Why My Home Keeps Me Awake at Night
Cracked plaster! Rate resets! Flood! Fire! Here's how to learn to stop worrying and love owning a home.
(MONEY Magazine) – My house is ruining my sleep. I'm used to the sanity-busting clanging that our vintage steam heat pipes make when the furnace fires up. The mysterious scratching noise coming from the living room wall has stopped. But I still can't get a good night's sleep because I keep thinking about what serious homeowner disasters await me. And I never find the time to answer these persistent questions. This year, though, I am resolving to silence all my nagging worries (will the new flat-panel TV push our anemic electrical system over the edge?). Putting your mind at ease about these four big fears can leave you with better finances and a better night's sleep.
Is my house falling apart? Worried that something is seriously wrong with the crack in the basement? Stop fretting and get advice. Home inspectors don't work only for buyers; you can call one anytime to get an educated opinion about whatever keeps you awake. For $250 to $350 on average, an inspector will look over your home's structure and systems. Find one in your area at ASHI.org, the website for the American Society of Home Inspectors, which also has a virtual home-inspection tool so you can see what a typical checkup covers. Interview a few pros to make sure their field experience matches the type of home you own.
Do I have enough insurance? The housing boom has lifted home values 51% over the past six years. For most of us that means that if our house was destroyed, insurance would pick up only a portion of the cost to rebuild. For the underinsured, the average shortfall is 21%, according to one firm that tracks building prices. Even if you bought a guaranteed replacement or an extended replacement policy, you could still face too-low coverage caps.(For more on being adequately insured, read the story on page 110.) To see how much coverage you need, have a contractor estimate the cost of rebuilding. And don't forget to check your contents coverage, which is often inadequate. Water is your home's biggest enemy, and your regular policy won't cover all types of damage. If you live in a floodplain, you need flood insurance (contact the National Flood Insurance Program at 888-379-9531 or floodsmart.gov). You'll pay $1,000 a year on average if you live in an area that's susceptible.
Can I afford my mortgage? Over the next few years, about 8 million adjustable-rate mortgages will reset. If yours is among them, you need to decide whether to refinance now or later. Check the fine print on your mortgage to see how bad it can get in the first reset and over the life of the loan. While it may seem like a no-brainer to refi now, you may not need to rush because rates aren't expected to climb sharply this year. What's more, you could pay closing costs of 2% to 3% of the loan. Use the fixed-vs.-adjustable tool in the calculator section of Bankrate.com to help you make the call.
Am I paying too much? Another nagging concern may be that you're spending money on your house for no good reason. If you bought after July 1998 with less than 20% down and had to get private mortgage insurance, your lender must automatically cancel your PMI once you've paid off 22% of the loan. But price appreciation may help you hit the target earlier. This annoying fee can run $16 to $50 a month for every $100,000 of debt. However, before you pay $300 or so for an appraiser to prove that your home's greater value has pushed your equity higher, understand what it will take to waive PMI. Mortgage terms vary.
Don't fret about the big financial questions. Take action.
Cracks, leaks, mysterious clangs in the night. Pay an inspector to tell you whether or not your home is falling apart.
With home prices up, you can't be sure you have enough coverage to rebuild. Get a construction quote from a local contractor, then call your insurance agent.
If fear of higher payments on your ARM is making you toss and turn, calculate your worst-case scenario to see if a refi makes sense. But rest assured, rates don't look to be spiking soon.
Gerri Willis is host of CNN's Open House. Write her at email@example.com.