Search Deals on Preforeclosure Properties!

 What is homeowners' insurance? 

Your home itself serves as collateral for the mortgage lender. Should something happen to your home, the lender needs protection (in the way of homeowners insurance) so they will not lose money on their "investment."

You can apply for a loan without proof of homeowners insurance but you cannot close on your house without proof of insurance. Typically, a lender (your mortgage company) will need proof that you have purchased home insurance coverage (through a binder) along with a copy of your paid receipt.

NEED VERSUS REQUIRED - Discuss the difference with your agent. What is required by law may very well not cover your needs - i.e. comprehensive coverage, flood insurance, earthquake coverage, Complete Risk Coverage, Personal Liability Umbrellas (see below). Insufficient protection could destroy your family financially. The type of your homeowners' policy is dependent on a number of different variables:

Principal Amount Owed/Borrowing - If a lot of money is borrowed, the usual basic home insurance policy may not be sufficient. You may need to obtain comprehensive insurance - your insurance agent will provide information if this is required.

Type of Mortgage - A 30-year mortgage (versus a less specified number of years) may have higher insurance requirements in that the mortgage lender will have to wait longer to receive the money that you owe them.

Home Value and Type of Home - Expect to pay even more for your policy if your home was extremely expensive to build (which equates to extremely expensive to replace or repair).

Home Location - If your home is located in an objectionable or extremely affluent area, your mortgage lender may require more expensive or comprehensive coverage.