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Homeowners have final safeguard for house purchases
By Nicole Chillino
Before signing off on the purchase of a house, there are a couple final details to be looked at.
In this final installment of a three-part series on smart home buying, The Tribune examines what homeowners can do to protect their investments through insurance and warranties.
Insurance
Homeowners insurance helps the owner to protect his or her investment, said Cally O’Donnell, agency owner for Allstate.
A homeowner’s insurance policy is required by lenders and title companies in Colorado in order to purchase a house or townhouse, but not to purchase a condo, she said. For houses and townhomes, the policy must cover an amount equal to or greater than the loan amount, though some lenders will allow the owner to subtract the cost of the land since it would not be included in the cost of replacing the home.
“In today’s market, people might be buying [a home] for less than the amount it would take to rebuild,” she said. O’Donnell said some homeowners insure their houses for the amount of money it would take to rebuild it, while others prefer to choose a plan that covers the actual cash value they are paying for a home. The cash value depreciates as the home ages, so if something were to happen after it has begun to depreciate, the insurance will not cover the full amount of rebuilding the home.
Beyond basic coverage, a homeowner might want to look at whether he or she needs coverage for water backup, high-valued items such as jewelry and furs and flood insurance, she said.
Flood insurance, which is managed by the Federal Emergency Management Agency, is typically required by a lender for homes that are in a flood zone, but some homeowners choose to purchase flood insurance, O’Donnell said. Since FEMA controls the insurance type, it will be the same price no matter where a home buyer goes to get it.
“Your home is probably your greatest investment,” she said. It is for that reason O’Donnell encourages homeowners to consider buying mortgage protection insurance, which will pay out an amount greater than or equal to the value of the home in the event, for instance, one spouse dies and the other spouse is unable to pay the mortgage, thus protecting the investment.
For those homeowners who pay cash for a house or purchase a condo, O’Donnell recommends they also consider insuring their homes so they do not risk loosing the money they put into it if something happens to the home.
Home Warranty Protection
When buying a newly built home, warranties might offer a homeowner protection against things that can break in the home and in the event something happens to the structure as a result of the builder, but what assurance is there that a homeowner will be able to hold the builder accountable?
In 2007, the Colorado General Assembly passed the Homeowner Protection Act of 2007, to restore some of the rights that had been taken away from new home buyers by the legislature a few years ago, according to Colorado State Rep. Jack Pommer (D-Boulder).
“It prevents home builders from using contracts that force buyers to waive all of their legal rights,” he said. “Home builders were using contracts that traded those rights for nearly worthless warranties that even home builders said didn’t offer any protection.”
When a home is not new, a warranty can still be obtained through a company like Blue Ribbon Home Warranty Inc. Elements such as mechanical systems, appliances, electrical systems, the roof and more can be covered in the service agreement provided by such companies.
“Your homeowner’s policy is designed to cover hazards in your home such as theft and specific disasters,” according to www.blueribbonhomewarranty.com. “A home warranty plan, on the other hand, provides coverage for repairs to mechanical systems or appliances that break down due to normal wear and tear.”
In this final installment of a three-part series on smart home buying, The Tribune examines what homeowners can do to protect their investments through insurance and warranties.
Insurance
Homeowners insurance helps the owner to protect his or her investment, said Cally O’Donnell, agency owner for Allstate.
A homeowner’s insurance policy is required by lenders and title companies in Colorado in order to purchase a house or townhouse, but not to purchase a condo, she said. For houses and townhomes, the policy must cover an amount equal to or greater than the loan amount, though some lenders will allow the owner to subtract the cost of the land since it would not be included in the cost of replacing the home.
“In today’s market, people might be buying [a home] for less than the amount it would take to rebuild,” she said. O’Donnell said some homeowners insure their houses for the amount of money it would take to rebuild it, while others prefer to choose a plan that covers the actual cash value they are paying for a home. The cash value depreciates as the home ages, so if something were to happen after it has begun to depreciate, the insurance will not cover the full amount of rebuilding the home.
Beyond basic coverage, a homeowner might want to look at whether he or she needs coverage for water backup, high-valued items such as jewelry and furs and flood insurance, she said.
Flood insurance, which is managed by the Federal Emergency Management Agency, is typically required by a lender for homes that are in a flood zone, but some homeowners choose to purchase flood insurance, O’Donnell said. Since FEMA controls the insurance type, it will be the same price no matter where a home buyer goes to get it.
“Your home is probably your greatest investment,” she said. It is for that reason O’Donnell encourages homeowners to consider buying mortgage protection insurance, which will pay out an amount greater than or equal to the value of the home in the event, for instance, one spouse dies and the other spouse is unable to pay the mortgage, thus protecting the investment.
For those homeowners who pay cash for a house or purchase a condo, O’Donnell recommends they also consider insuring their homes so they do not risk loosing the money they put into it if something happens to the home.
Home Warranty Protection
When buying a newly built home, warranties might offer a homeowner protection against things that can break in the home and in the event something happens to the structure as a result of the builder, but what assurance is there that a homeowner will be able to hold the builder accountable?
In 2007, the Colorado General Assembly passed the Homeowner Protection Act of 2007, to restore some of the rights that had been taken away from new home buyers by the legislature a few years ago, according to Colorado State Rep. Jack Pommer (D-Boulder).
“It prevents home builders from using contracts that force buyers to waive all of their legal rights,” he said. “Home builders were using contracts that traded those rights for nearly worthless warranties that even home builders said didn’t offer any protection.”
When a home is not new, a warranty can still be obtained through a company like Blue Ribbon Home Warranty Inc. Elements such as mechanical systems, appliances, electrical systems, the roof and more can be covered in the service agreement provided by such companies.
“Your homeowner’s policy is designed to cover hazards in your home such as theft and specific disasters,” according to www.blueribbonhomewarranty.com. “A home warranty plan, on the other hand, provides coverage for repairs to mechanical systems or appliances that break down due to normal wear and tear.”
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