Homeowners Insurance

Homeowners Insurance

Gustan Cho Associates

Homeowners insurance policies protects the homeowner as well as the mortgage lender from damages to the homeowner’s home such as fire damage to the home or other disasters.  Every home buyer who is purchasing a home or a homeowner who is refinancing their home is required to have mandatory homeowners insurance against the replacement value of their house in the event of damages by the mortgage lender in order for the mortgage lender to approve the mortgage loan.  The mortgage lender requires the mandatory requirement of the homeowners insurance policy so it protects its interest on the property since they have a first lien position.

What Is The Minimum Homeowners Insurance Policy Amount Lenders Require?

Mortgage lenders will require the homeowners insurance to be enough to cover the mortgage lenders mortgage balance and the cost of replacing the home.  Homeowners can get additional coverage for content and other coverage, but that is not mandatory from the mortgage lender.  The mortgage lender just wants to protect their interest and do not require content insurance.

Other Insurance Required By Mortgage Lenders

If the home is located in a flood zone, flood insurance will be required by the mortgage lender.  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 additonal insurance coverage that may be required by the mortgage lender in addition to the hazard insurance.

All mortgage loans that have higher than 80% loan to value will need mandatory escrow.  Your insurance and taxes are escrowed and will be part of your monthly housing payment.  Your monthly mortgage payment will consist of  your principal, interest, property taxes, and homeowners insurance.  If you have flood insurance and homeowners association fees, that will be part of your escrows as well if your loan to value is higher than 80%.  For home buyers or homeowners who are refinancing their mortgage loans have loan to values less than 80%, they are allowed to waive escrows and can pay their homeowners insurance and property taxes by themselves.  In the event if the mortgage lender finds out that the property is not insured, then the mortgage lender will purchase the homeowners insurance and will bill the mortgage loan borrower.  This is called forced homeowners insurance and you will want to avoid this if at all possible because forced homeowners insurance placed by mortgage lender is double or triple if not more than the private insurance carrier the homeowners insurance chooses.  A homeowner can choose any homeowner insurance policy they like and can change carriers as long as they notify their mortgage lenders.  Insurance companies have different premiums for the same house so it is wise to shop for the lowest premium insurance company.  If you have other insured items such as automobile, boats, recreational vehicles, medical, dental, business insured with a particular insurance company, insurance companies will offer bulk discounts if you have multiple items insured with them.

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 your home.  For example, if someone got injured at your property and you get sued, the insurance company will cover your legal defense as well if the courts finds you at fault.  If you did not have homeowners insurance and someone got hurt at your property and you have a judgment against you and you do not have the money to pay, a lien can be placed on your property.   All insurance companies will have deductibles.  A deductible is the amount that the homeowner need to pay and 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 your insurance premium.  There are some mortgage lenders that might impose a restriction on high your deductible may be.  Some mortgage lenders may require that your deductible cannot be higher  a 1% to 2% value of your home.

Declaration Page Of Homeowners Insurance

The mortgage lender needs 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 home buyer has still coverage under the terms of the policy due to the additional clause inserted in the section of the payee.  The mortgage 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.  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 closed.

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The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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