Types of Insurance

When you are purchasing the largest investment, you will probably ever make, there are some insurance products you will want to consider. In fact, you may discover that some types of insurance are required by your lender in order to obtain a home mortgage. But, what are these types of insurance and what exactly do they do and do I have to become an insurance expert?

There are actually a few types of insurance you might need when you buy a home and no, you don’t have to become and insurance expert! Let’s take a look at the different coverages.

Homeowners Insurance

couple sitting together in new home Most lenders will require you to have homeowners insurance. This insurance policy provides coverage to rebuild or repair your home after events like fire, smoke, vandalism, theft, a falling tree, or damage caused by weather such as hail, wind or lightning. Most standard homeowners insurance policies also cover clothing, furniture and other possessions. Contained within your policy is liability or legal responsibility coverage for any property damage and injuries policyholders or their families may cause to others. This includes damage caused by household pets.

Private Mortgage Insurance

Also known as PMI, private mortgage insurance is an insurance policy that a lender requires if you are paying less than 20% in your down payment. This allows your lender the confidence they need that you can afford your mortgage despite a lower down payment.

After a certain amount of equity is built up on your loan, you may be able to request the removal of the PMI portion of your payment. Check with your lender for more information.

Title Insurance

Mortgage title insurance protects the lender’s lien right and the owners title insurance protects the owners equity. It is there to protect against any liens or claims to the property that may arise later, after closing, that a title search did not find.

When a property is sold, bought or financed, a record of the transaction is filed in public records at the register of deeds for that county. Likewise, records of other events that may affect the ownership of a property, like levies or liens, are also recorded with the register of deeds.

Some risks, such as title issues due to undisclosed heirs, forgeries or filing errors are difficult to identify. The title insurance is there to protect you and the lender should something come up later, after the title search.

Unlike home insurance or private mortgage insurance, there is not a monthly charge, there is only one premium for each – one for mortgage title insurance and a small fee for owner’s title insurance. These one-time charges are included as part of your closing costs.

Flood insurance

living room being flooded with large waves If your new home is located in a high-risk flood zone, your mortgage lender will require you to have flood insurance. If the property has some risk of flooding but isn’t considered to be in a high-risk area, then it will typically be up to you to decide whether you want the added protection.

Before going under contract, be sure to check with your real estate expert and a trusted insurance agent to see if the property is in a flood zone and what the costs of that insurance will be. Also remember that if your home is impacted by flooding, your normal homeowners insurance will likely not cover related damages.

The amount of insurance you will be considering may seem overwhelming, but ultimately, having the right coverage will prevent the heartache of being unprotected from unforeseen circumstances. When in doubt, talk to your home buying team—your real estate expert, your closing attorney and trusted insurance agent, about your specific coverages to get you all on the same page.

If you would like more information detailing the home buying process, contact us at The Old Mill Group. We are here to make your dreams of home ownership a reality.