Financing

Relocating to a new city is an exciting time for families and singles alike, but without proper planning and time management, the move can become very stressful. Houston is home to a variety of neighborhoods and communities in every price range, giving you the confidence that you will find just what you are looking for. Whether you are moving from across town or from across the country, formulating a plan and following certain steps can mean the difference between a smooth move and an overwhelming fiasco. Buying a home in a new city can present some challenges, from finding a reputable Realtor® to hiring dependable movers. It is important to remember that you will probably be living in this home for a while, so you will want to take all of the necessary steps to ensure the smoothest transition possible in the present, and in the future. This section will provide you with resources that will help you make good decisions and give you comfort and confidence in calling Houston home.

Deciding which part of the city you want to live in is one of the most important decisions in the relocation process. The first step is getting to know the city you’re relocating to. Spend some time just driving around the city; this will help you get a feel for the size, layout and atmosphere of your new town. Decide which criteria mean the most to you. Is it the performance of the schools in an area? The commute to work? Perhaps you want to be in the thick of a particular social scene, or have always dreamt of a home on the beach. Whatever the case may be, exploring every option will help ensure that you have made the right decision for you and your family.

It may help to make notes of the restaurants, shops, and other attractions in each area, all tasks that will make it easier to narrow down which part of the city is best for you. Deciding whether to buy or rent in your new city will change the scope of your search, so making that decision early on will help you greatly in the long run.

Once you have decided where to live, the next crucial step is formulating a loan that best meets your lending needs. It is important to begin this process before bidding on a home, because if you bid on a home before the financing is cleared and are denied the loan, you run the risk of losing the home—which can result in more work for you and, above all, disappointment. There are several factors to consider when deciding how much to borrow. How much can you afford to pay each month? How much can you afford to put down up front? How good is your credit? How fast would you like to pay off your mortgage? These questions can all be answered with the help of one of Houston’s many credible lenders.

Do some research to find the outlet that best suits your needs before deciding on a lender. Once you have chosen a lender and scheduled a meeting, you will want to gather the necessary paperwork, including recent pay stubs, any rental checks, and tax returns from the last few years. Your loan officer will provide you with a list of required documents.

The formalities of financing a home, which are detailed in the surrounding pages, can be daunting—especially for first-time buyers. Decisions about realtors, loans, offers, counter-offers, insurance, and the like are often challenging, and the options can be overwhelming. It is important to keep reminding your- self that it will all be worth the time and planning once you are approved and can refocus your energy into finding your dream home, or at least the pre-dream home, dream home. There is no reason to not take full advantage of the plethora of home buying experts here in Houston. From financing to decorating, there are teams of people waiting to assist you. Soon, you will get to the best part: living your life in your new home.

HOMEOWNERS INSURANCE

• Start shopping immediately.

• Use an insurance agent to help you shop. Some agents represent only a single company or company group. Independent agents may represent several companies. Including independent agents in your search can help you get quotes from multiple companies with a single call.

• Make sure your agent and company are licensed. Check agents’ and companies’ license status and buy only from licensed agents and companies.

• Understand homeowners policy types and coverages. Insurance companies may sell several types of homeowners policies in Texas, each with a different level of coverage. When comparing policies, make sure you compare policies with similar coverages.

• HO-A policies provide limited actual cash value coverage of your home and its contents. Only the types of damage specifically listed in the policy are covered. The HO-A is a standardized Texas policy. This means the coverages in the policy, unless endorsed otherwise, will be identical, regardless of the company selling it. Keep in mind that even though the coverages are identical in a standardized policy, the price can vary by company.

• HO-A amended policies provide more extensive coverage than the base HO-A policy but less coverage than an HO-B. Coverage provided by these policies may differ by company.

• HO-B policies provide replacement cost coverage for most types of damage, except those specifically excluded in the policy. The HO-B is a standardized Texas policy.

• Approved alternative policies o er varying levels of coverage. Companies may only sell alternative policies approved by the Commissioner of Insurance. Coverage may differ considerably from one company to another. In general, HO-B policies provide the most coverage for the price, but not all companies sell them.

• Named peril policies (also known as specified perils coverage) provide limited protection and cover only those perils specifically named in the policy. A policy that offers named perils coverage will also contain exclusions to perils named in the policy.

• All risk policies (also known as a comprehensive coverage or open perils coverage) provide broad protection and cover all perils unless they are specifically excluded by the policy. You should always carefully review the excluded causes of loss section of your policy. Even the most comprehensive policy will exclude certain types of loss (damage caused by flood, for example).

• Decide whether you need wind/hail or flood coverage. Homeowners policies sold in Texas’ 14 coastal counties and in certain parts of Harris County might not cover wind and hail damage. You may need to buy these coverages separately from the Texas Windstorm Insurance Association (TWIA). Visit the TWIA website, twia.org, for more information. Homeowners policies do not cover damage caused by rising waters. You can buy a separate policy to cover most types of flooding from the National Flood Insurance Program. Call NFIP at 800-427-4661 or visit its website, floodsmart.gov.

• Consider factors other than price. A company’s complaint history and financial rating can indicate the level of service you will receive.

• Get quotes from several companies. Rates can vary significantly among companies, so shop around.

• Ask about payment options. Some insurance companies o er payment plans that allow you to pay your premium in installments. However, TWIA and some insurance companies require you to pay your full annual premium in a lump sum in advance. If you cannot afford to pay the entire premium at once, ask your agent about premium finance companies.

• Ask about discounts. Some companies o er discounts. The discounts offered and their amounts vary by company.

• Answer questions truthfully. Giving incorrect information when you apply for insurance could lead to an incorrect rate quote or a denial or cancellation of coverage. An insurance company may cancel your policy within the first 60 days if it gives you 30 days’ notice.

• Choose the highest deductible you can afford. Higher deductibles will lower your premium, but you’ll have to pay more out of pocket if you have a claim.

• Know how your credit score affects you. Insurance companies may consider your credit score when deciding whether to sell you a policy and the price to charge you. They cannot deny you coverage or refuse to renew your policy solely because of your credit score, however.

REPLACEMENT COST VS. ACTUAL CASH VALUE COVERAGE

• Replacement cost is what you would pay to rebuild or repair your home, based on current construction costs. Replacement cost does not include the value of your land or landscaping features. If you are not sure of the amount it would cost to rebuild your home, your company or agent usually has construction cost tables to help you determine the cost. Construction costs change, so you should (update your coverage amounts annually. To receive full payment (minus your deductible) for a partial loss, such as a hail-damaged roof, most companies require you to insure your house for at least 80 percent of its replacement cost. If you insure your house for less, the insurance company will only pay a portion of the loss.

• Actual cash value is the replacement cost of your property minus depreciation. If your home is destroyed and you only have actual cash value coverage, you may not be able to completely rebuild. Read your policy carefully to know whether it offers replacement cost coverage or actual cash value coverage.

STEPS TO HOME OWNERSHIP

One of the keys to making the home-buying process easier and more understandable is planning. In doing so, you’ll be able to anticipate requests from lenders, lawyers and a host of other professionals. Furthermore, planning will help you discover valuable shortcuts in the home-buying process.

1  DO YOU KNOW WHAT YOU WANT?
Are you planning to move to a new community due to a lifestyle change or is buying an option and not a requirement? What would you like in terms of real estate that you do not now have? Do you have a purchasing timeframe?

2  DO YOU HAVE THE MONEY?
Homes and financing are closely intertwined. The good news is that over the years new and innovative loan programs have evolved which require a five percent down payment or less. In addition to a down payment, purchasers also need cash for closing costs.

3  SELECT A REALTOR®
Buying and selling real estate is a complex matter. In this maze of forms, financing, inspections, marketing, pricing, and negotiating, it makes sense to work with professionals who know the community and much more. Those professionals are the local REALTORS® who serve the Houston area

4 FINDING A REALTOR®
You can find agents at open houses, through local advertising, websites, referrals from other REALTORS®, recommendations from neighbors, and suggestions from lenders, attorneys, financial planners, and CPAs. The experiences and recommendations of past clients can be invaluable.

5 GET LOAN PRE-APPROVAL
REALTORS® routinely suggest that consumers start the mortgage process well before bidding on a home. Purchase forms often require buyers to apply for financing within a given time period; in many cases, seven to 10 days.

6 LOOK AT HOMES
A home is more than just a collection of bedrooms and bathrooms. Several similarly sized properties may well represent radically different designs, commuting distances, lot sizes, tax costs, interior dimensions, and exterior finishes. Consider such things as pricing, location, size, amenities, and design. Decide what features are most important and adjust your search accordingly.

7 CHOOSE A HOME
How do you know if a house is THE one? The best approach is to look at as many homes as possible. Narrow down your choices, then collaborate with your REALTOR® to go over specifics and options.

8 GET FUNDING
There are thousands of loans available out there from a variety of lenders, but in general, the mortgage you choose will likely be determined by at least several factors. The amount you put down makes a difference. Putting less than 20 percent down will cause lenders to ask for a guaranteed mortgage from an outside third party. Your credit score will be a determining factor on your future interest rate. First-time home buyers can be assisted through state- backed first-timer programs which often feature smaller down payments and below-market interest rates.

9 HOW DO YOU GET A LOAN?
To obtain a loan you must complete a written loan application and provide supporting documentation including: recent pay stubs, rental checks and tax returns for the past two or three years if you are self-employed. During the pre-qualification procedure, the loan officer will describe the type of paperwork required.

10 WHERE DO YOU GET A LOAN?
Mortgage financing can be obtained from mortgage bankers, mortgage brokers, savings and loan associations, mutual savings banks, commercial banks, credit unions, insurance companies, and the growing number of REALTORS®.

11 MAKE AN OFFER
In a typical situation, you will complete an o er that the REALTOR® will present to the owner and the owner’s representative. The owner, in turn, may accept the offer, reject it, or make a counter-offer.

12 INSPECTIONS
A number of inspections are common in residential realty transactions. They include checks for termites, surveys to determine boundaries, appraisals to determine value for lenders, title reviews, and structural inspections. During these examinations, an inspector comes to the property to determine if there are material physical defects and whether expensive repairs and replacements are likely to be required in the next few years. It’s recommended that the buyer be present.

13 GET INSURANCE
The essential idea behind various forms of real estate insurance is to protect owners in the event of catastrophe. There are various forms of insurance associated with home ownership.

14 CLOSING
The closing process, also known as “settlement” or “escrow,” is increasingly computerized and automated. In many cases, buyers and sellers don’t need to attend a specific event; signed paperwork can be sent to the closing agent via overnight delivery.

15 SETTLEMENT
This is a brief process where all of the necessary paperwork needed to complete the transaction is signed. The buyer receives the keys and the seller receives payment for the home. From the amount credited to the seller, the closing agent subtracts money to pay o the existing mortgage and other transaction costs. Deeds, loan papers, and other documents are prepared, signed, and filed with local property record offices.