Skip to main content

Home Insurance and Mortgage Insurance



Many homeowners with mortgages pay for both types of insurance but only one of them protects the owner.

Homeowner's insurance covers damage to your property and losses from fire, burglary, vandalism, and other named natural disasters.  When an insured has a loss, they file a claim with the insurance carrier which would be subject to the deductible mentioned in the policy.

If the homeowner has a mortgage on the property, the lender will require that the borrower carry adequate insurance on the property and name the lender as an additional insured.  This protects the lender that the home will continue to be sufficient collateral for the loan in case of a loss.

Mortgage insurance is not like homeowner's insurance in that it is solely for the protection of the lender if the borrower defaults on the loan.  Usually, lenders require mortgage insurance on any loan greater than 80% loan-to-value.  Occasionally, they may require it on some loans less than 80% based on their underwriting requirements and possibly, from anticipated risk from the borrower.

VA loans do not require mortgage insurance.  Conventional lenders must remove the mortgage insurance when the loan amortizes below the stated percentage.  FHA loans require mortgage insurance for the life of the loan.

When a property appreciates so that when the owners refinance, the loan-to-value ratio is less than 80%, no mortgage insurance would be required.  This can be a strong motivation for some owners to refinance to save the cost of the mortgage insurance.

Mortgage insurance premiums are not regulated by law like homeowner's insurance is in most states.  Most buyers are concerned about the interest rate on their mortgage, but few question the amount of the mortgage insurance premium.

The homeowner can select the carrier for his homeowner insurance, but the lender determines the carrier for the mortgage insurance.  When you are interviewing lenders, the type of insurance that will be required and the price of the mortgage insurance should be included in the discussion.

Comments

Post a Comment

Popular posts from this blog

Before You Leave Town...

Along with all the planning of what you're going to do and where you're going to stay, consider this checklist to make you feel more comfortable while you're away from home. Ask a trusted friend to pick up your mail, newspaper and keep yard picked up to avoid an appearance of not being at home. Stop your mail ( USPS Hold Mail Service ) and your newspaper. Don't post about your trip on Facebook and other social media until you return; some burglars look for this type of announcement to schedule their activities. Do notify police or neighborhood watch - especially if you're going to be gone for more than just a few days. Let your monitoring service know when you'll be gone and if someone will be checking on your home for you. Light timers make it look like someone is home. Set multiple timers for various times to better simulate someone at home. There are plug-in modules for lights and appliances that would allow you to control...
2 comments
Read more

Make Your Home Offer the Most Appealing

Sales in February 2023 were up 14.5% month over month and still down 22.6% year over year according to the NAR Housing Snapshot.   The median sales price dipped 0.2% to $363,000 and there are 2.6 months supply of homes on the market compared to 1.7 months a year ago. "Inventory levels are still at historic lows, and consequently, multiple offers are returning on a good number of properties." According to Lawrence Yun, Chief Economist for the National Association of REALTORS�. It is still important to have a strategy for potentially competing with other buyers on the house you want to buy.   The plan should include several available provisions and options, so that at the time of drafting the sales offer, you can consider exactly what to include based on the situation. Unless a person is paying cash, you need to be pre-approved by a trusted mortgage professional long before you start looking at homes.   Include the written pre-approval letter along ...
Post a Comment
Read more

Rental Home Investments

Rental homes whether they be single-family detached properties, condos, two, three or four-unit properties share many of the same benefits.   Most people instinctively understand many of the working parts because they are the same as their home.   They have a basic understanding of value and how to maintain the property.   The service providers for a home would be the same for a rental home. These properties allow an investor to obtain a large loan-to-value mortgage at fixed interest rates for up to thirty years.   They appreciate in value, currently exceeding many other assets; have defined tax advantages and allow an investor more control than many alternative investments. Most lenders require 20-25% down payment and will finance the balance at rates close to owner-occupied homes.   Buyer closing costs will add another three to four percent to the amount of cash needed to close.   It is also prudent to have available funds for repairs and maintenanc...
Post a Comment
Read more