Like automobile drivers, homeowners are required to carry insurance on their property.
The official name for such coverage is "hazard insurance". However, most often, its called "homeowners insurance".
Homeowners insurance policies can cover minor incidents including a leaking roof and faulty plumbing; and, catastrophic damage, as from a storm.
Homeowners insurance is sometimes mixed up with Private Mortgage Insurance (PMI), which is a specific insurance type generally reserved for homeowners making a downpayment of less than 20 percent.
Editor's Note: PMI is neither good nor bad.
Regardless of your downpayment amount and mortgage rate, as a homeowner, you should carry an adequate homeowners insurance policy.Click to see today's rates (May 29th, 2016)
Mortgage lenders require homeowners to carry homeowners insurance. There are a number of reasons for this but the most important one is that your lender will want your home rebuilt in case of catastrophe.
Your lender's mortgage is collateralized against the home, after all. Without the home, the mortgage has little value.
By requiring homeowners to carry insurance for at least the cost of rebuilding the home, then, the lender and homeowner are both protected from disaster.
Proper coverage will protect against foreclosure after a tornado, hurricane, or earthquake, as examples.
Homeowners insurance policies are comprised of six types of coverage, generally. These six components are :
Your homeowners insurance policy may include some, or all, of these pieces. In general, the more coverage you keep, the higher your annual premium.Click to see today's rates (May 29th, 2016)
Also like auto insurance, the cost of homeowners insurance will depend on your policy traits.
Your local crime rates affect what you pay for hazard insurance, for example, because with more crime in the area, your potential for loss is greater.
Similarly, the closer your home is to a police station; a fire station; and, water supply, the lower your insurance premium can be expected to be.
Beyond the amount of coverage you seek, and the policies you choose to carry, there are five key factors which can affect your final policy costs.
Deductible choices typically range from $250 to $1,000, although some insurers offer options on either side of that scale. Choose an appropriate deductible for your financial situation.
Also, for added savings, note that some insurers offer multi-policy discounts to their customers. This means that if you insure your automobile and home with the same insurer, you may be eligible receive a discount on both policies.Click to see today's rates (May 29th, 2016)
There are two ways to pay your annual homeowners insurance premium. You can elect to pay it once annually, in cash, to your insurer. Or, you can elect to pay it as part of your mortgage, one month-at-a-time.
Paying your insurance as part of your mortgage is known as "escrowing" your insurance, a process which is optional for some homeowners and mandatory for others.
In general, escrowing your insurance is optional if your mortgage is conventional (i.e. via Fannie Mae or Freddie Mac) and your downpayment or home equity is twenty percent of the home's value or greater.
Homeowners choosing to optionally escrow their homeowners insurance can typically negotiate lower mortgage rates or loan fees with their lender. In some instances, banks will require the escrow of real estate taxes, too, but not always.
Homeowners insurance is the "I" in PITI, a term which represents a person's total monthly house payment.
Note that your mortgage may also require private mortgage insurance (PMI) or a mortgage insurance premium (PMI) as required by the FHA, for example.
Mortgage insurance payments are can be considered part of the "insurance" payment in your PITI.
Homeowners insurance, like mortgage rates, vary between companies. Comparison shop for the best rates and programs which meet your household needs. Buy what you need for the best possible coverage.
Take a look at today's real mortgage rates now. Your social security number is not required to get started, and all quotes come with instant access to your live credit scores.Click to see today's rates (May 29th, 2016)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2016 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)