Buying a home brings more responsibility than renting. From this point on, you will be the responsible party when any type of damage occurs in your home. Long gone are the days of calling your landlord with any home mishaps. Most likely, your real estate agent has discussed having insurance as part of your lender’s requirements in order to be approved for your mortgage. When buying a home there are a few types of insurance you may need.
Usually, lenders require that a borrower purchase homeowners insurance. Homeowners Insurance covers any losses to your home, which includes any personal possessions, and additional living expenses in the event you temporarily are unable to live there due to damage caused to your home. Homeowners insurance also covers liability in the event you or someone else is injured on your property. Although homeowners insurance is not required by law, if you aren’t paying cash for your home, your lender will want to protect their investment.
Private Mortgage Insurance (PMI)
If your down payment is less than 20%, your lender will require you to purchase PMI. However, you may request cancellation of your PMI once you pay your mortgage down to less than 80% of your purchase price or the appraised value of your home at the time of purchase. You don’t want to have PMI unless you are required because it does not protect you at all, it protects only your lender if you stop making payments. PMI is usually added into your monthly mortgage payment.
Title Insurance is required when you are taking out a mortgage. If you are paying cash for your home, you don’t have to buy title insurance however, homeowners are advised to get title insurance with or without a mortgage. Title insurance protects the lender and the homeowner’s financial interests against loss due to liens, title effects, and other possible issues. When buying a foreclosure, this type of insurance is smart to have. Foreclosures often have a high risk of some sort of tax lien being attached to the home. Title insurance protects you against paying for any liens put on the property and ensures the title is clear. This insurance protects you against lawsuits by anyone claiming they own the property.
Other Types of Insurance
Depending on your lender and where you live, there can be additional insurance you are required to carry.
Flood, Windstorm, and Earthquake Insurance
Standard homeowners insurance doesn’t protect against flooding, windstorm, earthquakes, and many other natural disasters. If you live in an area where natural disasters occur your mortgage lender will most likely require that you purchase additional insurance. Even if you aren’t required to carry this extra insurance it is a good idea to have this additional protection.
Your real estate agent will advise you on what types of insurance you need to purchase when buying your home. Although not all of the insurance coverage discussed may be required, it can be smart to have it just for peace of mind.
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