There three types of home insurance to know about insurance when buying a home.
Title insurance comes in two varieties: a lender’s policy and an owner’s policy. If you take out a mortgage to purchase the home, your lender will require that you purchase a lender’s policy to. This policy protects the lender from anyone else who believes they have a claim against the property.
Your mortgage lender will require title insurance when you buy or refinance a home. Either the buyer or the seller can pay for this policy in Texas. This policy protects the lender´s investment by paying the mortgage (loan amount) if a title defect voids your title.
When you buy a house, the title company also issues an owner´s policy, unless you reject it in writing. The owner´s title policy protects you against the covered risks set out in the policy. The price of a “mortgagee” title policy, which protects the lender, is part of the closing costs on your real estate deal. Most home closings in Texas will completed at the office of a title insurance agent.
Important note: You are not required to use a title company selected by the builder, real estate agent or mortgage lender. The issuance of either policy is based on research of the property’s title, or the “chain of title” to insure that the property does not have any “clouds”.
Should any problems (clouds) be found on the title, they will need to be remedied before the purchase can be completed.
Once the policy is in place, the lender (and you, if you purchase an owner’s policy) is insured against unknown heirs coming forward claiming ownership, forged signatures on the deed, mistakes in the public records, and other hidden hazards.
Homeowners insurance is also referred to as hazard insurance. If you take out a mortgage to purchase the home the lender will require that you purchase homeowners insurance.
Types of coverage will vary but most policies will cover the basics: fire damage or loss, theft, wind damage, hail damage, and vandalism. Flood and earthquake damage are usually not covered but there may be supplemental insurance that you can purchase to cover these hazards.
Private Mortgage Insurance
PMI (Private Mortgage Insurance) is required of borrowers whose down payment is less than 20 percent. If there wasn’t any PMI available, then every borrower would be required to put down a minimum of 20%. Since lenders consider borrowers who put down less than 20% a higher risk, the lender needs assurance that it will get its money should the borrower default on the loan. PMI is paid as part of the monthly house payment.
Conventional loan borrowers can request a cancellation of the private mortgage insurance once the loan balance reaches 80 percent of the original value of the home. Borrowers with an FHA-backed loan, who put down less than 10 %, are stuck into paying mortgage insurance premiums for the life of the loan. Borrowers who pay more than 10 percent, but less than 20 percent, can cancel the mortgage insurance in 11 years.
The best people to speak with if you have questions about any type of insurance required during the home-purchase process are your lawyer, your real estate agent and your insurance agent.