Why Lenders Require Home Insurance And The Types You Need
If you are about to buy a house, you should not be surprised when your lender tells you to purchase home insurance for the house prior to closing. This is a requirement that all lenders have, but do you know why? Also, do you know how much insurance you need and what types you are required to have? Here is some information about this to help you understand these common requirements.
Why Your Lender Requires It
Your mortgage lender is the entity that has a huge stake in the ownership of your home. Your lender gives you a loan to buy your house and hopes and expects that you will repay it. If your house burned down, would you be able to come up with cash to pay off your loan, though? Probably not, and this is probably why you got a loan in the first place. Therefore, to guarantee that they would be repaid if something destroyed your home, your lender will require homeowners insurance. If your house is destroyed, the insurance you have will pay off the loan, and your lender loses nothing.
The Types of Coverage Your Lender Requires
There are two main types of coverage your lender may require, which are dwelling coverage and liability coverage. Dwelling covers your actual home, while liability covers incidents that cause injuries at your home to any visitors to your property. You will definitely need dwelling coverage, but you might also need liability too. In addition, you should choose coverage for personal property, even though your lender might not require this.
The Amount of Coverage You Should Have
The main thing to know about the amount of coverage you need to meet your lender's requirements is that the amount of dwelling coverage must cover the balance on your loan. As long as you have this much, your lender should have no issues with it. You personally, though, might want more coverage than this. You should consider getting enough dwelling coverage to pay for the replacement of your house, which is a very different amount than the amount you owe on the house or even the current value of your house.
Choosing to buy home insurance when buying a house is really not a choice — it is a requirement — but you can choose from a lot of different options in terms of coverage types. You can learn more by calling an insurance agency that offers home insurance products.