Is home insurance required to get a mortgage?
Whether you are buying a home for the first time or you have done it before, the process of acquiring a new home is very interesting. This is because owning a home is the best investment you can make for you and your family. When buying a home, there are several factors you need to put into consideration, especially if you need financing. One of the requirements to get a mortgage is to have home insurance. Many lenders cannot give you a mortgage without showing proof of homeowners insurance.
What is home insurance?
Home insurance is a cover that you rely on in case a disaster strikes. For example, if a fire destroys your house, your personal belongings or visitors at your home are hurt, the insurance will pay for the damages and the costs. Other disasters that are covered by home insurance include storm, theft, and others listed on the policy.
When taking a mortgage, the lender will need you to have home insurance to guarantee the property is well protected. However, the main reason for having home insurance is to protect your investment. There are several factors that can affect your home insurance rates. Some of them include
• Location of your home – where the home is located can determine whether you will pay expensive or cheap premiums.
• Feature and characteristics of your home – structure type, age or extra features can affect your insurance rates.
• Protective features – if you have added security features in your home, you can get a discount on home insurance.
Why is home insurance a requirement of getting a mortgage?
Before you get a new home, you need to get homeowners insurance. The house needs to be insured before the lender funds your investment. There are several reasons why mortgage lenders need you to have the cover. But the main reason is that you may be able to repay your mortgage even after the disaster.
In any case, most people cannot manage to repay the mortgage if they are not living in the house. But when the insurance company helps to repair the house after a calamity, the homeowner can continue paying for the mortgage.
If you live in a place that is prone to earthquakes or flooding, the lender might also ask you to have earthquake insurance or flood insurance. Nevertheless, once you finish paying the mortgage, it is not mandatory to have the insurance. However, you need to understand that homeowners insurance is a policy that is designed to protect your home in case of a disaster. Hence, you need the cover to avoid losing your investment.
Can forgetting to get home insurance can upset your closing?
It is essential you start shopping for home insurance the moment you open the escrow when purchasing a home. Failure to buy the insurance on time case can delay your closing. Also, lenders have set a minimum amount of the insurance cover you need to have before you can get the mortgage. Therefore, do your research to establish the best homeowner insurance policy for your home.