CLARK: First-Time Buyers and Title Insurance

According to RealtyTrac, the average down payment for homes (all types) in the first quarter of this year was 14.8% of the purchase price — on average $57,710. Buyers are putting down the lowest amount of money since the first quarter of 2012. Down payments were down 15.5% from last year.

The average down payment for conventional loans were reported to be 18.4% of the purchase price for the first quarter of this year; and for Federal Housing Administration (FHA) loans the down payment averaged 2.9%. FHA loan comprised 25% of loan originations in March and increases throughout the first quarter.

Finally, first time-buyers are beginning to purchase homes. New low-down payment programs coupled with low insurance premiums for FHA loans contributed to new buyers returning to the market. Institutional investors are decreasing giving first-time buyers more of an opportunity as well. Low down payments are considered 3% or lower accounted for 27% purchase loans in the first quarter. This was an increase of 26% from last year.

The U.S. counties with the highest average down payment in the first quarter are: Manhatten, NY — 37.2%, Kings County and Brooklyn, NY — 29.3%, Queens County, NY, — 27.3%, Santa Clara and San Jose, CA — 25.4%, Orange County, CA — 22.9% and Miami Dade, FL — 19%.

After a home is under contract the buyer’s attorney has a title company search public records to see if the title is free and clear. The seller needs to address issues discovered (i.e. delinquent taxes, unpaid liens, undisclosed heirs or other disputes) before the home can be sold. Typically mortgage lenders require buyers or borrowers to pay for a title search and title insurance on the loan. Title insurance is intended to protect the lender and not the borrower.

A loan policy is intended to cover the property’s loan amount and decreases over time as the mortgage is paid off. The title search and lender’s title-insurance premium are one-time fees paid by the buyer at the closing. Title-insurance rates usually increase with home value.

Homeowner’s can purchase a separate owner’s policy for additional protection. Insurers frequently discount this form of title insurance when purchased with the loan policy at closing. This type of insurance covers policy holders for the duration of home ownership even if the mortgage was fully paid as issues can always arise. For example, a title company may pay for repairs and legal fees to remove a utility’s easement.

Borrowers should make sure that a lender doesn’t own or have a financial relationship with a title provider. Title insurers are also graded by Standard & Poor’s, Moody’s, AMbest Company and other rating services for their total reserves and financial history of paying claims. In some cases, the title company provides other services (i.e. closing, preparing and notarizing documents). At closing borrowers need to ask for a breakdown of charged expenses.

Mary Ann Clark is a Realtor with Coldwell Banker at 177 West Putnam Avenue in Greenwich. Questions or comments may be emailed to [email protected]

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