Home Insurance And Affordability
Have you opened your insurance
premium notice lately? No? Afraid to? Homeowners insurance
policies have skyrocketed. Policies are being canceled, premiums
increase and renewals are being denied. And this is for people with
zero claims and good credit.
We are all too aware of
the disasters, both natural and man-made, in recent months that
have caused insurance companies to pay record amounts in claims.
For those same insurance companies to stay in business they typically
have to stay profitable. Make money, keep doors open. Cancel bad
apples, increase premiums or some combination in between. But homeowners
insurance rate increases can also hurt those trying to buy a home.
Not just finding a policy, but qualifying for the mortgage.
Take someone buying their
first home using an FHA loan. Theyve saved up their money
for down payment and closing costs, paid their bills on time and
qualified for a new home loan. Lets also say that even though
their new house payment will be the same as the rent theyre
now paying, their debt ratios are at their suggested FHA house payment
limit of 29%.
A person making $3,000 per
month could qualify for about $112,000, using FHAs housing
ratio of 29% and a 30 year-fixed rate of 6.75%. (29% of $3,000 =
$870 PITI). That figure is used by estimating homeowners insurance
of $575 annually, or $47 per month.
Now lets say that
same policy has doubled from $575 to $1,150 per year. That makes
their house payment go up another $47. That drops the qualifying
loan amount from $112,000 to $105,000!
Big deal, you say? You bet
its a big deal. Especially to those trying to buy their first
home. People who have seen their insurance premiums rise, through
no fault of their own, are either having to wait to buy a new home
or buy a smaller one instead.
But thats really just
important for first time homebuyers, right? Not really. It can have
a broader impact.
Homeowners who refinance
a mortgage may often roll closing costs into their new loan, including
their annual insurance premium. If a policy used to be $1,500 per
year and now is $3,200 then the cost of that new policy rises sharply
over the term of the new mortgage. At 6.75% over 30 years, that
$3,200 policy costs $7,522.
Do you have an adjustable
rate mortgage? When, not if, your rate goes up you will also see
an increase in total housepayment to go along with the new higher
insurance premium. If your debt ratios are uncomfortable now, higher
insurance premiums for those with escrow or impound accounts will
pinch just a little harder.
continued at http://realtytimes.com/rtcpages/20020708_hminsurance.htm