Ask an Agent: What Type of Insurance Do I Need When I Buy a Home?

August 19, 2009
1 Comment

by Mark Wellborn

In this week’s installment of Ask An Agent, a reader inquires about the types of insurance he will need after buying a home. Brian Block of RE/MAX offers up some insight.

Question: What type of insurance will I need to purchase once I buy a new home? I am currently renting and have renter’s insurance at a low monthly rate, but was wondering if there is a similar type of insurance for when I own. I also hear that I need mortgage insurance, and am not sure what that means. Thanks for your advice!

Answer: When you purchase a home, you should be aware of several different types of insurance and you may need to purchase each depending on the type of home you buy. They include: 1) Homeowner’s insurance 2) Mortgage insurance and 3) Title insurance.

Since you are currently renting, you’re familiar with renter’s insurance, which covers issues arising from theft, fire, or personal liability within your leased apartment. With your new home, you will purchase a similar policy except it will be called homeowner’s insurance. Typically, homeowner’s insurance is not very expensive, it’s required by your mortgage lender, and it’s well worth the price and peace of mind. Your monthly or yearly premium will cover your home against theft, flood, fire, natural disasters, etc. It will also provide you coverage in case somebody slips and falls on your property and sues you.

Mortgage insurance (often abbreviated as PMI — private mortgage insurance) may be necessary if you are buying a home with less than a 20 percent down payment. Mortgage insurance protects the lender against a default (non-payment) by the borrower (you). Once you’ve paid down the principal on your mortgage or your property has appreciated so that you have 20 percent equity in your home, you will no longer need to maintain the mortgage insurance. Additionally, there are certain ways to avoid having to pay this type of insurance, including taking out more than one mortgage or a home equity loan to cover a portion of the down payment.

The third type of insurance is title insurance. This protects you from claims against the title to your new home from previous owners or third parties claiming to have a right to the property. These issues can arise if your home was previously transferred fraudulently, there were liens that were unpaid, encroachments on the land, etc. Title insurance is a one-time charge (no ongoing premiums) that is paid at settlement. There’s lender’s title insurance (mandatory) and owner’s title insurance (optional). For more information on this type of insurance, click here.

This article originally published at http://dc.urbanturf.com/articles/blog/ask_an_agent_what_type_of_insurance_do_i_need_when_i_buy_a_home/1249

1 Comment

Katie Wethman said at 4:18 pm on Thursday August 20, 2009:
Great summary. It’s also worth noting that if you’re buying a condo, the association will typically have a “master insurance policy” that covers the building itself, including your unit, and the premium for that is already included in your monthly condo fee. It does NOT, however, cover your belongings—you’ll need a condo rider that operates similar to a renters policy for that.