Buying or refinancing a house includes costs for different types of insurance, some required and some optional. Here, Mark Wells of Preferred Financial Services answers questions about the different types of insurance products encountered when transacting a mortgage.
I see “Homeowner’s Insurance” on my Loan Cost Estimate Sheet. What is that?
Homeowner’s insurance, sometimes called property and casualty insurance, is purchased to protect the homeowner and lender from losses arising from natural disasters or accidents such as fire, storms, etc. It is mandatory coverage for any loan. It also provides insurance against theft and damage of contents, and liabilities arising from injuries sustained on your property.
The loan cost sheet also indicates “Title Insurance” has to be paid for. What does that cover?
This is a one-time premium paid for lifetime protection against any defects in the title of your house which could affect your clear ownership. A “lender’s policy” is always required up to the dollar amount of your mortgage. “Owner’s coverage” is optional and covers your equity if there was ever a title dispute that affected your ownership.
What is Private Mortgage Insurance?
Often referred to as PMI or MIP, this insurance is required on any loan that exceeds 80 percent of the value of the home being purchased or refinanced. It protects the lender in the event of a default and foreclosure if they lose money in the sale of the foreclosed house. It does not protect the borrower from anything. The premium is paid as part of your monthly payment until your loan balance reaches 80 percent or less of the appraised amount. PMI remains for the life of the loan on FHA loans.
My lender said I might have to add flood insurance. What determines that?
FEMA maintains records of all zones in the U.S. subject to flooding. If your FEMA Flood Certification indicates that your house is in a federal flood zone, you will be required to purchase flood insurance through your homeowner’s insurance agent. Very few Upstate properties fall into this category since newer building codes do not allow for construction in a flood zone, but most coastal properties must carry flood insurance.
How can I insure that my loan will be paid if I am disabled or die?
Life and disability policies are not normally sold as part of a mortgage loan process, but can be obtained from any qualified insurance agent. Your lender may offer you a non-qualifying program, but you should be able to secure lower premiums by using a local agent who can fully underwrite your policy.
Wells welcomes questions and comments regarding mortgage matters, and can be reached via phone at 864-235-9596 or email at Mark@TheGreatestRates.com.
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