When you're looking to purchase a home, one of the most important things to consider is whether you need homeowners insurance before getting approved for a mortgage loan. Lenders often require homeowners to have a minimum amount of insurance sufficient to cover the balance of a mortgage loan. They usually don't care about having additional coverage for your possessions. Your main priority is to confirm that the home you are going to buy is insured.
Keep in mind that the total amount of coverage you need may be greater than the amount of coverage your mortgage provider expects you to have. You're often asked to show proof of homeowners insurance to your lender before they give you the keys to your property and finance your mortgage loan. Until you pay for your home in full, the lender will maintain a lien on your property, so it's best for them to make sure the property is insured while you pay your mortgage. It's an account created by your mortgage lender that ensures homeowners (and sometimes flood) insurance is paid on time every month. In short, homeowners insurance covers the structure of the home, the structures attached to it, your personal belongings, and any medical expenses or attorney's fees in case someone is injured on your property. A homeowners insurance policy protects your home in the event that something damages it or it is vandalized or robbed.
If your home is financed with a mortgage, your lender may require you to have a standard homeowners insurance policy. That's also why lenders require flood insurance from homeowners who haven't paid the mortgage. While you may be able to purchase a homeowners policy through your bank or other mortgage lender, it's best to be proactive when it comes to finding your own insurance. Personal mortgage insurance (PMI) helps reimburse the lender if you stop paying your mortgage. However, you may be able to pay your home insurance premiums through your mortgage through a process called garnishment.
Homeowners insurance is important, and if your mortgage lender is the one who reminds you, it's not the end of the world. Lenders require that you have homeowners insurance from the first day you own your home because the mortgage is an agreement between you and the lender. Mortgage lender requirements can be a bit strict (and a little confusing) depending on the initial amount you put in for your home, the capital you have in it, and the amount the lender has still invested in it. Many people often confuse mortgage insurance with home insurance, but they are very different from each other. To make things a little clearer for you, check out these three mortgage lender requirements for home insurance and a few more things you should know as a homeowner with a mortgage:
- Proof of Homeowners Insurance: Lenders require that you have homeowners insurance from the first day you own your home because the mortgage is an agreement between you and them.
- Minimum Coverage: Your lender will usually require that you have enough coverage to cover at least 80% of the value of your home.
- Garnishment: You may be able to pay your home insurance premiums through your mortgage through a process called garnishment.
Homeowners insurance is an important part of owning a home and should not be overlooked when considering getting approved for a mortgage loan.