Title Topics: The Four Types of Insurance Needed in a Real Estate Transaction
When purchasing a home, you might be wondering about what
insurances you will need to obtain.
There are four different types of insurance that you should know about
while going through real estate transactions and they are listed below:
Homeowner’s insurance: This policy protects your home and the
possessions inside from serious loss such as fire or theft. Homeowner’s insurance is required by all
lenders to protect their investment and must be obtained before closing on your
home loan. Experts advise that you
should always carry at least 80% of replacement costs for your home and its
contents. In most cases, coverage must
be at last equal to the loan balance, or the value of the home. Premiums are
paid annually for protection against losses in the future.
Private mortgage insurance: This policy protects the lender in case you
default on your loan. With conventional
loans, mortgage insurance is generally not required if you make a down payment
of at least 20% of the home’s purchase price (not all loans have the same
insurance guidelines). Premiums are
generally financed with the loan at closing.
Flood insurance: This policy assumes the risk of
loss due to physical damage to a property by flood. Flood insurance is typically not covered
under standard homeowners insurance. Premiums
are paid annually or added to the client’s monthly mortgage payment. Borrowers may purchase these policies on
their own or the coverage may be required by the mortgage lender.
This is a policy that protects the mortgage lender and/or property owner
from claims made against the real estate.
Your title policy verifies the legal description of the property, the
taxes, and the names on the title. Premiums
are paid at the time of closing and the policy is good for the length of the
property ownership (Owner’s Policy) or the length of the loan (Mortgage
Policy). For a more detailed explanation
of Title Insurance, click
the mortgage lender from potential losses.
Since purchasing a home is most likely the largest purchase someone will
make in their lifetime, it is important to protect the property (and its
contents!) with the necessary insurances.
Any questions?! Please let us know!