Mortgage Insurance: What Am I Insured Against?

If you’re buying a new house, you’re likely looking at the various terms on your paperwork and have noticed “mortgage insurance” on there. It’s not something that everyone is familiar with, so here is some basic info that can help answer your questions.

What is mortgage insurance?
Mortgage insurance is not a benefit to the home buyer and does not protect them against anything. Actually, it will only protect the mortgage company/bank in the event that the borrower defaults on the loan and doesn’t pay their mortgage. It is required when a borrower puts less than 20% down on the purchase or has less than 20% in equity during the refinance process on a home.

Aaron Hicks, Mortgage Consultant with Homestreet Bank shares that when a borrower is looking to get a mortgage, it can affect the loan approval process. Hicks shares, “It can increase the borrower’s monthly payment, which overall effects a borrower’s debt-to-income qualifications. Mortgage insurance companies require stricter guidelines depending on a borrower’s debt-to-income, credit score, loan to value, and type of property. Sometimes mortgage insurance companies require additional supporting documentation above what the bank may require and/or additional underwriting review.”

What kind of mortgage insurance is there?
Hicks says that there are multiple types of mortgage insurance for conventional loans. There is monthly mortgage insurance, single premium mortgage insurance, or split premium mortgage insurance. There is also lender paid mortgage insurance. For some loans, especially FHA loans, the premium will last for the life of the loan, even when your equity position gets you above the 20% mark. If the homeowner has a conventional financing method, the insurance can be removed once 20% equity in the home is reached. I can do a quick market analysis to determine if borrowers are at the 20% equity mark.  The lender will require a formal appraisal to remove mortgage insurance, which costs $400-$600. So, it is a good idea to verify you’ve reached that point before ‘getting official’ with your request.

Purchasing a home is very involved and requires various steps and attention to detail. Oftentimes, questions and issues will arise, and this is one of the many reasons why it’s critical to work with an experienced Realtor. Whether it’s a question about mortgage insurance or something else entirely, I’m happy to answer your questions and will work with you to help get the answers you need. Contact me for info!

Posted on March 19, 2018 at 10:38 pm
Nancy Johns | Category: Home Buying Tips, Selling Your Home | Tagged , , , , , , , , , , , ,

Mortgage Insurance–what am I insured against?

If you’re in the process of purchasing a new home, on your bank paperwork, you may have noticed something called “mortgage insurance.” Not sure what it is? There are several different types of insurance that homeowners should be familiar with. Here, I will explain the basics.

Title insurance:
Title insurance from the seller comes from the title company. It protects home owners and lenders from damage or property loss that may happen because of liens or other defects in the title to the property. Each title insurance policy is subject to specific terms, exclusions, and conditions.

Homeowner’s insurance:
Homeowner’s insurance/hazard insurance/fire insurance is a policy issued from an insurance company and it protects your property as well as the contents and possessions inside. It also provides liability coverage against accidents in the home or on the property.  At closing, homeowners will pay for the first year’s policy in full.

Mortgage insurance:
This type of insurance is not a benefit to a homebuyer. When a lender provides a loan and the buyer puts less than 20% down on the purchase, the lender takes a bigger risk. If the buyer ends up defaulting on the loan and they don’t have much “skin” in the game, it’s possible that the lender won’t cover their loan amount when it comes time to liquidate the property. This cost can be paid within your monthly mortgage payment or up front and it will cover the lender’s loss if something were to happen. For some types of loans, particularly FHA loans, the premium will last for the life of the loan, even though your equity position might get you above the 20% mark. Conventional financing will typically have a provision for mortgage insurance that can be removed once the homeowner has 20% equity in the home.

Buying a home requires many different steps and there is a lot of research that is required. The insurance process can be complex and sometimes confusing, especially if you haven’t gone through the home buying process before, and that’s one of the many reasons why it is important to work with a well-qualified, experienced, hands-on Realtor. If you have questions about it, I’m happy to sit down and talk with you about any questions you may have!

Posted on September 5, 2017 at 7:31 pm
Nancy Johns | Category: Home Buying Tips, Selling Your Home | Tagged , , , , , , , , , , , , , , , , , , , ,

Things To Know When Buying Homeowner’s Insurance

home

Buying a home is filled with a lot of details and it can definitely be overwhelming. It can be easy to overlook the importance of homeowner’s insurance, but it is actually one of the most important parts of buying a home. Homeowner’s insurance will help protect you in the event that something happens to your home. Here are some important tips that will help you before you sign the dotted line on your new home purchase.

Tip #1: Compare coverage between companies.
Your mortgage lender will likely require you to obtain homeowner’s insurance and while you aren’t required to buy from a specific company, you should do your research on various companies and compare coverage, customer service reviews, and other important price details. Most of the time you won’t need to use your homeowner’s insurance coverage unless there has been some sort of emergency or disaster, so be sure that customer service ratings are high. In addition, don’t always look for the lowest price – instead compare value and what you’re getting for the coverage.

Tip #2: Make sure you’re getting the right amount of coverage.
Not sure what kind of coverage you need? Talk to your real estate agent as well as your insurance representative. The most important part of homeowner’s insurance is the level of coverage and you don’t want to pay for more than you really need. Talk about which policies are best for your specific home and area, and be sure that you understand the details of the policies that are offered. Then, determine which coverage works with your budget.

Tip #3:  Keep your policy updated.
Once you pick the policy you want, make sure that you keep it up to date. For example, if you decide to put an addition onto the back of your home or if you remodel the bathroom or kitchen, be sure that your insurance company knows so they can adjust your coverage accordingly. This will protect you further down the road in case something unfortunate happens.

If you have questions on what your basic homeowner’s insurance should cover, I’m happy to discuss! Your home is probably the largest and most important investment that you’ll make in your lifetime, so making sure you have the right coverage that will effectively insure you and your family in the event of a problem is priceless. 

Posted on April 6, 2016 at 5:40 pm
Nancy Johns | Category: Home Buying Tips, Selling Your Home | Tagged , , , ,