More than likely, your home will be the biggest purchase you make in your lifetime so you’ll want to protect your investment with the right types and amounts of insurance coverage. The following is an overview of the kinds of insurance that you may be required to purchase by your lender or choose to purchase to ensure your home is protected.
Homeowner’s insurance protects your property from financial losses as a result of fire, burglary and many other hazards. This insurance guards both your interest and your lender’s. The majority of lenders require basic homeowner’s insurance, which provides coverage against damage by fire or lightning, glass breakage, windstorm or hail, explosion, riot or civil commotion, aircraft, vehicles, theft, smoke, and vandalism. It also covers liability for injuries occurring on the premises, which is recommended by most lenders. If you feel like basic insurance coverage isn’t enough, you may choose a broader homeowner’s insurance, which covers hazards like falling objects, ice, snow and sleet, problems with heating, as well as plumbing and electrical systems damage.
Private Mortgage Insurance
Private mortgage insurance protects your lender against financial losses if you default on your mortgage and go into foreclosure. Mortgage insurance is issued by the Federal Housing Administration (FHA), other government agencies and private companies. If you make a low down payment, the lender usually will require that you obtain private mortgage insurance that will cover the lender’s losses. Mortgage insurance isn’t typically required for a mortgage with a higher down payment, because if a borrower in that situation defaults, the lender should be able to sell the home for more than the loan balance. After you’ve built up at least 20 percent equity in your home, you typically can cancel your mortgage insurance; however depending on when or if you have an FHA Loan and when you may have initiated your FHA Loan will determine if you can or cannot remove your Private Mortgage Insurance. You will need to contact your mortgage provider to learn the cancellation procedure.
Title insurance guarantees the simple fact that you own your property and no one else has a claim to it. If you hold a mortgage, you’ll be required to pay the one-time premium for title insurance. Title insurance is a smart investment, because it guards you against any false claims that may arise. As opposed to traditional health or home insurance, title insurance protects you against claims referring to before the policy’s effective date. A range of claims from the past can be brought against your property’s title, including forgery, clerical errors, undisclosed heirs and improper interpretation of wills.
There are two types of title insurance policies: the lender’s policy and the owner’s policy.
- The lender’s policy protects the lender’s interest for the amount of the loan, which is not necessarily your home’s purchase price, if the two figures differ. In addition, the lender’s title policy covers any losses that the lender would incur if the interest of another creditor, such as a second mortgagor, takes precedence in the event of a foreclosure.
- The owner’s policy covers your losses or damages if it’s determined that the property belongs to someone else, there’s a defect or lien on the title, the title can’t be marketed, or there’s no access to the land. Your owner’s policy will stipulate the date by which the terms are effective, which is the key to your ownership rights.
Most homeowners never have to file a title insurance claim; however, that doesn’t mean that you should avoid this type of insurance. In the event that a third party makes a claim about your property, title insurance can make the difference in retaining your house.
If you are interested in finding out more information, please do not hesitate to contact me, Your Motivated REALTOR® Ben Rubalcava with RE/MAX Partners at (951) 444-5825. DRE #01877582.
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