Friday, February 5, 2016

What About Homeowners Insurance

   So you need to buy insurance to drive your vehicle, well the same is true about insurance on your home but you won't get a ticket for not driving it, you just won't get a mortgage loan. The name used for home insurance is 'Hazard Insurance' but mostly called homeowners insurance. Your homeowners insurance is used to cover minor incidents like a leaky roof, faulty plumbing or sometimes may deal with major damage from a storm or high wind.
   Hazard insurance most often is confused with Private mortgage insurance(PMI), which is the insurance you may have to get and is reserved for homeowners who do not have the required 20 percent down payment on their home purchase. No matter how much you put down on your home purchase if you want to be a homeowner you need to carry a homeowners insurance policy. 
   You may ask yourself why you need to have homeowners insurance? The only reason you need it is because lenders require that homeowners need to carry this insurance. There are several reasons why lenders require this but the main one is that your lender will need to have you rebuild your home in case of a catastrophic event that will make your home unlivable. If there is no home the mortgage has little or no value and the home is your lender's collateral. The requirement for carrying homeowners insurance for at least the cost of rebuilding is done to protect both the homeowner and lender from the disaster of complete loss or some heavy damage coverage. When the homeowner has proper coverage he will be protected against foreclosure after a tornado, hurricane or earthquakes although but in certain areas you may need extra insurance to cover certain exempted coverage. 
  Most Homeowners policies include six types of coverage. They may include: 

  • Dwelling: Includes coverage on damage to the home and attached structures 
  • Loss of use: Includes living expenses while your home is in repair 
  • Personal Liability: Includes protection against personal injury lawsuits which occurred on the property.  
  • Personal Property: Lost or stolen personal property  
  • Medical Bills: Payment of  medical bills of person injured on your property 
  • Other structures: Covers damage of non-attached structures  

   Generally the homeowners insurance will include all of the above an most likely will have more coverge for a higher annual premium. 
    So let’s look at how much this insurance will end up costing you. The policy traits will determine how much you will have to ante up. Like driving insurance and the area where you drive will affect the price and an example of higher rates would be higher crime areas because more crime means the potential for loss is higher. On the reverse side the closer your home is to a police station, a fire station, water supply, the lower you can expect your premium to be. 
    Depending on the amount you may want to pay and the policy you carry. The five characteristics that can affect your policy costs are: 

  • Age of Home: Generally the newer the home the less expensive 
  • Construction: Brick homes are usually lower than frame homes 
  • Service Proximity: The closer to a fire hydrant and fire station, the lower the costs 
  • Amount of Coverage: More coverage on personal items, the higher the costs 
  • Deductible Amount: Higher deductibles lowers annual premium costs 

   The deductibles can range from $250 to $1000 dollars, although some insurers offer options higher and lower than these amounts. You financial situation should determine your deductible amount. There are multi-policy discounts for added savings whereby you can bundle your auto and home insurance at a substantial discount for both policies. 
   Your annual homeowners insurance premium can be paid in two ways. You can pay it annually or can elect to pay it as part of your monthly mortgage payment If you elect to pay your homeowners insurance with your mortgage payment, it is known as 'escrowing'. This process is optional for some homeowners and mandatory for others. Normally if your home is a conventional loan through either Fannie Mae or Freddie Mac and your down payment was 20 percent of the amount of the loan then you have the option to pay it either in 'escrowing' or on your own. 
   Most of the time when homeowners choose to optionally escrow their homeowners insurance, they can usually get lower mortgage rates or loan fees from their lender. Real estate taxes will sometimes be required by some lenders to the escrow process along with the house payment and insurance. FHA or VA loans or loans with less than 20% down payment, the escrowing of homeowners insurance is a requirement according to mortgage guidelines. PITI a term used for the total monthly house payment of which the P is for principal (Amount of the loan), the I is for interest (interest charged), the T is for taxes (yearly taxes) and the I (hazard Insurance) is for insurance. This amount is amortized and then calculated over the length of the loan which is usually over 30 years and is calculated on a monthly amount. If your mortgage requires private mortgage insurance (PMI) or Premium mortgage insurance, these can also be considered as part of the PITI. 
   You need to shop around for mortgage rates or have your mortgage lender compare rates to get the best possible rates. The lender may need to lock in rates in order to assure that the rates are the lowest possible you can acquire. If your credit score is not in the best possible range you may need to buy down the rate. Your lender will give you options. Good luck with your home buying.

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