Homeowners Insurance Requirement By Lenders For Mortgages

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Homeowners Insurance Requirement By Lenders For Mortgages

This BLOG On Homeowners Insurance Requirement By Lenders For Mortgages Was UPDATED On July 17th, 2019

Homeowners Insurance Requirement By Lenders For Mortgages

Homeowners insurance requirement by lenders protects the homeowners and lenders. HOI protects owners and lender from damages to homes such as fire damage and other disasters.

  • Every home buyer who is purchasing a home or a homeowner who is refinancing their home has mandatory homeowners insurance requirement by lenders
  • HOI protects against the replacement value of the house in the event of damages
  • Homeowners Insurance Requirement By Lenders For Mortgages is required in order for a lender to approve and CTC the home loan
  • Lenders require mandatory requirement of the homeowners insurance policy
  • It protects its interest on the property of the lender since they have a first lien position

What Is Minimum Homeowners Insurance Requirement By Lenders For Mortgages

What Is Minimum Homeowners Insurance Requirement By Lenders For Mortgages

Lenders will require the homeowners insurance to be enough to cover loan balance and the cost of replacing the home.

  • Homeowners can get additional coverage for content and other coverage
  • But that is not mandatory
  • Lenders just want to protect their interest and do not require content insurance

Other Homeowners Insurance Requirement By Lenders For Home Loans

Other Homeowners Insurance Requirement By Lenders For Home Loans

If the home is located in a flood zone, flood insurance will be required by lenders:

  • Flood insurance can be quite costly
  • Often times, flood insurance can be more than the homeowners insurance
  • Flood insurance, earthquake insurance, and hurricane insurance are additional insurance coverage that may be required in addition to the hazard insurance

All mortgage loans that have higher than 80% loan to value will need mandatory escrow.

  • Insurance and taxes are escrowed
  • Escrow payments, also called pre-paid, will be part of monthly housing payment
  • The monthly mortgage payment will consist of the following:
    • principal
    • interest
    • property taxes
    • homeowners insurance
  • Homeowners who are required flood insurance and homeowners association fees, those payments will be part of escrows as well if the loan is higher than 80% LTV
  • For home buyers or homeowners who are refinancing their mortgage loans have a loan to values less than 80% to Waive escrows
  • By waiving escrows, homeowners can pay their homeowners insurance and property taxes by themselves
  • In the event, if the lender finds out that the property is not insured, the lender will purchase place forced-placed homeowners insurance and bill borrower
  • This is called forced homeowners insurance
  • Homeowners will want to avoid this if at all possible
  • Forced homeowners insurance placed by lenders is double or triple if not more than the private insurance carriers 
  • A homeowner can choose any homeowner insurance policy they like
  • They can change carriers as long as they notify their lenders
  • Insurance companies have different premiums for the same house
  • It is wise to shop for the lowest premium insurance company
  • Homeowners who have other insured items such as automobile, boats, recreational vehicles, medical, dental, business insured with a particular insurance company can ask that company for a bulk discount
  • Many insurance companies offer bulk discounts for policyholders multiple items insured with them

Coverage And Terms Of Homeowners Insurance

Coverage And Terms Of Homeowners Insurance

Homeowners insurance covers any damage and liabilities that happens to the subject property.

  • Fire, vandalism, and damage by acts of God such as tornadoes, major storms are normally covered
  • Besides damages to the home, homeowners insurance policies will cover liabilities that occur in a home
  • For example, if someone got injured at the property and get sued, the insurance company will cover legal defense and damages
  • Those without homeowners insurance can be opened to liability
  • Here is a case scenario where a homeowner has no HOI
    • someone got hurt at their property
    • gets sued
    • have a judgment against them
    • do not have the money to pay
    • the lien can be placed on the property
  • All insurance companies will have deductibles
  • A deductible is an amount that the homeowner needs to pay out of pocket
  • Anything above the deductible amount is covered by the homeowners insurance policy
  • A mortgage loan with a higher deductible will have a lower premium
  • The higher the deductible, the lower the insurance premium
  • There are some lenders that might impose a restriction on a high deductible
  • Some lenders may require that deductible cannot be higher  a 1% to 2% value of the home

Declaration Page Of Homeowners Insurance

Declaration Page Of Homeowners Insurance

Lenders need to be named as the payee in case of any loss to the home on the homeowners insurance policy.

  • A third party payee designation will insure that the mortgage lender will be receiving the funds from the insurance company in the event if the house is damaged
  • The buyer has still covered under the terms of the policy due to the additional clause inserted in the section of the payee
  • The lender will receive the whole amount from the homeowners insurance company that is on the insurance policy and deducts the amount that is owed on the mortgage loan balance
  • The balance of the funds is then given to the property owner
  • The effective date of the homeowners’ insurance needs to be the date the mortgage loan was close

For more information on the contents of this article or other mortgage-related topics, feel free to contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com.

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