Blog

Understanding Mortgage-related Insurance

Understanding Mortgage-related Insurance

June 3rd, 2020

When you buy a home with a mortgage, you will be required to pay all sorts of insurance, including homeowner’s insurance, title insurance and private mortgage insurance. What are all these policies and why do you have to pay for them?

Homeowner’s Insurance

Homeowner’s insurance is a policy that protects you against loss if your property or any structures on it are damaged. This covers damage from fire, storms, and vandalism. If you are unable to live in your home because of one of these issues, the insurance will also cover the cost of temporary housing while your home is repaired. Homeowner’s insurance policies also cover personal property inside the home up to a specified limit. If you have especially expensive items like art or jewelry you may need to take out a larger policy. One extra benefit of homeowner’s insurance is coverage for medical and legal expenses if someone is injured on your property and sues you. Homeowner’s insurance is typically split into monthly chunks and added to your monthly mortgage payment. It is held in your escrow account until payment comes due. It is also possible to pay for your policy in one lump sum each year.

Title Insurance

During the mortgage underwriting process, your lender will order a title search. This is a thorough background check on the property for any liens or other existing claims from former owners or banks. Once the title has been cleared, you can buy the property, but you will need title insurance to continue to protect you from any future claims. This happens most commonly with real estate scams. It is possible for someone to get your personal information and use it to sell your current home without your knowledge. They might also use your info to buy a new property. If anything like this happens, title insurance will cover the legal fees to contest such claims. It is usually paid in one lump sum at the close of the mortgage.

Private Mortgage Insurance

Private mortgage insurance, or PMI, is a policy that you, the homeowner, pays to protect the lender. If your down payment is less than 20%, you will be required to pay PMI to safeguard your lender’s investment in case you default. The policy will repay your lender up to 20% of the loan value if you go into foreclosure. This helps lenders have the confidence that they could resell your home quickly and recoup their origination fees and other costs. While it may seem annoying to have to pay for your lender’s financial protection, it does allow you the privilege of homeownership without having to save up a full 20% down payment.

PMI could cost between 0.55% and 2.25% of the loan value annually. This can be paid once a year in a lump sum or can be split equally each month and collected in your escrow account. The good news is that PMI can be cancelled after your home equity reaches 20% of the home’s value. This can happen faster than planned in hot real estate markets as home price appreciation grows quickly.

Homeowner’s insurance, title insurance and private mortgage insurance are all policies you may be required to pay at the closing of your home sell. Each has a separate purpose and helps to protect either you or your lender in the homebuying process.

Comments



Leave a Comment

Contact Us


Not readable? Change text.


docs

Required Documents

VA Loans

Veteran Loans

Disclaimer:
Prime 1 Bancorp, Ltd is not affiliated with any government organization or bank nor do we act on behalf of the FHA or VA. This material is not from HUD or FHA and has not been approved by HUD or a government agency. We are not a Federally chartered or State Chartered Bank. We are an we are an Illinois Residential Mortgage Licensee by the Office of Banks and Real Estate Lic #MB.6761138, a California CFL Licensed Mortgage Brokerage by Department of Business Oversights Lic #60DB055973, a Colorado Registered Mortgage Brokerage by Division of Real Estate, a Florida Residential Mortgage Brokerage Licensed by the Office of Financial Regulation Lic #MBR1930 dba Prime 1 Mortgage Inc, a Kentucky Mortgage Loan Broker Licensed by the Office of Financial Institutions Lic #MB729362, a Tennessee Licensed Mortgage Broker by the Department of Financial Institutions Lic #218020, a Texas SML Licensed Mortgage Brokerage by the Texas Department of Savings and Mortgage Lending, and a Wisconsin Licensed Mortgage broker by the Department of Financial Institutions Lic #1434638BR Prime 1 Bancorp, LTD Corporate Office is located at 2720 S. River Rd Suite 50, Des Plaines, IL 60018 our Toll Free Number is 888-205-3737. NMLS: 1434638

Loan product availability is subject to qualification of the borrower and loan approval after full review of the file. Not every applicant qualifies or is eligible for every loan program. Some loan products may not be available in all states. Loan approval, note rate and annual percentage rate are dependent on factors including, but not limited to, credit, collateral, income, assets and overall financial history. Not all applicants will be approved for a loan. All loan programs, terms and annual interest rates are subject to change without notice. NMLS: 1434638

Figure: 7 TAC §80.200(b)

"CONSUMERS WISHING TO FILE A COMPLAINT AGAINST A COMPANY OR A RESIDENTIAL MORTGAGE LOAN ORIGINATOR SHOULD COMPLETE AND SEND A COMPLAINT FORM TO THE TEXAS DEPARTMENT OF SAVINGS AND MORTGAGE LENDING, 2601 NORTH LAMAR, SUITE 201, AUSTIN, TEXAS 78705. COMPLAINT FORMS AND INSTRUCTIONS MAY BE OBTAINED FROM THE DEPARTMENT’S WEBSITE AT WWW.SML.TEXAS.GOV. A TOLL-FREE CONSUMER HOTLINE IS AVAILABLE AT 1-877-276-5550.

THE DEPARTMENT MAINTAINS A RECOVERY FUND TO MAKE PAYMENTS OF CERTAIN ACTUAL OUT OF POCKET DAMAGES SUSTAINED BY BORROWERS CAUSED BY ACTS OF LICENSED RESIDENTIALMORTGAGE LOAN ORIGINATORS. A WRITTEN APPLICATION FOR REIMBURSEMENT FROM THE RECOVERY FUND MUST BE FILED WITH AND INVESTIGATED BY THE DEPARTMENT PRIOR TO THE PAYMENT OF A CLAIM. FOR MORE INFORMATION ABOUT THE RECOVERY FUND, PLEASE CONSULT THE DEPARTMENT’S WEBSITE AT WWW.SML.TEXAS.GOV.