Like so many things in real estate, the answer to this question is, it depends.  If you are buying a single family home, you will need three kinds of insurance. 

The first is called HOMEOWNER’S OR HAZARD insurance.  This insurance protects you and the mortgage lender against bad things happening to the home.  For example, your home is in a hailstorm or a fire and part of the home is destroyed.  Or your home is vandalized.  This is the insurance that helps you repair the damage and put the home back in like-new condition.  If you buy a townhome or a condo, you might pay your monthly insurance premiums in your association dues.  Otherwise, you will pay your monthly premium as a part of your house payment.

The second is called TITLE insurance.  You pay a one time premium when you buy the home and the insurance is good for as long as you own the home.  This insurance protects your lender and you against any errors or fraud in transferring the title of the home to you.  It also protects you against claims of others against the property in the future. 

The third is called MORTGAGE insurance.  We have talked about this type of insurance in another blog so read up on what it does there.  Your premium is paid as a part of your monthly house payment.  All these insurances are intended to protect you and your home.  We hope you never have to file an insurance claim but if you do, you are covered.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.

Mortgage money comes from banks, investors and mortgage companies.  However, mortgages differ in how they are insured against default.  Let’s say you are applying for an FHA mortgage.  The money can come from US Bank, Wells Fargo, Residential Mortgage Group, Countrywide Mortgage etc.  The bank’s mortgage will be INSURED by the Federal Housing Administration or FHA. 

This is a government mortgage insurance program which is paid for by fees collected from the Home Buyer.  FHA insures the bank so that if the home goes into foreclosure because the buyers are unable to make house payments, FHA makes good the losses suffered by the bank.  This insurance is why banks will loan you money with only 3.5% down payment, the amount FHA requires for its loan program.  Banks know they can’t lose money on the loan because it’s insured by FHA.

The home buyers pay FHA an insurance premium collected at closing.  Currently, this is 1.75% of the purchase price and it’s added into the mortgage loan and financed by the bank.  The other fee is a monthly premium which is .55% of the outstanding loan balance divided into 12 monthly payments.  So you pay mortgage insurance at closing, when you pay for your new home, and monthly thereafter.  FHA fees and rates are considered very competitive with conventional loan programs.

 For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.