerages that only hire Realtors; these, again, are usually the large, nationwide brokerages that have the access (re: finances) to purchase large swaths of advertising on TV and print. As a Realtor, your annual membership fee (oh yeah, the NAR doesn’t do all this for free), helps pay for this access, increasing your visibility in the community.

The Confusion

All that access is exactly what makes it confusing for those of us who aren’t knee-deep in the real estate industry. Being bombarded by ads makes it easy for us to think that being a Realtor is better than simply being a real estate agent. The process of becoming a Realtor doesn’t require any additional classes, training, or professional experience. In fact, a real estate agent could become a Realtor hours after receiving her license. Likewise, you may find incredibly experienced, well-reputed agents working for independent brokerages that don’t require its employees to be Realtors.

The Reality

What does all this mean for you? It boils down to one of the basic tenets of personal finance: you have to do your research. Throw out the fancy titles – just about anyone can pay for it – and examine the facts:

  • What kind of sales record does the agent have in your area?
  • How well does the agent know your area?
  • Ask for – and call – references; what do they have to say about the agent?
  • Do you feel like the agent understands your situation, concerns, and goals?

Asking a real estate agent these questions – not “Are you a Realtor?” – will give you far more insight into how the individual works, and the likelihood that he’ll be able to find you the ideal home for you (or, sell your existing home).

Readers, have you used a Realtor or real estate agent in the past? Have you noticed any differences between the two?

Why Doesn’t Homeowners Insurance Cover Floods?

“We aren’t buying that house,” a friend told me over lunch a few weeks ago. His news took me by surprise; the last time we’d talked, he and his wife couldn’t stop gushing about how perfect the home was. It had a large yard for their golden retriever; it had all the high-end updates they craved; it even had a man cave. When I asked him why not, he gave me another surprise. “We couldn’t afford the insurance on it.”

Say what?

I’ve heard a lot of reasons why people can’t buy a home – they don’t get approved for a loan, they don’t have enough for a down payment, they lose out in a bidding war – but affording homeowners insurance has never been one of them… until now, of course.

Homeowners Insurance Doesn’t Cover Floods

If you’re like most non-homeowners, then you probably assume that homeowners insurance covers everything – damage from a tornado, a fire, a burglary, a flood. Well, you know what they say about people who assume. While you’d have been right about the first three, homeowners insurance does not include flood coverage. This fact gained a lot of publicity in the aftermath of Hurricane Katrina in 2005, when tens of thousands of homeowners found their homes underwater – literally – and learned their insurance providers wouldn’t cover the damage because it had been caused by a flood (this led to a lot of debate, since many of these homeowners didn’t live in a designated flood zone and claimed the damage was caused by wind, not water).

Instead, owners whose properties are in flood zones must carry flood insurance. This is a separate policy, usually backed by the National Flood Insurance Program. According to FloodSmart, the official website of the NFIP, standard flood insurance policies include $350,000 of coverage for single-family homes – $250,000 for the structure itself, and the remaining $100,000 for its contents.

How Much Flood Coverage Costs You

While TV commercials for the NFIP tout flood insurance premiums as low as $129 a year, this is just the bottom of a very complicated scale. Your premiums depend largely on what kind of flood zone your property is located in – low, moderate, or high – and your deductible. In my friend’s case, his dream home was located in a high-risk flood zone; in fact, that particular home’s basement had seen flooding damage from a nearby river three times in the last ten years! His flood insurance quote came back at $3,000 a year, adding an additional $250 a month to his housing costs. When the bank learned this, they recalculated his front-end debt-to-income ratio, and denied his mortgage application.

Why Doesn’t Homeowners Insurance Cover Floods?

Prior to 1968, many homeowners were on their own when it came to flood coverage. While some insurers did provide flood insurance, it was often so expensive as to be unaffordable to most homeowners. That’s why Congress created the NFIP in 1986. The goal is two-pronged:

1. The first goal of the NFIP was to provide government subsidized flood zone coverage, making it affordable for individual policy holders.
2. The second goal was to educate and encourage communities to avoid building in high-risk flood zones, to reduce the number of properties that experience floods.

But not everybody participates in the NFIP. Some communities may choose not to participate, making the premiums for flood coverage in these areas exorbitant. Only 85% of insurers work with the NFIP as well, meaning the company that carries your flood insurance policy may be different from the one that carries your homeowners insurance. However, you don’t need to shop around for the best policy; because flood insurance is backed by the federal government, premium quotes shouldn’t vary from company to company for identical policies.

In July, Congress and the President passed an extension of the NFIP, keeping it alive through September 2017.

Readers, do you carry flood insurance on your home? Do you know type of flood zone are you in?