Taxes and insurance are significant costs associated with owning a home, so let’s talk about how these figure into a VA loan and what you need to know.
How Taxes Figure Into VA Loans
First, let’s talk about taxes. In most areas, real estate taxes are comprised of state, local, city, and school taxes. These are all figured in by the local appraisal district which sets the value of the home. The district then sets the taxes based on a percentage that they value the home.
The monthly house payment figures into what’s called an escrow account. This monthly payment includes principal and interest, and it also includes one-twelfth of the property taxes that will be due at the end of the year, as well as one-twelfth of the insurance.
Extra Tax Benefits for Disabled Vets
In certain states, disabled vets are able to get reductions on property taxes, sometimes up to 100%. That means property tax, school tax, city tax, county tax, all of that is exempt 100% disabled vets. Here’s what’s important for you to know, this is not an automatic thing just because the veteran buys the house.
A disabled veteran has to apply for this. They’ll have to fill out the form that is available on the county website. The veteran then has to send a copy of that to the lender that’s holding his loan so they will know that these taxes have been stopped, and then they will stop collecting taxes on the property. Those things have to happen quickly because the mortgage company is not automatically told that the taxes are exempted.
How Homeowner’s Insurance Figures Into VA Loans
Now let’s talk about homeowner’s insurance. Note that homeowner’s insurance has nothing to do with life insurance or private mortgage insurance (PMI), which is also called mortgage insurance. Please don’t confuse mortgage insurance with home insurance, or homeowner’s insurance.
Homeowner’s insurance covers fire, liability, loss, weather-related issues, tornado, earthquake, hail storm, things like that. It does not cover the home from a flood. If you want total coverage, you’ll need to contact your insurance agent and ask them to educate you on flood insurance and what it covers.
Why Are Homeowner’s Insurance Rates All Over The Place?
When you contact different insurance agents you may start to wonder: “Why are rates all over the board?” Based on contacting three different insurance agents, the general consensus is that homeowners insurance is based on the size of the property and the age of the property that you’re buying. Insurance statics show that the older a home is, the more prone it is to have claims on it.
The other factor that plays into this is the history of claims for the house that you’re buying (if it’s pre-owned), and also your history of making insurance claims.
Your credit score will also factor in your insurance rates. The insurance companies tell us that the lower the credit score is, typically, the higher the claim averages are. All these things factor into how much homeowners insurance is going to cost.
Another big factor in insurance rates is the location of the home. Is it in the city where the city fire department is available quickly, is it in a rural situation, or is it out in the country where there’s a volunteer fire department? All these items also factor into the cost of the insurance.
One recent trend is insurance companies asking if you have dogs. If the answer is yes, they’re going to ask you what kinds of dog. If you have a pit bull or a Doberman, some insurance companies will simply not insure the home because of claims that are starting to grow with people walking by that have been bit by dogs. So that’s another point you’ll want to consider.
Bundling Insurance To Save Costs
Finally, one of the most powerful cost savers bundling different kinds of insurance. Similar to bundling your Internet and cellular service, if you combine your homeowner’s insurance with your car insurance you can get a nice reduction, sometimes as much as 20% on both.