Beyond the Mortgage Payment
When you close on your property, you may have all of your property taxes and home insurance included with the payment and interest for your PITI or mortgage payment. In the next two sections we are going to look at property taxes and insurance as separate items in case you are not able to, or don’t want to, have these expenses as part of your mortgage payment.
Every state has property tax, but not every state is the same, it may even vary from state, to county, to city. The town, city, or county you live in will charge taxes typically twice a year and sometimes quarterly (4 times per year).
Each town and county generally has a tax assessor to determine the value of the properties. Properties are assessed to determine value, and that value is multiplied by the tax rate to determine how much you owe in taxes. Taxes are not fixed and often go up over time.
The town or county your house is in will have a first position lien against the property, meaning that if you don’t pay your taxes they can take possession of your house.
Hazard Insurance is required by the lender when you have a mortgage. This is typically paid annually (once a year) or semi-annually (twice a year). This is often paid out of your escrow account when you have a mortgage, but if not this is something that you will need to budget for as it comes due.
You can shop your insurance as often as you’d like, your lender just requires that you have insurance on the property for certain coverage amounts.
- Hazard insurance is required by the lender since they are using the house as collateral for you making your mortgage payments. This insurance covers the risk of damage to the property such as: fire, lightning, explosions, windstorm, hail, water, ice, failed plumbing, electrical, etc.
- Flood insurance is required for properties within a higher risk flood area. The Federal Emergency Management Agency (FEMA) determines if a property is deemed to be in a flood zone. If your property is ever deemed to be in a flood zone ,even after it was originally not identified to be, your lender will require flood insurance at that point.
Insurance is about mitigating risk. Risk to the insurance carrier means the likelihood of receiving a claim that needs to be paid to the customer. Generally the more risk, the more cost in premium an insurance carrier will charge you. Factors that contribute to more risk/cost include: age of house, type of house, proximity to water, crime rate, location, size of house, use of property, etc.
Strategies for reducing cost of insurance:
- Frequency of premium: You will get discounts for paying annually (once a year) versus monthly.
- Bundling: Adding auto insurance and any other policies you need with your home insurance will often times yield you a discount
- Deductible: A higher deductible can result in a lower premium. You just want to make sure you have enough in savings to pay for this deductible.
- Frequency of claims: The more claims you make, the more risk you are to the insurance carrier. Filing an insurance claim should be reserved for bigger ticket issues that you can’t pay for out of pocket.
Seller’s Disclosure
When a property is listed for sale, it is required that the seller disclose to the best of their ability the condition of the property. This is called a Seller’s Disclosure statement.
The seller’s disclosure is completed by the seller along with their real estate agent. This disclosure is one of the most important items you can review in addition to the actual showing and inspection of the property. The information can help you prioritize the things you want to change, and budget for those changes over time.
State and local laws require different types of disclosures by the seller, but here are some common real estate seller disclosures to be aware of:
- Hazards – such as the presence of mold, asbestos or radon.
- Repairs – that might include the condition of roof, septic system, furnace, and sidewalks.
- Water damage – from roof leaks, basement flooding, or plumbing issues.
- Neighborhood nuisances – like the location of airports, landfills, and farming operations.
- Missing items – such as light fixtures, appliances, or window blinds
The seller’s disclosure provides critical information for you to frame future maintenance and repair, so it is important to sit down with your real estate agent and make sure that you understand how to evaluate the information. If you find something that you are concerned about in the disclosure, you can make it part of the contingency for purchasing the house.
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