Homeowner's Insurance - Never Be Without It

Owning a home is everyone's dream.  A home is a big investment, therefore it is imperative to ensure that your dream house is protected against any disaster or calamity.  Homeowner's insurance is the most popular way to protect your investment when any unforseen incidents occur with your home.

Nature is becoming unpredictable with each passing day, with natural calamities and disasters striking unexpectedly, anywhere.  No area has been totally spared from the fury of Mother Nature.  In the wake of her destruction, she leaves behind a trail of loss.  You can mitigate any loss of property and dwelling by resorting to measures like home insurance.

Homeowner's Insurance cannot prevent disaster, but it will help compensate you for the damage and destruction caused from situations like floods, fire, cyclone, etc.  These days, policies that cover damage to homes have diversified and even include clauses that cover things like robbery.  This is because a home is not just limited to four walls and a roof.  When you buy or build your dream home, you not only invest in the physical frame of the home, but also time, effort and money to decorate the home.

A homeowner's insurance policy, though it cannot protect your home from damage, will provide you with enough resources and financial support to rebuild what is destroyed and regain what is lost.

If you're obtaining a mortgage to buy your home, homeowner's insurance will be required by your lender.   If paying cash for your home, insurance is optional and purely up to you, but you would be well advised never to consider owning real estate without insurance to cover your losses, should disaster strike.

Still Better to Buy a Home  

In areas where the monthly cost of owning is a big premium over the cost of renting, the long-term approach still shows that owning produces a higher lifetime standard of living than renting.

Let's say you bought a house for $150,000 with a 20% down payment and a 30-year mortgage at 6%, it would cost $8,634 a year for the mortgage and about $7,500 a year for taxes, insurance and upkeep (based on 5% of market value).  The total out-of-pocket cost would be $16,134 a year.

Long term, this would put you way ahead of a renter, even though the same house could probably be rented for about $15,000 a year, or $1,250 a month.

The benefit comes from the decline in the real cost of the mortgage.  Even modest inflation will cut the effective cost of the mortgage dramatically over 30 years.  And then the cost disappears.  The renter, meanwhile, faces a lifetime of rising rent bills.

Of course, in real life the actual numbers will differ. But as long as inflation whittles away the purchasing power of the mortgage payment, the odds will favor the homeowner over the renter.

We'd be happy to run the ACTUAL numbers for you to see for sure, but in most cases, inflation will protect us from all but the worst housing markets, if we give it enough time.

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Housing Slump Gets Longer and Longer

The slump in home sales and prices will be deeper and last longer than previously expected, according to the latest forecast by the National Association of Realtors.

The trade group is now looking for flat prices for existing homes in the first quarter of 2008 compared to the first quarter of 2007, and a more year-over-year declines for new home.

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How Much Home Can You Really Afford?

Most people take for granted how much home they can afford.  If the real estate agent or mortgage professional tells you that you can get up to a $300,000 home, do you argue?  Most times not.  Most people don't question it.  But you should understand it and make sure you don't get in over your head in mortgage payments.

There are several factors: credit score, total assets and what's known as your "debt-to-income" ratio (DTI). Your DTI is extremely important, yet most people have never heard of it. In simple terms, DTI is your total "minimum" monthly debt payments divided by your gross monthly income. Here's a good rule of thumb: the lower your DTI, the better.

What is "minimum monthly debt?" It's the amount you are required to pay on a monthly basis, like your car payment, student loans and credit card payments. If you pay more than the minimum amount on your credit cards, this does not count against your DTI, since only the minimum amount you're required to pay is included in the total.

Keep in mind that minimum monthly debt simply means the minimum you have to pay each month. Even if you owe $5,000 on a high interest credit card, if your minimum monthly payment on that card is $100, that is what goes into figuring your DTI. But be careful. Only paying minimums can actually make some debts grow larger.

Go over all your expenses and debts with your mortgage professional when buying a home. Make sure you understand how your home affordability is calculated. By planning properly, you'll be in the best financial shape to make sure your dream home doesn't turn into a nightmare.

If you have any questions about this article (or any other we've posted here), please leave us your comment.

Homebuilder Confidence Slides to 16-Year Low

U.S. homebuilder sentiment slid in July to its lowest since January 1991 as fallout from the housing slump and subprime mortgage crisis caused a glut of new homes, the National Association of Home Builders said recently.

Homebuilders are struggling to unload excess inventories left to them as speculators abandon contracts and buyers find it harder to obtain mortgages. Soaring delinquencies on the riskiest loans have forced lenders to boost requirements for many borrowers, locking out customers who might previously have qualified.

"The bottom line is that the single-family housing market is still in a correction process following the historic and unsustainable highs of the 2003-2005 period," NAHB Chief Economist David Seiders said in the statement.