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Title Insurance Versus Property & Casualty Insurance
Are you purchasing a home in the Fort Myers or Cape Coral areas and not sure about the difference between Title Insurance versus Property & Casualty Insurance?
When purchasing a home, there are different types of insurance involved in the buying process. The terms can be confusing, and buyers may not realize that they need different policies to protect against unique situations. While securing homeowner’s insurance seems a given, buyers may overlook title insurance, which is equally important.
The good news is that while homeowner’s property and casualty insurance carries an ongoing premium for coverage, title insurance requires only a one-time payment.
What is Title Insurance?
Title insurance is protection against issues that can threaten your ownership of your property and protection against liability for problems that happened before you purchased the property.
There are two types of title insurance policies. There is a lender’s policy which most banks and mortgage companies will require as part of your loan. The lender will require title insurance that protects their interest in your property up to the amount of the loan. However, in order for your interest in the property to be protected, you must secure an owner’s title insurance policy. These policies address the homeowner’s liability and exceed the loan amount up to the full value of the property.
Most title insurance policies cover: forgery and impersonation, undisclosed (but recorded) prior mortgage or lien, undisclosed (but recorded) easement or use restriction, erroneous or inadequate legal descriptions or surveys, lack of a right of access, silent (off-record) liens, pre-existing violations of subdivision laws, zoning ordinances or building permits, and more.
What is Property and Casualty Insurance?
Homeowners insurance is one type of property and casualty product. Also in this P&C category are other forms of coverage such as renters insurance, auto insurance, and power sports insurance. Property and casualty insurance can also cover losses relating to your home and the contents inside it in the event of a covered accident.
Specifically, most homeowner’s insurance policies may cover loss or damage to your home, other structures on your property such as detached garages or approved sheds, personal property kept in your home, loss of use of the home or property, liability, and medical expenses for accidents that occur on your property. The exact terms of your coverage may vary depending on where you live. In some areas, natural disaster protection from floods, earthquakes, and windstorms require separate policies.
Payments for property and casualty insurance may be due monthly, quarterly, or an annual basis. Unlike title insurance, it renews every year and rates may increase based on prior claims or higher levels of perceived risk by the insurance company.
You Likely Need Both
Many people confuse title insurance for homeowners insurance (and vice versa), but the fact is that these two types of insurance policies cover very different risks. It’s important to understand the differences and to be aware that in most states lenders will require homeowner’s insurance in order to issue a mortgage loan. While owner’s title insurance may not be required, countless horror stories of lost ownership rights and costly legal battles make the one-time fee for title insurance extremely reasonable.
At Title Junction we care about helping you stay informed throughout your real estate transaction. Have questions? Give us a call at 239.415.6574.
In case you missed it, check out our last Title Junction post: What Is A Certificate of Eligibility, or COE?
What Is A Certificate of Eligibility, or COE?
Are you in the market to buy a new home in the Fort Myers or Cape Coral areas leveraging a VA loan and wondering what a Certificate of Eligibility, or COE is?
The COE is the key document that verifies to lenders that someone is eligible for a VA-backed loan.
Servicemembers, Veterans and National Guard and Reserve members may apply online or through their lender; most lenders have access to the system and can verify eligibility IF the VA has records on file.
The VA also maintains a hotline for assistance.
Surviving Spouses can use VA Form 26-1817 to request determination of their eligibility for VA Loan Guarantees.
Your lender may be able to assist with processing or contact the VA for information this video did not address.
At Title Junction we care about helping you stay informed throughout your real estate transaction. Have questions? Give us a call at 239.415.6574.
In case you missed it, check out our last Title Junction post: Loan Commitment Letter vs a Pre-Approval Letter?
Loan Commitment Letter vs Pre-Approval Letter
Trying to determine the difference between a loan commitment letter versus a pre-qualification letter for your new purchase in the Fort Myers or Cape Coral areas?
In competitive buyer’s markets where houses for sale are few and far between and homes for sale typically receive multiple offers, buyer’s need to position their offers with as much strength as possible. This may include offering fast closing dates, making offers above the asking price, and including a pre-approval letter with their offer.
At times, buyers may not understand what they need and may approach their loan officer or mortgage company with requests for a Pre-Qualification Letter or a Loan Commitment Letter. While these may sound interchangeable, they are not. These documents are different and represent different levels of due diligence and commitment by the lender. They are also used at different stages of the home buying process.
Pre-Qualification Letter
A pre-qualification letter indicates that a loan officer or mortgage company representative has reviewed some preliminary loan application information provided by the borrower either verbally or in writing, but has not yet reviewed or confirmed financial documentation. In simple terms it means that the buyer, who is also the borrower, appears to be qualified enough to apply for a loan.
Pre-qualification letters were often considered sufficient proof that a buyer was likely to get a loan. However, prequalified buyers were often not approved for loans making sellers have to renegotiate contracts or find new buyers. Today, pre-qualification letters are often found to be insufficient and pre-approval letters are favored.
Pre-Approval Letter
A pre-approval letter demonstrates a deeper level of due diligence by the lender. To receive a pre-approval letter, the lender has typically already reviewed credit reports, income documents, and bank statements. In some cases, the bank or mortgage company may enter the borrower’s data into an underwriting system that will specify if the borrower is qualified enough to move forward with the loan process. It will also provide a maximum amount the buyer can borrow from the lender.
When a buyer submits a pre-approval letter with an offer on a property, the letter will usually list the price, loan amount, down payment amount, loan-to-value, and possibly the terms of the loan. The letter will also outline what documentation is still pending from the borrower to complete due diligence in the underwriting process.
While not a guarantee a loan will be approved or funded, a pre-approval letter gives the seller and their agent strong assurance that thy buyer has the financial means to purchase the home or property for sale. In competitive markets with multiple offers, seller can review offers with pre-approval letters and chose the buyer with the most favorable terms and likelihood to get funded.
Commitment Letter
A mortgage loan commitment letter is provided by a bank or mortgage lender after the buyer has passed through a rigorous underwriting process. This type of letter is provided later in the contract time period, approximately a week or so before closing. There are still conditions to be met such as no change in the buyer’s financial landscape and a favorable appraisal. However, commitment letters are interpreted as assurance that the buyer’s loan will be approved and funded for closing.
Be Prepared
Knowing the difference between a Pre-Qualification Letter, a Pre-Approval Letter, and Loan Commitment Letter can be critical for buyers and sellers to make informed decisions during a real estate transaction.
Buyers can add strength to their offers in competitive markets with well written pre-approval letter from a reputable lender. Sellers need to know the difference so that in considering offers, they enter into contract with the buyer who offers the best contract terms and is most likely to be qualified for a loan.
At Title Junction we care about helping you stay informed throughout your real estate transaction. Have questions? Give us a call at 239.415.6574.
In case you missed it, check out our last Title Junction post: What Can I Expect To Happen On Closing Day?
What Can I Expect To Happen On Closing Day?
Under contract for a new purchase in the Fort Myers or Cape Coral areas and curious about what you can expect on closing day?
While this video simplifies things to help you remember: you’ll present your paid homeowner’s insurance policy or a binder and receipt showing that the premium has been paid. The closing agent will then list the money you owe the seller remainder of down payment, prepaid taxes, and so on. and then the money the seller owes you unpaid taxes and prepaid rent, if applicable.
The seller will provide proofs of any inspection, warranties, and so on. Once you’re sure you understand all the documentation you’ll sign the mortgage, agreeing that if you don’t make payments the lender is entitled to sell your property and apply the sale price against the amount you owe plus expenses.
You’ll also sign a mortgage note, promising to repay the loan. The seller will give you the title to the house in the form of a signed deed. You’ll pay the lender’s agent all closing costs and, in turn, he or she will provide you with a settlement statement of all the items for which you have paid.
The deed and mortgage will then be recorded in the official public records and you will be a homeowner.
At Title Junction we care about helping you stay informed throughout your real estate transaction. Have questions? Give us a call at 239.415.6574.
In case you missed it, check out our last Title Junction post: Why Should I Get Title Insurance?
Why Should I Get Title Insurance?
Are you buying a home in the Fort Myers or Cape Coral areas and wondering why you should get title insurance?
In the simplest terms, title insurance is protection against a broad array of issues that can threaten the ownership of your property or issues that can create liability for problems that happened before you purchased the property.
There are two types of title insurance policies. There is a lender’s policy which most banks and mortgage companies will require as part of your loan. The lender will require title insurance to protect their interest in your property up to the amount of the loan. However, the lender’s title insurance policy will not cover many issues covered by an owner’s title insurance policy. These policies address the homeowner’s liability and exceed the loan amount up to the full value of the property.
While policies and coverage can vary, title insurance for owners commonly covers: forgery and impersonation, undisclosed (but recorded) prior mortgage or lien, undisclosed (but recorded) easement or use restriction, erroneous or inadequate legal descriptions or surveys, lack of a right of access, silent (off-record) liens, pre-existing violations of subdivision laws, zoning ordinances or building permits, and more.
To fully appreciate the value of a title insurance, let’s review a few examples for illustrative purposes of what you could run into and why having it is important:
Surprise Liens and Mortgages
There was a short period of time in between the title search and the actual closing on a home. In the gap, three sizeable mortgages were registered against the property. These mortgages were valid and properly registered as public record. The seller never disclosed them and the closing proceeded as scheduled.
After the closing, the new owners found themselves under foreclosure proceedings with the three unknown mortgages. Fortunately, the buyers did purchase owner’s title insurance which covered over $320,000 in liability and damages and also handled all legal proceedings.
Property Line Issues Between Neighbors
A gentleman, let’s call him Tom, purchased a new home with a separate garage on his property. Shortly after moving in, he started up his Harley Davidson motorcycle for an early morning ride. Startled by the proximity of the sound to his bedroom, Tom’s neighbor John, checked his survey and discovered that the previous owner of Tom’s house had built the garage 2 feet onto John’s property.
Tom was in a quandary thinking his only options were to either demolish the garage or relocate it. Checking his paperwork from the closing, he remembered he had purchased an owner’s title insurance policy and called his insurer.
Many title insurance companies have specialist on staff who are experts in negotiating property issues between neighbors. Acting as a third party, the insurance company may use mediation strategies with the hopes of reaching a win-win solution and preserving the relationship between neighbors.
Tom’s insurance company was able to secure an official lot adjustment to keep the garage where it was while also covering the cost of soundproofing the garage. This sufficiently muted the sound of the motorcycle revving up and avoided ongoing or costly litigation. It also removed tension between the neighbors and allowed them both to enjoy their homes.
Unpaid Bills
Shortly after closing on a residential home, the buyer and now homeowner received a water bill from their local municipality for thousands of dollars. Panicked, the homeowner contacted their owner’s title insurer and reported the situation.
The insurer discovered that the municipality had not received a water bill payment for that property for several years. Rather than shut off the water, the municipality had allowed the account to accrue a past-due balance which was triggered by the change in ownership. The title insurer settled the property’s account with the municipality relieving the new owner from the liability of the past-due balance.
Protect Your Investment
There are thousands of more examples of how a title insurance policy can protect your interest in the property. Purchasing a home is one of the largest investments most buyers make in their lifetime. Having the peace of mind that you have coverage for any number of potential liabilities and the assurance that title is free and clear of all liens will certainly help you sleep better at night.
At Title Junction we care about helping you stay informed throughout your real estate transaction. Have questions? Give us a call at 239.415.6574.
In case you missed it, check out our last Title Junction post: Understanding Your Loan Estimate: Terms, Payments and Closing Costs.
Understanding Your Loan Estimate: Terms, Payments and Closing Costs
Applying for a loan for your purchase in the Fort Myers or Cape Coral areas and trying to understand the loan terms?
The first page of your Loan Disclosure shows the Loan Terms Projected Payments and Costs at Closing.
The Loan Amount, of course is the total you are borrowing. But the Interest Rate alone doesn’t represent all of your borrowing costs. The APR figure on Page 3 shows that.
Likewise, Monthly Principal & Interest aren’t the complete amount you will actually PAY each month.
The Projected Payments figures add other costs, such as Mortgage Insurance Estimated Escrow, Taxes, Insurances and Assessment to show the approximate amount you will pay each month, over time.
The Estimated Closing Costs are directly loan-related. while the Estimated Cash to Close adds other known closing costs to tell you the estimated cash you’ll need to have to close this loan.
At Title Junction we care about helping you stay informed throughout your real estate transaction. Have questions? Give us a call at 239.415.6574.
In case you missed it, check out our last Title Junction post: What Questions Should I Ask A Mortgage Lender?
What Questions Should I Ask A Mortgage Lender?
Purchasing a home a home in the Fort Myers or Cape Coral areas? Whether it’s your first home or your tenth, it always involves important decisions at the beginning of the home buying process such as qualifying for a mortgage loan.
Selecting the right lender can have a significant impact on your home buying process. An experienced and ethical lending team will make sure you are offered the best loan for your unique circumstances and will meet their milestones in a timely manner to ensure your closing takes place as scheduled. Buyers may think that their best choice is to get a loan from their bank. However, they may benefit from exploring other options and asking key questions before committing to any specific lender.
Question 1. Bank, Mortgage Lender or Mortgage Broker?
Many banks and credit unions offer mortgages to their customers. In certain cases, the existing relationship may entitle the borrower to preferred rates or reduced closing fees. In shopping for a mortgage loan, you want to make sure that the lender has the right loan program for your needs. Banks and credit unions typically have limited mortgage products. If you are self-employed, new to credit, or have saved less than a 20% down payment, a bank or credit union may not have the right loan for you.
Mortgage Lenders are typically financial institutions that deal solely in real estate / real property loans. They are separate from banks and may have one or multiple sources of funds. They define their own rules of tolerable risk and build loan products that align with their available funds and risk models. While typically more flexible than banks, they also have a limited array of products.
Mortgage Brokers are the independent contractors of the mortgage lending industry. They have solid relationships with multiple lenders and usually have a flexible and diverse array of loan products to offer buyers. When shopping for your mortgage loan, interview different types of lenders and pick the one that offers the right loan structure for your specific needs.
Question 2: Do They Offer Pre-Approval Letters?
First, do not confuse pre-approval with pre-qualified. Pre-qualification is at best a guess at a buyer’s ability to obtain a loan and does not carry a lot of weight in today’s real estate market. Pre-approval, on the other hand, means that the lender has conducted first-level due diligence and feels reasonably confident that the buyer will qualify for up to an X dollar loan during the next three to six months.
Pre-approval lets the buyer know the highest price home they can aim to purchase and also gives the buyer an advantage in competitive markets by submitted a pre-approval letter with their offer. If you encounter a lender that does not provide pre-approval letters or wants an upfront fee (separate than the application fee), it maybe best to keep searching for mortgage lender options.
Question 3: What Type of Loans Do They Offer?
If you have saved a 5% down payment for your home purchase, then a lender that requires a 20% down payment is not the right one for you. Similarly, if you want to lock in a low rate for a 15-year mortgage, but the lender only offers 30-year mortgage products, again, not the right lender for you. A real estate investor needs a different loan than a homeowner planning to raise a family in the home. There are hundreds of different types of loans with diverse qualification requirements and terms. Do your due diligence and make sure you focus on finding a loan that best serves your unique buying needs.
Question 4: Will They Lock In A Rate?
A rate-lock is a set interest rate that is guaranteed to the borrower as long as the loan is closed within a specified time frame. If you are buying during a time when interest rates are fluctuating, then working with a lender who offers a rate-lock is a plus. Be sure you fully understand the terms of the loan associated with that rate.
Loans can have variable rates, fixed rates, be interest-only or even have negative amortization terms. Make sure you understand all the moving parts before you commit to a lender. The right rate can save you thousands of dollars over the life of a loan.
Question 5: What are ALL the costs?
This is where doing your homework and perhaps even some comparison shopping can save hundreds to thousands of dollars at the closing table (and for the life of the loan). In addition to the interest rate it’s important to ask questions about:
- Application Fees
- Credit Report Fees
- Annual Percentage Rate (APR)
- Origination Fees
- Points
- Inspection Fees
- Title Insurance
- Escrow
- Recording Fees
- PMI
- Total Closing Fees – all of them!
Be sure to study the typical closing fees for your state and assess your full costs before committing to any specific mortgage lender.
Be An Informed Buyer
The more you know about the home buying and mortgage lending process, the more confident you will feel about making decisions. Often, purchasing a home is the most important and largest expenditure in an adult’s life. Do your research and be sure to carefully interview real estate professionals and lenders before embarking on your search for a home.
At Title Junction we care about helping you stay informed throughout your real estate transaction. Have questions? Give us a call at 239.415.6574.
In case you missed it, check out our last Title Junction post: Which Square Footage Figure Should I Use?
Which Square Footage Figure Should I Use?
Buying or Selling a home in the areas of Fort Myers or Cape Coral and wondering which square footage figure you should go by?
Home size is one of the key figures used in comparisons.
But you may have different measurements to choose from, as you’ll learn in this video, including builder, appraiser, tax records and possibly owner records.
Which one is right, and which one is best?
The official figure is the one in tax records – typically, the county.
Any other figure must be documented by a builder’s floor plan
an appraisal or an official floor plan, prepared by a company for a fee.
If your house has been remodeled and you’re planning to sell
you may want to confirm that the official record matches your actual house – and update if required.
Most lenders will require an appraisal which will verify the figures you used. So be accurate and keep records to make the most of your sale.
At Title Junction we care about helping you stay informed throughout your real estate transaction. Have questions? Give us a call at 239.415.6574.
In case you missed it, check out our last Title Junction post: What Is A Loan Commitment Letter?
What is a Loan Commitment Letter?
Doing homework on the home loan process for a purchase in the Cape Coral or Fort Myers areas and curious as to what a Loan Commitment Letter is?
A Loan Commitment Letter, also known as a Mortgage Commitment Letter or Mortgage Loan Commitment Letter is a written and signed document from the lender or mortgage company that states the listed borrowers have been approved for the loan by an underwriter.
That’s the short version.
There is a lot more to know about a commitment letter, including what it contains, why it’s important, and whether or not it is legally binding.
A commitment letter is issued by a lender, typically a bank or mortgage company, when the underwriting department feels they have fulfilled their due diligence and that the borrower(s) have passed strict qualification requirements for their loan to be funded at closing.
The loan commitment letter will typically include:
- Commitment Date
- Loan Amount
- Type of Loan
- Interest Rate
- APR (Annual Percentage Rate)
- Closing Costs
- Total Payment
- Expiration Date
- Conditions
The expiration date provides a window of time in which the real estate closing must occur. If closing does not take place by the expiration date, the lender may choose to give an extension or may require additional due diligence (such as updated bank statements or a new appraisal) depending on the duration of the delay.
Another important section of the mortgage loan commitment letter is the list of conditions. While not all letters have conditions, most will and it’s important for both buyers and the sellers to understand them.
Conditions of the Loan
A loan commitment letter will likely include a list of contingencies. These are actions or circumstances that would prevent the lender from funding the loan. Typical conditions include changes in the buyer’s credit, financial, and/or employment status that would negatively impact the buyer’s ability to repay the loan.
Other common conditions include damage to the home being purchased or a low appraisal. If the home being purchased does not appraise at or above the purchase amount in the real estate contract, the lender may require a renegotiation of the price, additional money down, or may completely cancel the loan.
Sellers may want to be cautious of any commitment letters that include conditions that indicate the buyer is not yet fully qualified such as “pending income verification” or “pending further credit review”. These may be signs of a weak commitment and may signal that there are still qualification barriers that need to be resolved prior to closing.
Is a Loan Commitment Letter Binding?
A question that is often asked is “are commitment letters legally binding”. The answer is both yes and no and depends a lot on how the letter is written. It is recommended that if this is a question of concern that you consult with your attorney for legal advice. Lenders often include conditions that would allow them to step away from the loan, but simultaneously obligate the borrower to move forward with the loan as long as all the terms listed in the letter are met. This means that while the lender can still back out, some letters prevent borrowers from declining the loan.
Why would a borrower want to decline a loan? A borrower may have found a loan with a different lender with more favorable terms. An interest rate that is even a quarter of a percentage lower can result in thousands of dollars in savings over the life of a loan. However, if the borrower has already signed a commitment letter, they may be obligated to stick with the loan with the higher rate. Borrowers that are still shopping for the best loan should not rush to sign a commitment letter that carries an obligation clause or hefty fees for cancelling the loan process.
Mutual Commitment
Ideally, borrowers and lenders are on the same page when they execute a mortgage loan commitment letter. The buyer (borrower) is committed to the loan and will follow all qualification guidelines while the lender will have fully completed due diligence and is ready to fund the loan for closing. This is the true intent of the commitment letter and gives all parties the most confidence that the closing will take place on time and in accordance to the expected terms.
At Title Junction we care about helping you stay informed throughout your real estate transaction. Have questions? Give us a call at 239.415.6574.
In case you missed it, check out our last Title Junction post: What About A Home Located In A Flood Plain?
What About A Home Located In A Flood Plain?
On the home search in the Fort Myers or Cape Coral areas and curious about considerations if the home is in a flood plain?
A flood plain is an area of land adjacent to a water element like a stream or river that experiences flooding during periods of high discharge. Watch this video and it’ll make sense.
If you live in a flood plain lenders will require that you have flood insurance before lending any money to you. But if you live near a flood plain, you may choose whether or not to get flood insurance coverage for your home.
Check the National Flood Insurance Program site at FloodSmart.gov for more information. And work with an insurance agent to construct a policy that fits your needs.
At Title Junction we care about helping you stay informed throughout your real estate transaction. Have questions? Give us a call at 239.415.6574.
In case you missed it, check out our last Title Junction post: What Does A Professional Home Stager Really Do?