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Don't Go Without Flood Coverage

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | February 1st, 2013

Homeowners will see increases in the rates they pay for flood insurance soon, if they haven't already, with owners of vacation homes seeing the biggest jump. But that isn't reason enough to drop coverage. Flood insurance is one of the best deals going.

Though floods can bring walls of water 20 feet high, even a few inches of water can cause thousands of dollars in damage. Between 2007 and 2011, the average flood claim fielded by the National Flood Insurance Program (NFIP) was nearly $30,000. The cost of the typical flood policy is about $625 a year.

Don't make the mistake of thinking that your homeowner's policy has you covered, or that a flood won't happen to you. According to the Federal Emergency Management Agency, which operates the flood insurance program, flooding occurs practically every day, practically everywhere. And it is costly, racking up $2.9 billion in losses between 2002 and 2011.

Fact is, flooding is the nation's most common natural disaster. About 90 percent of all disasters in the U.S. involve flooding, and flash floods happen in all 50 states.

In areas prone to flooding, there is a 26 percent chance a homeowner will be hit by a flood of some kind at least once during the life of a 30-year mortgage. And flood damage can just as easily result from overburdened or clogged drainage systems and drainage from new development as from major storms.

"New roads and housing developments reduce the land's natural ability to absorb water," says The Woodlands, Texas, insurance agent Gordy Bunch. "Runoff can multiply as much as six times when the land is paved over."

Just because your house lies in the 100-year flood plain doesn't mean your home is safe for the next so-many years, either. That's a common misconception that lulls people into a false sense of security, says Bunch, whose agency, The Woodlands Financial Group, has been recognized by FEMA for its work with flood insurance.

"The 100-year flood plain simply means your home or business has a 1 percent chance of flooding every year," the insurance pro says, "not once in every 100 years."

Another common misunderstanding about flood coverage, particularly among new owners, is that standard homeowner policies cover homes for flood damage. They do not. So if your home is damaged by a hurricane, tropical storm or even heavy rains, you are not covered unless you have a separate flood policy.

Every inch of the country is mapped into one of two risk-based flood zones. By law, federally regulated and insured lenders must require flood coverage on properties in high-risk areas, where there's a 1 percent or greater chance of flooding in any given year. Lenders must tell you whether the property is in a high- or low-risk area.

Lenders typically do not require coverage on properties in low- to moderate-risk areas. But coverage is still recommended; one in five claims come from folks outside a high-risk zone.

Fortunately, everyone -- even renters and business owners -- can buy a flood policy. The lone caveat is that the property must be in a community that participates in the NFIP, which Congress created in 1968 to fill a void in coverage that most private companies would not offer. About 20,000 communities participate.

There's no need to shop for flood insurance. The NFIP sets all the rates, which factor in location, structure type and whether the property has a basement. But rates are rising.

Under 2012 legislation that reauthorized and reformed the underfunded program, owners who have paid subsidized rates for second homes, business properties and properties that have incurred repeated and severe losses must now pay the full actuarial cost of the insurance. Rates for these properties will increase by no more than 25 percent a year until the premium meets the full cost.

Rates that other policyholders pay are rising, too. The bill raised the ceiling on premium rate increases from 10 percent to 20 percent. And it requires that premiums on new policies for properties not currently covered be based on actuarial rates.

According to the new law, premiums on any property located within an NFIP-participating area must accurately reflect the current risk of flooding. But throw up your hands in frustration; that determination won't be made until the effective date of any revised or updated flood insurance rate map.

Also, any increase in the risk premium will be phased in over five years, at a rate of 20 percent a year. Ditto for properties located in an area not previously designated as one with special flood hazards; the premium will be phased in over five years at 20 percent per year, following the effective date of the remapping.

While last summer's legislation calls for higher rates, it allows policyholders who are not required by their lenders to have their premiums escrowed every month to accept payment in installments. Previously, a single annual premium was required.

Still on the fence? Here's one more factoid that might make a difference: Federal disaster assistance is typically in the form of a loan. A $50,000 loan at 4 percent a year will run $240 a month for 30 years. At the same time, a $100,000 flood policy costs about $33 a month.

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Website Scours Rental Housing Market

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | January 25th, 2013

Are you thinking about buying a foreclosure as an investment property and wondering how much the place might rent for in the open market?

Are you an owner whose house has been on the market so long that you would consider turning it into a rental if you knew how much it would bring in every month? Or are you a renter who doesn't want to pay more than you have to for a house in a nice neighborhood with good schools?

You can gather all this information and more at RentRange.com, a provider of single-family rental market intelligence that's little known outside the B2B world.

The site claims to be the nation's largest, most comprehensive rental data warehouse. It holds information on 20 million one- to four-family residences available for rent, including 13 million single-family houses, says CEO Wally Charnoff.

It delivers an assortment of geographical data, analytics and valuation services to financial institutions, asset managers and institutional investors, among other customers. But individuals also are welcome, and the first couple of reports are free.

After that, a basic report costs $6, and an advanced report costs $12. That could be money well spent if you are in the single-family rental market, either as an investor or a renter.

Say you are one of the millions of former owners who have been displaced by the housing market upheaval -- that's a nice way of saying that one way or another, you lost your house -- but don't want to slide all the way back to apartment renter status. You'd like to rent a house or town house but have no idea what a fair price would be in the area where you'd like to live.

At RentRange, you can plug in the address of the place you like best, plus basic information such as the number of bedrooms and baths, and a world of information pops up that can help you make the right decision.

A basic report will give you the high, low and median rents for the ZIP code, as well as the high, low and median rents nearby -- within a half-mile radius if the property is in the city, within one mile if it is in the suburbs and within 2.5 miles if it is in the country.

The core report also will show the average rental rate for similar properties in the area as compared with similar apartments, the average cost on a square-foot basis and the average cost of Section 8 subsidized properties. (Section 8 is a federal housing voucher program for low-income households.) And it will show the three closest rental comparables, plus the historical rental rates for the last 12 months.

Armed with this information, you can dicker with your prospective landlord by telling him his asking price is too high compared to similar rentals -- or tell him to take a hike. You can gobble up the place if the rent is set lower than it should be. Or you can simply look elsewhere.

An advanced report digs even deeper into the RentRange database. It locates the 10 closest matching properties instead of just three, plus it shows the vacancy rate in the area for similar properties and the percentage of houses in the area that are rentals vs. owner-occupied.

It also presents a rental rate change summary for the previous one, three and 12 months, and it gives a good, bad or indifferent rating for the area rental market.

The advanced report springs from a larger database of about 27 million addresses, going back 44 months. It is designed to help investors decide whether a market or subject property would be a good investment, Charnoff says. But the core report, which looks at the data on 65 percent to 70 percent of the single-family houses for rent nationwide, is "more than enough" for renters who are trying to figure out what they are going to pay, according to the CEO of the Westminster, Colo., company.

You can search the rental house market by location, such as city or town; the number of bedrooms and/or baths; or by property type, say, a stand-alone house or a unit in a four-family property. And of course you can search by price.

You also can filter places by whether they accept pets -- and if so, what kinds -- and whether they have a pool or even a hot tub.

"There are some pretty intuitive search features once you get into it," Charnoff says.

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Wait Coud Be Short for Rebound Buyers

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | January 18th, 2013

If you lost your home during the housing recession -- and have not completely soured on homeownership -- your ability to qualify for another mortgage may not be as compromised as you think.

It used to be that a bankruptcy, foreclosure or other major black mark on your credit record meant you could not hope to obtain financing to buy another house for seven years. Now, for the most part, the rules say you must wait just three years. Depending on the reason you lost your house, the wait could be even shorter.

Although financial difficulties remain part of your record forever, you can qualify for a mortgage as soon as 24 months after the fact if your issues were the result of "extenuating circumstances" over which you had no control.

These are "life-changing events that made it impossible" to continue making payments, explains Matt Kovach, product development manager at Envoy Mortgage in Houston. Job loss counts as such a circumstance, as does serious illness or the death of a wage earner. But divorce isn't considered a life event, at least not by lenders. Neither is a business failure or the fact that you were simply overwhelmed by too much credit.

Even if you suffered through a life event, you won't automatically qualify for a new loan after the required waiting period expires. You also have to demonstrate that you can handle credit and afford the payments.

"You need an extremely clean credit history after a significant derogatory event," Kovach says. "Poor credit is not a good indication you've learned from your mistakes."

One of the biggest missteps made by people who have had major credit issues is to close all their accounts and trade only in cash. While the idea seems sensible, especially if you fear finding yourself in the same difficulties again, you need to redevelop a good payment history to obtain a mortgage.

"There's nothing wrong with a cash-only mentality, but it makes it more difficult to qualify," Kovach says. "It's possible to develop an alternative credit report using your rent payments, utility bills and cellphone payments. But most lenders want to see trade lines and a credit score."

Within those parameters, the length of time that rebound buyers have to wait to obtain financing depends on the mortgage they are seeking. Generally, the wait is shorter with government-backed financing.

Take mortgages insured by the Department of Veterans Affairs, for example. Since the VA's rules do not specifically address short sales, it could be possible to obtain a VA-insured loan immediately after selling your house for less than the amount you owe on it. But as noted, you first will have to re-establish credit and then keep your nose clean.

If you declared bankruptcy under Chapter 13, the minimum wait for VA financing is just 12 months, as long as the bankruptcy trustee approves. If you declared a Chapter 7 bankruptcy, the wait is usually 24 months, but it could be shorter with extenuating circumstances. It's the same two-year wait if you went through a foreclosure or handed the lender your deed in lieu of a foreclosure.

Since VA loans are only for armed forces veterans and service personnel, most people who have suffered a major financial setback look for loans with low down payments insured by the Federal Housing Administration.

The FHA has essentially the same rules as the VA regarding bankruptcies -- at least one year for Chapter 13 and two (or less) for Chapter 7. However, the wait is at least three years if you went through a short sale or foreclosure, or if you handed the keys back to your lender to avoid a foreclosure. If there were documentable extenuating circumstances, the waits could be shorter.

For conventional loans -- these days, that essentially means mortgages purchased by either Fannie Mae or Freddie Mac -- the waiting times are tiered.

For example, borrowers who suffered a life event must re-establish credit for 24 months after a short sale, a Freddie Mac spokesman says. If there are no extenuating circumstances, that kicks it up to 48 months.

Here's what Freddie Mac's guidelines say when the borrower's financial issues were due to his mismanagement: An acceptable credit reputation must be re-established for at least 84 months if he was foreclosed upon, 60 months if he filed more than one bankruptcy petition in the past seven years, 48 months after the discharge or dismissal of a Chapter 7 bankruptcy, and 48 months after conveyance of a deed in lieu of foreclosure or a short payoff related to a delinquent mortgage.

The wait also is 48 months for all other significant adverse or derogatory credit information. But it is just 24 months from the discharge date of a Chapter 13 bankruptcy.

If extenuating circumstances can be shown, and if there is evidence on the credit report that the borrower has re-established an acceptable credit reputation, he still will have to wait 36 months if he went through a foreclosure or filed more than one bankruptcy petition in the past seven years.

But the wait is just 24 months if his bankruptcy was discharged or dismissed, if he went through a short sale or deed-in-lieu, or if he suffered another significant adverse or derogatory credit event.

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