What is homeowners insurance?
Homeowner’s insurance is designed to protect your home. It is also known as hazard insurance, or fire insurance. While the lender requires this coverage, you determine which insurance company will carry the policy. Homeowner’s insurance premiums are either paid directly to the insurance agency or by your lender through an impound/escrow account.
Arguably one of the most important investments a person can make his or her lifetime is purchasing a house. In order to protect that investment, most mortgage companies require that the home buyer also purchase homeowner’s insurance. Understanding what homeowner’s insurance is, and what it can and can not do, is important to protecting such a valuable investment.
It is insurance that protects a homeowner against loss from fire and other hazards that may impair the value of their home. “Is homeowners insurance a settlement cost?” Yes, it appears on the Good Faith Estimate as an estimated amount, and the actual amount is shown on the HUD1, which is the closing document that lists all settlement costs. It is not a mortgage cost, but lenders require that their “minimum insurance requirements” be met before they will fund a loan. The house is their collateral, and they dont want to lose it to a fire or other catastrophe. The insurance requirements vary from lender to lender but on a house purchase, most require that the premium be paid for the first year at closing. If the borrower is maintaining an escrow account, an additional amount equal to several months of premiums must be paid to fund the account. Can I shop for homeowners insurance on my own? You can and you should. Homeowners insurance is a lot easier to shop for than a mortgage because pre
