Most borrowers can’t get a mortgage if they don’t pay for a lender’s title insurance policy that protects the bank against possible losses. Getting the same protection for themselves requires more money.
DEAR MR. MYERS: We have signed a contract to purchase our first house. Our lender says that we must buy a title insurance policy to get a mortgage, but our real estate agent is telling us to buy a second policy that will protect our own financial interest in the home. Is a second title policy really necessary, or is our realty agent just trying to add a few bucks to his commission?
ANSWER: No, your agent isn’t trying to pad his commission. Instead, he’s trying to look after your best financial interests.
Virtually no traditional lender will issue a mortgage without first demanding that the borrowers pay for a “lender’s title insurance” policy. It will reimburse the bank for some or all of its losses if someone else — a seller’s long-lost relative or even a total stranger — eventually produces a deed or other documentation that suggests that he or she is the legal owner of the property.
It’s a one-time fee, usually paid at closing, and is typically about 0.5 percent of the home’s purchase price. That works out to an average of about $1,150, based on today’s nationwide median sales price of $230,000.
That’s a cool deal for the lender. But if you want the same type of protection for your down payment and the future equity you build up, you’ll need to purchase a separate “owner’s title insurance” policy that can reimburse your personal financial losses (and perhaps even your legal fees) if a future claim against the title to your home proves successful.
Though purchasing an owner’s title policy would add several hundred dollars more to the closing costs of your new home, the long-term protection it would provide makes it a good investment.
REAL ESTATE TRIVIA: The uptick in home sales last year didn’t create a financial boon for real estate agents, the National Association of Realtors reports. The typical agent earned $45,800 in 2014, down $1,100 from the previous year — largely because a nearly 6 percent increase in new licensees put downward pressure on commissions.
DEAR MR. MYERS: We live in an area where there is a lot of new construction going on. Some of the homes that are being framed now have blue-colored wood, rather than the traditional “blonde” or yellow-tinged wood. What gives?
ANSWER: Those blue-colored frames have been treated with “BluWood,” a sealant that its Florida-based manufacturer claims can prevent moisture from seeping into the lumber and thus avoid the types of problems that nontreated lumber often suffers as it ages, issues such as flashing that fails or even roofs that leak.
Equally important, the manufacturer claims the sealant helps to keep insect- and fungus-fighting borates inside the wood. Borates are naturally occurring minerals that are in every piece of lumber and are widely known as an environmentally friendly preservative, but they leach out as wood ages and moisture takes its toll.
Of course, such protection comes at a cost. Though just about any type of wood can be ordered from a lumberyard with the BluWood sealant, builders and contractors say it adds about 20 percent to the cost. The treated wood, though, is guaranteed for the life of the home.
You can get more information about BluWood from local builders or contractors, calling manufacturer BluWood USA Inc. at 800-964-4228, or by visiting www.bluwood.com on the Internet.
DEAR MR. MYERS: My wife and I have always been interested in the columns you sometimes write about the benefits of creating a living trust so our home and other assets can pass quickly to our heirs after we die instead of getting hung up in long and costly probate proceedings. But if we create a living trust now, would our son and daughter have the right to block us from refinancing at today’s lower mortgage rates or getting a home-equity credit line to pay our medical bills? Could they prevent us from selling our house if we want to move?
ANSWER: No, there’s no reason to worry.
Generally, the beneficiaries of the trust won’t get control of your home and other assets until both you and your spouse pass away. That means that you can refinance, get a home-equity loan, remodel or even sell without their approval.
There are a few exceptions. For example, if your kids believe that both you and your spouse become incapable of making important housing or other financial decisions, they could conceivably go to court and ask the judge to name themselves as your guardians or conservators so they could make those decisions for you. But that’s a time-consuming and costly process that few grown children want to go through, especially when there’s no guarantee that they’d win.
David W. Myers’ column is distributed by Cowles Syndicate Inc.