Whether it’s your first home or your third, it’s always an exciting time to buy a new house. You’ve fulfilled the list of requirements put in place by the mortgage lender and gathered all necessary documentation. However, there’s one thing the lender always requires: buying a homeowner’s insurance policy.
Why is it required?
Your lender will require that you buy enough home insurance to cover the entire mortgage in the event something bad happens. As an example, if your home was wrecked or destroyed in a storm and you didn’t have a policy in place, your mortgage wouldn’t have much value, if any. A standard homeowner’s insurance includes hazard coverage (dwelling, other structures, and personal property coverage) and also covers your personal liability, medical payments to others injured in your home, and additional living expenses if you had to relocate.
Lenders require homeowners insurance to protect you and their investment so they don’t lose out on the remaining mortgage amount if your home is destroyed in a catastrophic event. Without homeowner’s insurance, you’d be stuck paying off the rest of the mortgage yourself. Inability to repay a mortgage loan can result in the lender/bank repossessing the house in something called foreclosure.
Minimum Amount Required
Minimum amounts can vary depending upon your lender, your location, and the age of your home. Once more, the lender’s primary concern is protecting their investment and they want to make sure your home is entirely covered. Typically, you’re required to buy enough hazard insurance to cover the amount of the loan. Additionally, if you live in an area prone to hurricanes or tornadoes, your lender may specific that you add a minimum of wind and hail coverage. This rings true if you live in a floodplain or seismic zone; you’ll probably have to buy a minimum amount of flood or earthquake insurance.
Regarding the homeowner’s policy, dwelling coverage covers the structure of your home and reimburses you for rebuild costs if it’s damaged or destroyed. The monthly premiums you pay are mostly related to dwelling coverage. Your mortgage lender will expect your dwelling coverage to protect the home against, at the bare minimum, the following hazards:
- Fire and lightning
- Damage from wind and hail
- Theft and vandalism
- Falling objects
- Damage from weight of snow, ice, or sleet
- Frozen pipes
- Riots or civil unrest
- Smoke damage
Of course, there are other stipulations a lender can request on your policy.
All in all, mortgage lenders require the policy to protect them and to protect you. In this bustling North Texas market, having an insurance agent you can trust is key. At Ramey King Insurance, we’d love to have the opportunity to work with you to find the best coverage possible for your new home. Contact us today for more information!