Types Of Insurance Required When Getting A Mortgage Loan
What types of insurance do buyers need when taking out a purchase mortgage loan?
Home related insurances can be one of the larger expenses involved in buying and owning a home. However, they are often overlooked, or underestimated by home buyers. Homeownership can certainly be one of the best financial moves of a lifetime, and comes with many side benefits, but it is critical for buyers to be sure they are aware of all the costs involved.
So what are some of the insurance coverage requirements when taking out a home mortgage loan?
Types of Insurance for Mortgage Loan
Homeowners insurance is the generic type of coverage which most homeowners take out to cover issues like fire. This may be skimped on by those paying cash for homes, like taking out a car loan full coverage insurance is required when a purchase mortgage or refinance loan is being obtained. Coverage is normally required in an amount to cover the loan amount, or replacement cost. What few realize is that there are a number of potential discounts available including for having security systems and features like hurricane shutters.
Hurricane insurance is completely different and separate to typical homeowners insurance. It is normally required in high risk zones and coastal areas based upon maps of hurricane prone spots around the country. These maps can change over time. It is very important for home buyers to be aware of the need for this coverage for two reasons. The first is that hurricane or ‘wind-storm’ insurance can be very expensive, and add a lot to the cash needed to close when purchasing a home and taking out a mortgage. The second is recognizing that even when not required by a lender other insurances may not cover damage from these types of storms.
Flood insurance has proven to be one of the most frustrating types of insurance for home and condo buyers over the years. Many first time home buyers especially don’t understand the need for it when they may live several miles in-land or be buying condos on higher levels. This requirement again really comes down to maps and the chances of a flood within the average 100 year period. Fortunately flood insurance is often very inexpensive. Some might even find great house bargains by discovering small pockets which are deemed not to be at risk of flooding even though neighboring homes are. However, forgoing this insurance can be costly if damage happens. In the past some have found that their hurricane insurance providers didn’t pay out for damage because they deemed it water related and should have been covered by flood insurance. This is one you’ll be glad you had, even if not demanded.
Title insurance is one of the most important forms of insurance for home buyers. When taking out a purchase mortgage your lender will require a ‘Lenders Policy’ covering them for the amount of the loan being made. Note that this does not offer any financial claim potential for the homeowner. This needs to be covered by a simultaneously issued ‘Owners Policy’. Title insurance insures the rights to the title and ownership of the property. Without it, there could be attempts to claim ownership or attached debt to a property after it is bought. Maintaining chain of title and insurance is important for keeping up the value of the property, and salability of a home in the future.
Again; there can be many ways to obtain discounts on all of these types of insurance if home buyers will ask. By all means solicit referral from your mortgage company, but don’t be afraid to shop around and look for the best deal either.