1. Homeowner’s insurance: This policy protects your home and the possessions inside from serious loss such as fire or theft. Homeowner’s insurance is required by all lenders to protect their investment and must be obtained before closing on your home loan. Experts advise that you should always carry at least 80% of replacement costs for your home and its contents. In most cases, coverage must be at last equal to the loan balance, or the value of the home. Premiums are paid annually for protection against losses in the future.
2. Private mortgage insurance: This policy protects the lender in case you default on your loan. With conventional loans, mortgage insurance is generally not required if you make a down payment of at least 20% of the home’s purchase price (not all loans have the same insurance guidelines). Premiums are generally financed with the loan at closing.
3. Flood insurance: This policy assumes the risk of loss due to physical damage to a property by flood. Flood insurance is typically not covered under standard homeowners insurance. Premiums are paid annually or added to the client’s monthly mortgage payment. Borrowers may purchase these policies on their own or the coverage may be required by the mortgage lender.
4. Title insurance: This is a policy that protects the mortgage lender and/or property owner from claims made against the real estate. Your title policy verifies the legal description of the property, the taxes, and the names on the title. Premiums are paid at the time of closing and the policy is good for the length of the property ownership (Owner’s Policy) or the length of the loan (Mortgage Policy). For a more detailed explanation of Title Insurance, click here!
The above types of insurance protect both the homeowner and the mortgage lender from potential losses. Since purchasing a home is most likely the largest purchase someone will make in their lifetime, it is important to protect the property (and its contents!) with the necessary insurances.Any questions?! Please let us know!
Insurance definitions retrieved from http://www.quickenloans.com/mortgage-glossary