What You Need to Know About Mortgage Insurance

Posted in Mortgage by Michigan Real Estate Expert on February 15th, 2018

What You Need to Know About Mortgage Insurance

Homeowners insurance and title insurance may not be the only kinds of insurance you need when you buy a home. Many buyers also have to purchase mortgage insurance, which lenders require for mortgages with a down payment of less than 20 percent. Take the time to understand what you’re buying and how long it will affect you.

Mortgage Insurance Protects the Lender

Most types of insurance will pay you if you make a claim. Mortgage insurance, though, is solely for the lender. If you were to stop making payments and the lender foreclosed on your home, the mortgage insurance would pay the lender the difference between the profit from selling your home and the amount you still owed on your mortgage.

Types of Mortgage Insurance

When you have a mortgage with a traditional lender, you get private mortgage insurance, often abbreviated PMI. This insurance is provided by a third party, although your lender will typically dictate who provides the insurance. When you get an FHA mortgage, the federal government provides the mortgage insurance and you pay mortgage insurance premiums, often abbreviated MIP.

Mortgage Insurance Amount

You can generally expect to pay 0.5 percent to 1 percent of your loan balance each year for private mortgage insurance. FHA mortgage insurance premiums are set by the federal government, and as of 2017, are 1.75 percent of the loan balance up front, plus 0.45 percent to 1.05 percent of the loan balance each year, depending on the type of loan.

How to Stop Paying Mortgage Insurance

FHA loans have mortgage insurance until the loan is paid off, either through regular payments or by refinancing. Traditional loans automatically cancel mortgage insurance when you have reached the point on your amortization schedule where the loan balance drops below 78 percent of the purchase price. You also may be able to apply to cancel mortgage insurance as soon as your loan balance is less than 80 percent of your home’s current appraised value.

How Can You Get Around Paying Mortgage Insurance?

When purchasing a home, the only way to avoid having to buy mortgage insurance is to get a mortgage for less than 80 percent of the home’s purchase price. However, the cost of mortgage insurance may be something you’re willing to pay for the opportunity to buy now without a down payment of 20 percent.

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What Types of Coverage Are Included in Standard Home Insurance Policies? Let’s Take a Look

Posted in Around The Home by Michigan Real Estate Expert on September 21st, 2016

What Types of Coverage Are Included in Standard Home Insurance Policies? Let's Take a LookEvery insurance policy is different and can provide certain levels of protection tailored towards the needs of the policy holder. However, there are some standard types of coverage that are included in most basic home insurance policies.

Basic Levels Of Protection

Most homeowner insurance policies will include some basic levels of protection and coverage. The main dwelling will be protected from many forms of damage and the insurance company will pay to repair the damaged dwelling. This will extend to other smaller structures on the property, like sheds and separate garages, but the level of coverage will differ.

Damage is one important aspect of insurance, but protection for personal belongings is equally important and is also included in a standard home insurance policy. The monetary value of items in the home will be covered in case of damage or theft, so it’s a good idea to keep track of valuables. Every insurance company will have a different limit on the amount covered, so it’s wise to compare the value of belongings against the level of coverage.

The third aspect of home insurance policies is liability protection. This will cover any personal injuries that are incurred on the property by people who do not live there. It may seem silly, but having protection in case of a lawsuit can go a long way to saving a family financially as attorney fees and medical bills add up.

What Is Not Included?

Although each insurance company has different policies that cover different parts of the home, almost all of them do not include one important aspect in their policies. Damage caused by floods, earthquakes and war will not be included in most standard home insurance policies and may be important depending on the geography of the area.

Another important note is that flood damage does not just apply to natural flooding in the region, but will also include water damage from broken pipes or backed up sewage lines. It’s an important distinction because many first-time home owners assume this water damage will be covered under their basic insurance policy.

The right insurance policy can be difficult to figure out for first-time home owners. There are many questions to ask about the property to determine the right policy and it’s a good idea to consult your local real estate agent to get their insight into what additions may be needed.

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The 5-Minute Guide To Flood Insurance: What It Is, How It Works, And Whether You Need It

Posted in Real Estate by Michigan Real Estate Expert on August 22nd, 2014

The 5-Minute Guide to Flood Insurance: What It Is, How It Works, and Whether You Need ItYou’ve got house insurance, and assume your property is covered for any type of detrimental occurrence that can possibly take place.

However, not all homeowners are aware that home insurance policies don’t necessarily cover damage related to a flood, as the risks are too great. As a result, homeowners must purchase flood insurance through a private company.

Floods are one of the most common hazards in the US, costing billions of dollars in damage to properties every year.

Since this is a common issue lately, the federal government updating these policies currently so please talk with your real estate professional or local insurance company for the most up to date information.

What Is Flood Insurance?

Flood insurance policies are typically made available to homeowners in flood-prone areas. The majority of insurance policies cover some form of water damage, from things like leaking faucets to bursting plumbing pipes.

However, such policies don’t cover water damage as a result of flooding of rivers or sewers that cause water to ruin a home.

Specific flood protection is provided by the National Flood Insurance Program (NFIP), which is run by the Federal Emergency Management Agency (FEMA). Standard flood insurance policies cover “direct physical damage” to a property resulting from floods.

A separate policy must be purchased to protect the belongings inside the home or building. Homeowners can buy up to $250,000 in coverage for the home, and up to $100,000 in coverage for possessions. Even renters are permitted to purchase flood insurance to cover their possessions.

How Does Flood Insurance Work?

Flood insurance isn’t sold by FEMA directly, but rather is sold to customers through private insurance agencies. Premium rates are determined by the government, and they remain consistent from one insurer to the next.

How much a homeowner pays for their own specific flood insurance depends on a number of factors, including how prone the neighborhood is to floods and how much coverage a homeowner wants. The average annual premium is approximately $520 for $100,000 worth of coverage for a property with no basement, and approximately $615 annually for a property with a basement.

Filing A Flood Insurance Claim

The claims process is like any other insurance claim. Once the claim is filed, the damage will be analyzed by an adjustor assigned by the insurance company. A “proof of loss” form will need to filled out and submitted to the insurer within 60 days of the flood occurrence.

Do You Need Flood Insurance?

It’s necessary to find out if you are eligible for flood insurance before buying it. For residents of a community to be eligible, the community needs to enforce floodplain statutes to lessen the chances of flood damage, after which FEMA ensures that such regulations are followed.

Only those who reside in a community that participates in NFIP can buy insurance – today, about 20,000 communities across the country participate in this program.

FEMA offers maps that outline what areas are at high risk for floods, and those that are at moderate-to-low risk. The law requires homeowners to have flood insurance if the properties are located in a high-risk zone and have a federally-backed mortgage. This is because properties located in these high-risk areas have a 26 percent chance of suffering flood damage during the 30 years that it would take to pay off a mortgage.

Homeowners are not required to buy flood insurance if they reside in a moderate-to-low-risk zone, though it may be a good idea to purchase it anyway. Properties outside the high-risk areas make up over 20 percent of NFIP claims. Homeowners in these areas can purchase up to $200,000 in flood insurance.

The bottom line is, even if you don’t necessarily live in a high-risk zone, this doesn’t mean your home won’t ever get flooded. Many conditions can result in flood damage, including clogged drain systems, flash rainstorms, and damaged levees.

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