Avoiding a Homeowners Insurance Disaster
When You Apply for a Mortgage
When buying and financing a home, prospective Borrowers are required to produce a variety of documentation and information to their Lender at the time of application and prior to the Closing of their loan. In almost all cases, Homeowners Insurance is included within that documentation requirement.
What service does Homeowners Insurance provide? Why is that service so important?
Homeowners Insurance policies offer multiple types of protection and coverage to an insured borrower/home owner. Those include:
- Coverage on the STRUCTURE of the home
- For PERSONAL BELONGINGS
- LIABILITY protection
- LIVING EXPENSES, should the homeowner be displaced from their home because of disaster
How is Homeowners Insurance paid for?
You've probably heard or seen the acronym, "PITI" when reading and learning about mortgages and monthly payments. This is especially true if you're a first-time home buyer. "PITI" equals all portions of a monthly mortgage payment.
PITI stands for:
Homeowners Insurance makes up the 2nd "I" within that acronym.
The escrow is established at the time of the Borrower's Mortgage Closing. Escrow Accounts must be established if a Loan-to-Value is greater than 80% (meaning a Borrower made a Down Payment on their home purchase of less than 20%).
But once again, escrow payments for Homeowners Insurance only take place once the first year's insurance premium is paid prior to/at Closing ... and an escrow account is established to pay for future premiums.
How much coverage does a Mortgage Lender require on a Homeowner Policy?
- First: Pay off the outstanding mortgage debt
- Second: Or pay for needed repairs to restore the property
- Third: Go to the Borrower/Owner
It's clear that Homeowners Insurance ... and proof of its annual premium payment ... is vitally important. So much so, that a Mortgage Lender may not schedule your Closing without it.
Mortgage Underwriters may hold up a "Clear to Close" until it's received. It's certain that a Lender will not fund at the time of your Closing if this requirement is not successfully completed.
(Paying for Homeowners Insurance at the time of Closing, or before, is typical - but rarely, special allowances get made for cases to be paid afterward. Please ask me for further details regarding this.)
Be aware: Mortgage Lenders require that you carry Homeowners Insurance throughout your entire mortgage term. No lapses in coverage are allowed.
Should you not provide your Lender with a policy or should one lapse, they are allowed to buy insurance for you ... and charge you accordingly. They do, however, have to provide you advance notice of doing so.
I've found that Homeowners Insurance is one portion of the mortgage process that seems to stump or trip-up many of my clients. For that reason, I strongly suggest you act proactively and seek your Homeowners Policy as soon as requested.
Where do you start?
Contact your insurance agent. Should you or your agent require additional information regarding the requirements of your Homeowners Insurance Policy, contact me immediately. You don't want to run the risk of holding up your Mortgage Closing for something as simply arranged for as your Homeowners Insurance.
If you do not have a preferred agent: Please let me know. I'll be happy to refer you to an experienced, qualified Chicagoland insurance agent that can assist you with your insurance needs.
I hope this information proves useful to you as you head into your home buying and mortgage financing process. I look forward to talking with you soon and working together towards a successful Closing of your loan ...
* Hoping to Buy or Refinance a home in New Lenox, Will County, or elsewhere in the Chicagoland area? Contact me today! I'll put my 40+ years of mortgage experience and expertise hard to work on your behalf.
I'm easily found at:
Mortgage Originator - NMLS #216987 - IL Lic. #031.0006220 - WI #216987
American Portfolio Mortgage Corp.