When you’re navigating buying a home, especially for the first time, it can be confusing as you are told about different things you either should or must purchase as part of the process. This particularly gets confusing when it comes to the question of insurance. Depending on your loan and the amounts you are working with, you may be surprised when your mortgage broker advises you that you must purchase two different kinds of insurance, homeowners insurance and mortgage insurance.
These two types of insurance are not interchangeable, and your broker isn’t trying to cheat you by requiring that you have both. They serve different purposes, and offer different kinds of protection.
Homeowners insurance offers you protection for your home and property. This ensures that if your home is damaged or destroyed, you are able to recoup the lost value. This is insurance you are often required to have by your lender, but even if it’s not required it is almost always a good idea. Homeowner’s insurance can come in handy in a variety of circumstances, depending on the coverage. If your heat goes out or your roof is damaged, homeowner’s insurance can take these unexpected costs and keep them from becoming financial catastrophes.
Mortgage insurance, sometimes referred to as PMI for Private Mortgage Insurance, on the other hand protects your lender. This is insurance that may be required if you aren’t able to pay at least 20% of your home’s value as a down payment. This coverage may be required for a period of up to 5 years, and does not protect you in any way, but does insure that your lender is covered if you are not able to pay your mortgage. After you’ve paid off enough of your mortgage that the remaining amount is 80% of your home’s value or less, you may be able to refinance your mortgage to avoid continuing to pay the mortgage insurance. Since the insurance does not protect you, it’s not a risk for you to drop this insurance once it is no longer required.
Whenever you’re trying to navigate the home buying process, you’re going to find yourself facing a wide variety of questions. That’s where my experience and expertise come in handy! Call me today, and I’ll be happy to help you navigate the sometimes confusing process and help you find the home you deserve!