4 Steps To Help You Protect Your Home Investment
Congratulations homeowner! You’ve closed on your mortgage and are now the proud owner or owners of a new home. Whether you plan on staying in your new place for five years or fifty, it’s important to make sure you are protecting the investment you’ve worked hard to acquire.
The following excerpt from the Consumer Financial Protection Bureau’s Home Loan Toolkit can help you take some key steps towards securing your status as a homeowner. The complete toolkit, including financial worksheets and valuable tips, can be found at ? The complete toolkit, including financial worksheets and valuable tips, is available as a download (in PDF).
Step 1 – Act Fast If You Fall Behind On Payments
Life happens and unexpected expenses can throw your budget off track. Here’s what to do in order to protect your home if you fall behind on your mortgage.
Talk To Your Mortgage Servicer.
The company that accepts payments on your mortgage, known as your mortgage servicer, is likely to contact you when you fall behind. Your servicer does so not only to remind you to bring your payments current but because they are required to let you know what options are available to avoid foreclosure.
Don’t ignore your mortgage servicer’s calls because you feel overwhelmed. Talk to your mortgage servicer, and find out your repayment options.
Contact A Housing Counselor For Guidance.
HUD-approved counselors are professionals who can help you, often at little or no charge to you. The U.S. Department of Housing and Urban Development (HUD) sponsors housing counseling agencies throughout the country to provide free or low-cost advice.
o find a HUD-approved housing counselor visit consumerfinance.gov/find-a-housing-counselor or call HUD’s interactive voice system at (800) 569-4287.
Don’t Fall Prey To Repayment Scams
Homeowners struggling to pay a mortgage should beware of scammers promising to lower mortgage payments. Only your mortgage servicer can evaluate you for a loan modification. If you suspect a scam you can call (855) 411-2372 or visit consumerfinance.gov/complaint.
Step 2 – Keep Up With Ongoing Costs Too
Your mortgage payment is just one part of what it costs to live in your new home. Your escrow account typically holds your monthly taxes and homeowner’s insurance payments. However, if your loan arrangement did not include an escrow account, you need to keep up with these costs
on your own. Be sure that when those tax and homeowner’s insurance bills land in your mailbox you have the funds set aside in a savings account to cover them.
It’s Murphy’s Law that when one thing in your home needs repair, another is sure to shortly follow. Make sure that you have funds set aside for maintenance and repairs as well so they don’t derail your budget.
Step 3 – Determine If You Need Flood Insurance
Flooding causes more than $8 billion in damages in the United States in an average year.
Depending on your property location, your home is considered either at high-risk or at moderate-to-low risk for a flood. Typically, your insurance agent should have that information for you. However, you can also go to FEMA’s Flood Map Service Center to look up your address. Your insurance premium will vary based on how close you are to floodplains. To learn more about flood insurance visit FloodSmart.gov. Private flood insurance could also be available to you.
Although you may not be required to maintain flood insurance on all structures, you may still wish to do so, and your mortgage lender may still require you to do so to protect the collateral securing the mortgage. If you choose to not maintain flood insurance on a structure, and it floods, you are responsible for all flood losses relating to that structure.
It’s important to be aware that most flood insurance will not cover basement damage due to sewer backups that have occurred from heavy rains. Most home insurers will also offer Sewer Backup Insurance as well. If you are planning on storing valuables in your basement or enjoying a finished basement this is an additional coverage you may want to consider.
Step 4 – Understanding Home Equity Lines of Credit (HELOCS) and Refinancing
Homeowners sometimes decide they want to borrow against the value of their home to help remodel or pay for other large expenses. One way to do this is with a Home Equity Line of Credit (HELOC). You can learn more about HELOCs at files.consumerfinance.gov/f/201401_cfpb_booklet_heloc.pdf.
Financial counselors caution homeowners against using a HELOC to wipe out credit card debt. If you use a HELOC as a quick fix to a serious spending problem, you could end up back in debt and lose your home.
If you do decide to take out a HELOC or refinance your mortgage, the Truth in Lending Act (TILA) gives you the right to rescind, meaning you can change your mind and cancel the loan. But you can only rescind a refinance or HELOC within three days of receiving a proper notice of the right to rescind from your lender. It is important to note that you cannot rescind if you are using your HELOC to buy another home.
In the case of a refinance, consider how long it will take for the monthly savings to pay for the cost of the refinance. Review the closing costs you paid for your original loan to purchase the home. Refinancing costs can be about the same amount. A common rule of thumb is to proceed only if the new interest rate saves you that amount over about two years (in other words, if you break even in about two years).
The Consumer Financial Protection Bureau is a federal agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. Have a question about a common consumer financial product or problem? You can find answers by visiting consumerfinance.gov/askcfpb.