First Time Home Buyers
As you are purchasing your home you will hear all kinds of terms from your realtor and loan officer referring to insurance: Title Insurance, Homeowners Insurance, Mortgage Insurance… and possibly more. So what are all these First Time Home Buyer Different Insurances ?
Wonder no longer. Here is what you need to know about the First Time Home Buyer Different Insurances
- – This is a common term used by a lot of mortgage lenders. It refers to insurance on the house itself. They call it hazard insurance because it is coverage against different “hazards” that could damage your home such as fire or wind. Your loan provider requires you to have this insurance to assure their asset is covered against these damages. Note that hazard insurance is not a separate coverage from homeowner’s insurance. If your lender tells you to get hazard insurance, then the homeowners policy you will be quoted by an insurance agent will meet their demands.
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Homeowners Insurance
– Homeowners insurance does more than provide coverage for your house. It gives you protection for your possessions, detached structures such as sheds, personal liability, and a few other items. This is the type of policy you will most likely purchase to satisfy your lender’s requirements and protect yourself against some of life’s unknowns.
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Title Insurance
– This is insurance that protects the lender ( and optionally you) in the case of someone else trying to claim they own your land or if there are any problems with the title.
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Private Mortgage Insurance
– This will usually come in to play if you are purchasing a home with less than a 20% down payment. It is an insurance policy that keeps the mortgage company from losing money if you foreclose on your home. You will often hear this called PMI.
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Mortgage Protection Insurance
– Commonly known as MIPPI, this is basically life insurance that would pay off your mortgage in case of death or disability.
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Condo Insurance
– If you are buying a condo or townhome that is part of an HOA you may or may not be required to purchase an HO-6 or Condo Insurance policy. Some lenders refer to this as a “Walls-In Policy.” Different states have different laws, and coverages provided in a condo insurance policy. If you need this insurance it is essential to get a copy of your HOA’s master insurance policy and have an insurance expert help you determine what insurance you need.
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Flood Insurance
– Hazard or homeowners insurance policies do not provide coverage against flood. If the home you are buying is in a flood zone that the lender finds risky they will require that you purchase flood insurance. The same people helping you with your homeowners insurance can help you with flood insurance.
When buying a home, there are many new terms you’ll hear. There are lots of First Time Home Buyer Different Insurances . If you have questions about a policy type, or coverage need, make sure you ask. We love making sure our clients know what they’re getting and why they need it.
Important terms to KNOW for First Time Home Buyers
Buying a home can be one of the most exciting times in your life. Unfortunately, the process can be a little stressful and confusing. I am here to help! Becoming familiar with some of the terms used in the lending process can ease some of that stress. After all, knowledge is power and that definitely rings true in the mortgage process.
Preapproval vs. Prequalification
First time home buyer’s will need to get preapproved before looking for a house to buy. Don’t confuse this with prequalified. A prequalification will give you a general idea of what price range to look at based on information you tell the lending officer. A preapproval is much more in depth. It is given after pulling credit and looking at specific income documentation like paycheck stubs and tax returns. If you are preapproved, the lender has confirmed that the information you have provided and you will get a home loan for a specified dollar amount as long as the information is complete and does not change before the actual approval. So, if you are ready to commit to the buying process, start by getting preapproved.
Fixed Rate Mortgage vs. Adjustable Rate Mortgage (ARM)
Just as the name indicates, a Fixed Rate will not change over time. It carries the least amount of risk of the two options. The interest rate will stay the same over the life of the loan and your monthly payment will only change due to tax or insurance adjustments, but never as a result of interest fluctuations. An Adjustable Rate Mortgage loan will change over time. The rate will adjust with the fully indexed interest rate. An ARM loan may be fixed for a specified period of time, but then will start adjusting after that initial period.
Private Mortgage Insurance (PMI)
This is an important one!! Private mortgage insurance is a required insurance payable to a third party company if you owe more than 80% of the value (or sales price) of the home. This insurance is to cover the notion that you “may” foreclose on your property. You pay this insurance if you have less than 20% to put down toward your loan. Currently, on an FHA loan, you pay the PMI for the life of the loan. On a conventional loan, the PMI will drop off after you have paid down to the 78% loan to value mark. For example: If you buy a $200,000 home, a 20% down payment ($40,000) would be required to avoid paying PMI.
Escrow Account
This is an account the lender can set up as a holding for Property Tax and Insurance payments. It is a good idea to set up an escrow account. Some homeowners have got into trouble when taxes are due at the end of the year and they don’t have the funds available to pay. If you have an escrow account, a portion of your monthly payment goes into the account and then the lender distributes the tax and insurance payments as they become due.