Becoming a homeowner for the first time can seem like a daunting task. There are so many details and many first-time homebuyers don’t know all the ins and outs of homeownership. It’s important to educate yourself and be prepared for what’s to come.  One aspect of being a homeowner is paying homeowner’s insurance. 

To understand how you pay for homeowner’s insurance, you need to understand your monthly mortgage payment and how it breaks down.  There are four parts to you mortgage payment: PITI.  This stands for principal, interest, taxes and insurance.  The insurance part of your payment can vary depending upon your loan type.  There are some insurances that are required when you obtain a mortgage, and others that are not.  It’s up to you to decide what you need and to do so, you need to understand what they cover.

Private Mortgage Insurance (PMI) will usually be required if you are putting down less that 20% on your home purchase.  But not all loans require PMI.  For example, a VA Loan does not require the borrower to pay PMI. It is replaced by an upfront VA Funding Fee.  Even if you are required to purchase PMI, once you have 20% equity in your home, it can be dropped.

Homeowners insurance is another requirement of getting a mortgage loan.  This is the insurance that protects your home in the event of fire, theft, or damage.  Depending on the insurance you choose, you may be covered for things like stolen jewelry and stolen or damaged electronics and/or furniture.  You must be able to provide proof of insurance to your lender before closing on your home.  This insurance not only protects you as the homeowner, but it also protects the lender in case of foreclosure or in the event of a disaster.  It is common for the lender to require you have at least enough insurance to cover the cost of rebuilding the home.

Another requirement is that you purchase Title Insurance.  This insurance protects you by providing proof of legal ownership should someone else try to claim ownership of the property.  Should a title dispute arise resulting from a sale, the title insurance may be responsible for paying specific legal damages, depending on the policy you have.

There are additional insurances that are not required by your lender, but you may want to consider them for more protection.  Personal property insurance may cover personal belongings that your homeowner’s insurance does not cover, like art, collectibles, and firearms.  A home warranty is not insurance, but does offer further protection should something break. For example, you might want a home warranty for your HVAC system to cover the cost of service should it need repairs.  Purchasing additional insurance or a home warranty is a personal choice. You can talk to your mortgage banker and insurance agent regarding your options.

If you are interested in purchasing a home, the professionals at Your Key to Memphis can help you find your dream home and answer any questions you may have.  Contact Melissa Thompson and her team at 901-756-8900 or 901-729-9526 and start your home search today!