What Insurance Protections Might be Needed During Mortgage Financing?

Mortgage and Lending with NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 IL Lic 031.0006220/WI
What Insurance Protections Might
Be Needed During Mortgage Financing?
The buying and financing of a home can seem like a pretty detailed and confusing process at times.  As a result, it's vitally important that new buyers and those refinancing thoroughly understand the process they're entering and being asked to navigate prior to making decisions.
As a Mortgage Lender, I've found that some of my clients are confused regarding different forms of insurance that they may be required to secure and hold while obtaining their financing.  

The following is the information I share with my clients in  Chicagoland - IL/WI to assist them with their mortgage and insurance decisions. 
The provided information covers an exploration of each form of insurance (and what protections it offers, etc.).  I hope it proves helpful to you, should you be entering or considering the home buying and mortgage process.

There are 4 types of insurance that are most often required by Mortgage Lenders when financing a home.  Those are:

  1. Homeowner's Insurance (Borrower Generates)
  2. Private Mortgage Insurance (with <20% down)
  3. Title Insurance (Ordered by others)
  4. Flood Insurance (only if in a Flood Plain)

Homeowner's Insurance defined:  Homeowners insurance is a form of property insurance that covers losses and damages to an individual's house and to assets in the home. Homeowners insurance also provides liability coverage against accidents in the home or on the property.

Private Mortgage Insurance defined:  Private Mortgage Insurance, often referred to as PMI, is insurance provided by a private mortgage insurance company.  The insurance protects Lenders against loss (to an 80% Loan Limit) if a borrower defaults on their mortgage.  This, in turn, enables Lenders to offer financing options to Borrowers making smaller down payments.   (Mortgage Insurance is provided and available through several privately-owned companies.)  

Title Insurance defined:  Title insurance is a way to protect yourself from financial loss and related legal expenses in the event there is a defect in title to your property that is covered by the policy. Title insurance differs from other types of insurance in that it focuses on risk prevention, rather than risk assumption. 

With title insurance, title examiners review the history of your property and seek to eliminate title issues before the purchase occurs. Title insurance comes with no monthly payment. It’s just a one-time premium paid at closing.

Flood Insurance defined:  Flood insurance is a type of property insurance that covers a dwelling for losses sustained by water damage, as it specifically relates to flooding. A separate coverage rider is needed to cover sewer backup if the backup was not caused by the rising floodwaters. In some places, this is considered a major event if you do not get supplemental insurance.

Homeowner's Insurance is required by most Lenders in almost all states in every transaction.  Homeowner's Insurance is a cost paid by Buyers to cover the home being purchased or refinanced.  This insurance's payment is typically quoted in annual payment amounts but paid monthly by the Borrower via the escrow portion of their monthly payment.

Borrowers purchase their own Homeowner's Insurance after seeking quotes from Insurance Providers.  The Mortgage Lender normally has minimal requirements regarding Homeowner's Insurance coverage, so it's important that Borrowers are aware and seek coverage that will satisfy those minimal coverage needs.  

Once a Borrower determines its insurance company of choice, the Mortgage Lender and insurance company/agent coordinate together to finalize the Insurance Policy.  A "Certificate of Insurance" or Declaration Page must be sent to the Lender as proof of coverage.  Often proof of the first year's insurance premium being paid is needed as well.  

The monthly Homeowner's Insurance escrow payment is determined by dividing the Homeowner's Annual Premium by 12 (12 months).  As a result, most mortgage payments end up with the following monthly components:

  • Principal & Interest (Repays the Home Loan)
  • Homeowner's Insurance (Escrow payment calculated as explained above)
  • Real Estate Taxes (Calculated in the same manner as HOI)
  • Private Mortgage Insurance (PMI ... if needed)

Private Mortgage Insurance (PMI) is completely different from the Homeowner's Insurance.  PMI is required for those home buyers that purchase their home with less than 20% Down Payment.  

Mortgage Lenders can select Private Mortgage Insurance options from a variety of Mortgage Company Insurers.  In essence, the originating Mortgage Lender can "shop" for the best price (lowest costing) option for the Home Buyer (the Borrower).  

The following factors are what are used by Lenders to determine the eventual "premium" paid by a Borrower ... paid (typically) in the form of a monthly charge and typically included by the Mortgage Lender in the Monthly Mortgage Payment (see above breakdown).

  • Borrower's Credit Profile
  • Debt-to-Income Ratio
  • Loan-to-Value 
  • More ...

Title Insurance is "updated" each time a property is bought/sold.  Issuance of a Title Policy occurs after thorough research is completed on a property.  

The research is conducted to make sure that there are no pending legal issues, record defects, unpaid taxes, errors regarding ownership or undisclosed deeds do not exist on the property being transacted ... and that the Title is what they call "clean".

Two Title Insurance policies are involved in the typical transaction.  One is the Owner's Policy.  The other is the Lender's Policy.  

The Lender's policy must (at minimum) cover the amount of monies being borrowed.  It must also contain an endorsement naming the Mortgage Lender first in line for repayment, should a home enter foreclosure.  As noted above, the cost of Title Insurance is paid at the time of Closing and is a one-time charge.

Note:  It is important for Borrowers to be aware that many Title Insurance companies exist and that title costs can vary greatly between them.  

While Flood Insurance can be carried on any property, it is required on properties located within a designated flood zone and being financed by a federally backed mortgage.  

It is the Federal Emergency Management Agency that actually maps the flood zones located across the country.  FEMA also assesses and "rates" flooding risk and intensity by zone. 

However, it is the National Flood Insurance Program (NFIP) that regulates the prices for flood insurance policies, so the cost for a policy will not vary between sales agents.  

The cost of a flood insurance policy is based on:

  • Property Location Zone
  • Property Age
  • Number of Floors located on Property 
  • More

With so many different types of insurance that may be required within a transaction, it is easy to understand why borrowers can get confused ... especially when a first-time homebuyer.   

It highlights and escalates the importance of finding and working with a Mortgage Lender that will take the time to answer questions and educate borrowers regarding all facets of the mortgage process.

Armed with the knowledge you need and the right lending professional at your side, you can rest assured that you are gaining the information and guidance you need to make the best decisions regarding your insurance decisions and home financing ...
* Hoping to buy or refinance a home or investment property in New Lenox - Will County or elsewhere in the Chicagoland - IL - WI area?

Contact me today. I'll put my 40+ years of mortgage experience hard to work on your behalf.
I'm easily found at:

Gene Mundt
Mortgage Lender - NMLS #216987 - IL Lic. #0006220 - WI Licensed
American Portfolio Mortgage Corp.
NMLS #175656
Direct: 815.524.2280
Cell/Text: 708.921.6331
eFax: 815.524.2281
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Gene Mundt

 Mortgage Originator  -  NMLS #216987    

                                 IL Lic. #031.0006220  -  WI License #216987                                                                                                    

NMLS #175656


Gene Mundt, Mortgage Originator,  40+ years of #mortgage experience, will offer you exemplary mortgage service and advice when seeking:  #Conventional, #FHA, #VA, #Jumbo, #USDA, and Portfolio Loans in #Chicago and the greater Chicagoland region, including:  The #Lincoln-Way Area, #Will County, (#New Lenox, #Frankfort, #Mokena, #Manhattan, #Joliet, #Shorewood, #Crest Hill, #Plainfield, #Bolingbrook, #Romeoville, #Naperville, #Wilmington, #Peotone, etc.), #DuPage County, the City of Chicago, #Cook County, and elsewhere within IL and Wisconsin. 


Your Referrals & Testimonials are Always Greatly Appreciated! 




Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Roy Kelley 01/04/2020 01:00 AM
Lending / Financial
Illinois Will County New Lenox
1st Time Buyers
Advice for Buyers
title insurance
homeowners insurance
flood insurance
private mortgage insurance
talk to a lender
insurance protection

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Roy Kelley
Realty Group Referrals - Gaithersburg, MD

This is important information to share with prospective home buyers.

Happy New Year!

Dec 30, 2019 09:07 AM #1
Nina Hollander
Coldwell Banker Realty - Charlotte, NC
Your Charlotte/Ballantyne/Waxhaw/Fort Mill Realtor

As always, Gene, a great explanation of another aspect of the mortgage process. I've found that if people don't seem to really know one of those insurances, it's title insurance and what it provides and why.

Dec 30, 2019 10:07 AM #2
Patricia Feager, MBA, CRS, GRI,MRP
Selling Homes Changing Lives

Gene - I liked how clearly you provided education about home insurance when buying a home. There's no mistake, buyers need to become educated and understand what their expectations are and you accomplished the process with explanations thoroughly and effectively. 

Happy New Year!

Dec 30, 2019 10:11 AM #3
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Good afternoon Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi - this is a very well laid out explanation of insurance.  One misunderstanding can be costly.

Dec 30, 2019 01:01 PM #4
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Gene I often find that Borrowers confuse Homeowner's Insurance with Private Mortgage Insurance.  I think it is because most just know Private Mortgage Insurance as PMI, so when they see it spelled out on an LE or CD they don't associate it with PMI until I make them aware of it.

Dec 30, 2019 01:23 PM #5
Debe Maxwell, CRS
www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
The right Charlotte REALTOR!

WOW! A great explanation, Gene and as always, it should be something we all bookmark and share with our clients - a mortgage handbook from brother Gene Mundt! 

Dec 30, 2019 01:50 PM #6
Kris Collis, Associate Broker
Smart Way America Realty - East Stroudsburg, PA
Professional Results you Expect 702-574-8102

A bookmark for this post Gene.  A concise explanation for a simple yet critical concept that is often overlooked by buyers.  Agents can easily adopt this summary in preparing their clients.

Dec 30, 2019 08:57 PM #7
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Thanks for such a thorough explanation of a complex as heck issue sometimes. :)

Dec 30, 2019 09:59 PM #8
Wayne Martin
Wayne M Martin - Chicago, IL
Real Estate Broker - Retired

Good morning Gene. What an excellent outline on insurance involved in home ownership. Thanks! Happy new year. Enoy your day! 

Dec 31, 2019 05:22 AM #9
Rob Spinosa
Guaranteed Rate, Marin County, CA - San Anselmo, CA
SVP of Mortgage Lending, Marin County

Great, informative post, Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi.  Not to be outdone, here in CA, we also get asked about earthquake insurance.  It is not a required coverage in a purchase, but some will opt to insure against this risk anyway.

Happy New Year!

Dec 31, 2019 08:04 AM #10
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

Gene continues to be like a 7-11 of the mortgage world. Close and standing by, convenient, has what you want and easy to access. Got Gene? That's all you need

Dec 31, 2019 10:07 AM #11
Raymond Henson, SRES, GRI
eXp Realty of California, Inc. (lic. #01878277) - Elk Grove, CA

Very good overview of insurances needed in a real estate transaction.  Thank you.

Dec 31, 2019 11:24 AM #12
Shirley Coomer
Keller Williams Realty Sonoran Living - Phoenix, AZ
Realtor, Keller Williams Realty, Phoenix Az

A great explanation of the types of insurance coverage which often confuses buyers!  I also find some are confused by a Home Warranty.  This is why buyers need an experienced real estate agent and experienced lender to guide them through the process and provide clear and concise explanations.

Dec 31, 2019 01:31 PM #13
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Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi

708.921.6331 - 40+ yrs experience
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