Real Estate · Uncategorized

What is the difference between mortgage insurance and home insurance?

Sometimes my clients get confused with the difference between the types of insurance products that are part of a home loan. So to clarify the difference between them, I have summarized the difference between the two types of insurance policies.
Mortgage insurance is a fee that the buyer pays to insure the lender in case they default on the mortgage. This fee is needed if the buyer invests less than 20% in the property or obtains a FHA loan. As of June 2013, a buyer will pay the mortgage insurance for the life of the loan on a FHA loan. On a conventional loan the buyer will pay mortgage insurance until the value of the property reaches a 80/20 value rating. If a buyer purchases a home on a conventional loan with less than a 20% investment for below market value and then improves the property significantly (maybe a foreclosure) it would be advisable to get a market analysis to see if the property has a 80/20 value rating after the improvements. This can save the buyer significant money.
Home Insurance protects the home owner from the perils of nature and thief. It is required by the mortgage company if a loan is on the property. And personally I am not sure why you would not have home owners insurance even if your home was paid off. It is a protection for your investment. You will want to shop around for insurance as premiums and what they cover can drastically differ from company to company. Home insurance does not cover everything. One thing that it does not cover is flooding. If your home is in a designated flood zone, you will need a separate flood policy.
If you have questions regarding real estate, please feel free to contact me at 405-213-2992 or visit my website http://www.sandiwalker.net

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