Discover How to Avoid the 6 Biggest Mistakes Homebuyers Make
A new report has just been released which identifies the 6 most common and
costly mistakes that homebuyers make when buying a home.
Mortgage regulations have changed significantly over the last few years,
making your options wider than ever. Subtle changes in the way you approach
mortgage shopping, and even small differences in the way you structure your
mortgage, can cost or save you literally thousands of dollars and years of
expense.
Whether you are about to buy your first home, or are planning to make a move
to your next home, it is critical that you inform yourself about the factors
involved.
Having the right information can make a major difference
in this critical negotiation.
Oscar Wilde was fond of saying that "experience is the name
everyone gives to their mistakes."
Whether you agree or disagree, you might as well benefit from
the "experiences" of others and not duplicate their mistakes. So before
rejecting, buying, renewing or canceling your homeowner's insurance, review
these eight common mistakes and resist duplicating them.
(1) I don't need homeowner's insurance
The recent rash of California forest fires, midwestern floods
and eastern hurricanes ought to wipe out that notion. It's one thing to make a
mistake but it's another to be just plain stubborn.
(2) I'm a renter so I'm covered by my landlord
Unfortunately, this is not true. The insurance carried by most
landlords covers only structural damage to the building itself and not to your
TV, PC, DVD player or CDs. So if you come home to find your apartment trashed by
a thief or your furniture in 4 inches of water, you're out of luck and out of
pocket. On the other hand, if you have a renter's policy, your possessions will
be covered by loss or damage from explosion, fire, smoke, theft, vandalism,
windstorm and water damage due to plumbing failure or freezing.
(3) I know everything I own; I won't forget a single
thing
You might have a crackerjack memory, but if you file a claim,
visual documentation carries a lot more weight with your insurance company. Even
better—copies of receipts or bills paid for items.
Keep in mind that filing an insurance claim involves two
steps—proving that you owned specific things and verifying what those things are
worth. Then there's a third factor—verifying losses for income tax
purposes.
So put your crackerjack mind to work one weekend and make an
inventory of your belongings with a video or standard camera. Include the date
when you bought each item and how much you paid. Attach any receipts, canceled
checks or statements, and note serial numbers for those items that have
them.
Don't forget to record the stuff stashed in your basement,
garage, attic, potting shed and that storage unit across town you rent.
Keep one copy of your list and tape or photos in your safety
deposit box (along with a copy of your policy) and another in a fireproof box at
your office or with a friend or relative who does not live in your town.
Then, find out if you have replacement or actual cash
value coverage. If your eight-year old sofa-bed is destroyed by fire and
you have replacement coverage, you can go right out and buy a new one. But if
you have only cash value coverage, the company will depreciate the item and
you'll only get "fair market value." There's nothing particularly fair about
fair market value—the amount will be a whole lot less than the price tag on a
new sofa-bed and you'll find yourself hitting the second-hand stores and thrift
shops or waiting for a department store sale.
(4) I don't want to pay one penny when I file a
claim
Taking a low deductible is expensive in the long run. (The
deductible is the amount you have to pay for repairs before the insurance
company kicks in and covers your claim.)
The higher your deductible, the more you save on your annual
premium. (Premium is the price you pay for insurance protection for a given
period of time, usually a year.) If your budget will bear it, raise your
deductible to at least $500, preferably $1,000. You'll save 20% to 25% on your
annual premium.
Other ways to save...
If you think creatively, you can further cut your premiums.
One relatively easy way is to have multiple
policies. In other words, if you buy your homeowner's and auto insurance
from the same company, you may reduce your premiums by 10% to 15%.
Improvements may also cut costs
10% to 20%. Check with your agent about making your home more resistant to
disasters with a burglar alarm, dead bolt locks, sprinkler system, smoke
detectors and special storm shutters.
(5) I don't own anything valuable
Think twice about that statement. What about your jewelry?
That fur coat that stays in the back of the closet until winter arrives? The
Picasso print you won at a charity auction? Your grandfather's stamp
collection?
Many policies limit the amount you can collect on expensive
items to just a fraction of their cost or current value. If that's the case with
your policy, you'll need a floater or endorsement for each of those items. The floater will
also reimburse you if you lose the item.
For new expensive items, make a copy of the bill and send it
to your insurance agent. For older items, have an appraisal done. This will
avoid any dispute over what an item is truly worth.
(6) My dog won't bite
Yes, of course; and he wouldn't hurt a flea.
Nevertheless, be sure you tell your agent if you have a dog.
And be prepared that if your Fido has a history of biting, your premium could be
raised.
Depending upon your insurance company, you may be able to
alleviate the problem of a dog that bites in one of several ways: (a) Put it in
a training program. Caution: it can't flunk out and he will need a diploma or
document certifying attendance. (b) Have the dog neutered. (c) Secure it on your
property full time with a leash. (d) Build a fence and tuck it inside the fenced
off area.
Puppy profiling...
The above applies to ordinary dogs. And then there's what I
call "puppy profiling." Owners of certain breeds face tougher problems. If
you're thinking of bringing home a Chow, Doberman Pinscher, Pit Bull, Presa
Canario, Rottweiler or Wolf dog, expect one of three things to happen: your
premium will be raised astronomically, your coverage will be limited or,
possibly, your policy will be canceled. Solution:
If you insist on owning a so-called dangerous dog, be prepared to dig deep into
your wallet and pay for special coverage.
(7) My office equipment is not that special
Read the fine print in your policy or check with your agent.
Many policies have a $2,000–$2,500 limit on office equipment. You may manage
with an extra rider or two, but if you have a serious at-home business, talk
with your agent about a separate small business policy that covers not only
equipment but also something that's extremely important, business
liability.
(8) My current coverage is fine
It may be but you can't be certain. People say "it pays to
shop around," for a good reason—it does. And, thanks to the Internet,
comparative pricing has become quite easy.
You'll find that premiums can vary widely from company to
company. I recommend getting quotes from at least three—by phone or on the
Web.
Then, if you decide to change companies, don't decide by price
alone. You should also pick a financially solid insurer with high ratings from
the independent rating services: Standard & Poor's
(www.standardandpoor.com), Moody's ( www.moodys.com)
or A.M. Best ( www.ambest.com). Keeping up with inflation and improvements...
Check to see if your home is covered by either guaranteed replacement or extended replacement value insurance. Guaranteed
replacement will pay whatever it costs to rebuild your home as it was before the
insured disaster, even if that cost is way over the limit of your policy.
Depending upon the insurance company, extended replacement pays an extra
percentage (typically 20%, possibly more) above the policy limit for rebuilding.
For example, if you took out a $100,000 policy, with a 20% extended replacement
value clause you would get an extra $20,000.
$Tip: You also want to keep pace
with inflation. It may have cost you $75,000 to build your home a decade ago but
it's going to cost much more to replace it today. Inflation guard automatically adjusts the limit when you
renew to reflect current construction costs in your area.
And finally, when you make an improvement—renovate the
kitchen, build on a deck, put in a new bathroom—add that to the total value of
your house.
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