Home Insurance Articles
How Much Home Insurance Can A Lender Require?
2009-11-18
Unlike car insurance, holding home insurance coverage is not required by any state. However, even if a homeowner doesn't see a home insurance policy as valuable, the lender on a home loan probably will. But, whether depending on the lender's home insurance requirements, or going through an insurance agent, obtaining the proper amount of coverage is beneficial to any homeowner.
Most homeowners do not own their properties free and clear. In most cases, the mortgage company - the lender - still has a strong financial interest because the owners still have an outstanding mortgage balance. The lender owns the home until the final payment is received. Even though the home itself is in the name of the resident, if the mortgage company does not receive payment as promised, they can foreclose on the loan. The lender would then take the home back as a type of collateral. It is for this reason that they are able to require a certain amount of home insurance coverage. The mortgage company views the home as their company's investment, and home insurance is seen as a way to protect that investment.
The lender normally requires homeowners to carry insurance that covers 80 percent of the current home value, or 100 percent of the total cost of the balance of the mortgage. If the mortgage was acquired with no money down, or less than 20 percent down, expect to use purchase price of the home as guidance for the home insurance policy.
When the home loan is paid off, it is up to the homeowner to make sure they are purchasing enough home insurance to protect the home and its contents. Even if the home has no mortgage, the owner should protect their investment by purchasing enough insurance. A good home insurance policy can be increased in value when necessary - like when a home is remodeled or renovated. Underinsuring can leave a homeowner financially vulnerable in the event that significant damage is done to the property - or the property is lost all together. That is why it is imperative to determine the right amount of coverage for you. Local real estate professionals can assist in finding an approximate current market value of your home so you know how much home insurance to purchase. Another useful tool is city tax assessor's website, which usually displays the current market value the city has for each property. This is how the annual property tax is calculated.
In these tough economic times, it is imperative for homeowner's to do whatever they can to guard against financial hardship. Obtaining the proper amount of home insurance coverage is just one way to do that.