Mar '22 Home Insights
BRIDGE LOANS & HELOCs
-We’ve eagerly discussed these tools a dozen times this past month and are eager to share our cliffsnotes on them:
Bridge loans are a great short-term financing tool for homeowners who have built-up equity in their existing home and want to purchase a new property without having to make a contingent offer
HELOCs are an effective tool for homeowners who have built-up equity in their existing home and want to tap that equity to purchase an investment property
-Below is a breakdown of what they are intended for and their current loan terms*:
HELOC
Intent: To pay for an investment property purchase, home upgrades or other expenses; w/ intent of holding onto existing property for long-term (>12 months)
Loan Amt: 80% max LTV, $500K max loan amt, can have existing mortgage on property
Rate: (Prime + 0%) w/ 4.00% floor, 10-yr term, interest due monthly and principal paid when desired
Closing Costs: $200-$1K+
Specifics: Recording fees (<$100) + Appraisal fee ($70 for AVM – loans <$150K; $200-$800 for desktop, drive-by, or full appraisal - loans >$150K, depending on loan amt) + Title policy ($500-$1K+; only req. on loans >$100K)
Bridge Loan
Intent: To pay for down payment on new home using equity in existing home, w/ intent of selling existing property within 6 months
Loan Amt: 80% max LTV, no max loan amt, can have existing mortgage on property
Rate: 3.75%, 6-month term, interest only and principal paid when existing home is sold
Closing Costs: ($1.2K+)
Specifics: Origination fee (1/2% of loan amt) + Recording fees (<$100) + Appraisal fee ($70 for AVM – loans <$150K; $200-$800 for desktop, drive-by, or full appraisal - loans >$150K, depending on loan amt) + Title policy ($500-$1K+; only req. on loans >$100K)
We’ve worked w/ Taylor Boldt of FirstBank and he does a great job. Email him here.
Also, we’ve heard great things about Linda Drumm of Bellco Credit Union. Email her here.
PROPERTY INSURANCE
-January’s Marshall Fire sparked the realization that property insurance policies may fall short on coverage. Areas for improvement incl: Coverage A (Dwelling) and Coverage D (Loss of Use).
Coverage A: Covers the cost to replace your home (not incl. personal contents).
You probably have replacement coverage rather than actual cash value (click here to understand the difference). That’s good, but not good enough.
Marshall Fire victims are learning the cost of replacing their home is 50%-100% more than what their replacement policy allows.
==> Solve this problem by adding an endorsement for extended replacement coverage or guaranteed replacement coverage.
Extended replacement coverage- pays for an extra 25%-50% of rebuild overruns
Guaranteed replacement coverage- pays the full cost of replacement regardless of how much it costs
Coverage D: Covers the living expenses of relocating for a period of time while your home is rebuilt and generally incl transportation, food expenses, and rent.
Most policies cover 12 months, fewer cover 24 months, almost none cover 36 months.
Marshall Fire victims are learning it will take years to rebuild their communities (the 2012 Waldo Fire in CO Springs took almost 7 years).
The issue is, what happens when the time to rebuild is more than the policy’s loss of use coverage? The victim must pay both the mortgage on their destroyed home AND cost for temporary housing simultaneously. Ouch!
==> Solve this problem by asking your insurance provider for the availability of extended loss of use coverage.
Note that your current insurer may not have guaranteed replacement or extended loss of use coverage available. If so, consider your risk profile and decide if it makes sense to change insurers.
The questions I’ve asked myself are:
Do I live near Tornado Alley?
Do I live near forests or natural vegetation that are susceptible to grass fires?
==> Despite my slight risk exposure, I decided to stay w/ my current provider, State Farm, particularly because of their excellent loss assessment and home systems protection plan endorsements, which have collectively paid out nearly $5K in the past 3 years; further, I reason the Marshall Fire was akin to a “100-yr fire,” therefore my family’s particular risk is probably not sufficient to warrant the added premiums that would come w/ guaranteed replacement and loss of use coverage
If you find your risk profile elevated, consider contacting an independent insurance broker who has access to guaranteed replacement and loss of use coverage. State Farm doesn’t offer guaranteed replacement or extended loss coverage, but I am a fan of their value: competitive rates, service, and hard to find endorsements (ref: home systems protection and sewer backup).
For independent insurance, someone that comes highly recommended to us is Jeff Krommendyk of Security First Agency. Email him here.
For an exclusive (“captive”) agent, we recommend Sean Slater of State Farm. Email him here.
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