So you are about to buy a home. You are obviously excited, but signing the purchase agreement is just the start. If you plan on financing your home there are important insurances to consider before making the purchase because it will make a difference in your cost analysis. Here we will discuss two important types of insurance:
Homeowners and Mortgage Payment Protection Insurance.
This type of insurance is important to have because it protects you against losses or damages to your home, the contents of your home and the loss of the use of your home. The insurance also protects you against any liability for damages or injuries that might occur in your home or on your property. When you are financing your home it is important to take into account the homeowner insurance costs.
In the United States the mortgage lenders require that the home purchaser also have homeowner’s insurance. This is because if something happens to the home then the lender’s investment is protected. The physical home is not the only thing insured. The contents and other personal belongings can also be included, and this affects the total insurance cost.
Usually homeowner’s insurance is term insurance meaning that the coverage is good for a certain amount of time. It might correspond with the term of the mortgage. When the term is over then new insurance must be purchased.
Some home upgrades like fire alarms, security alarms and special window and door locks can help reduce the insurance premium. The premium is the fee that the insurance company collects on the insurance policy.
Mortgage Payment Protection Insurance
The second type of insurance to consider when financing your home is mortgage payment protection insurance. This type of insurance protects you if for some reason you are unable to make your mortgage payments. This could be due to illness, injury or unemployment. The cost of the policy depends on your age and the overall level of coverage required.
If you have sufficient savings you might not need this type of insurance, however, many times even a year’s worth of savings is not enough if your period of non-payment is extended.
Other factors to consider when choosing this type of insurance are the mortgage payment protection payout. There can be a waiting period of 31 to 60 from the date that you stopped working. You might be able to find some policies that pay retroactively from the date that you stopped working. Another thing to keep in mind is that the monthly payout of the insurance might be capped.
When financing your home purchase it is important to factor in the costs of insurance. The mortgage payments are your biggest cost, but insurance will affect you finances as well. On one hand you must insure the home, its contents and against liability. On the other you should insure that your mortgage payments will be made even if you are sick, injured or unemployed. The most important insurances to consider are homeowner’s and mortgage payment protection insurance.