Friday, July 22, 2016
Private Mortgage Insurance, Homeowners Insurance, and Home Warranties Oh My..
So you've bought your home and can't wait to start designing and decorating it to make it truly feel like home. Owning a home is a huge undertaking and responsibility, so in this article I'd like to talk about something a little different but important to know as you start living in your dream home.
There are three things you are probably becoming aware of and they are the following: Home owners insurance, PMI insurance and Home Warranties. If you purchased a home recently you've no doubt been required to not only have PMI insurance and Homeowner's Insurance on your new home. PMI is for Private Mortgage Insurance and it is added to your mortgage payment and is required by your lender to protect them and their held interest in your home in the event you should default on your mortgage.
Sadly enough it does very little for you in return. If you default your credit will not be protected nor will the insurance make good on your default loan amount. It is simply money you will pay to get the Mortgage company to assume the risk involved with loaning you the necessary funds you need. That is it. In a nutshell. So for new home owners do not assume it will protect you in any way. It is typically required for loans where a less than 20 percent down payment is offered toward the purchase of the home.
Home Owners Insurance is paid to cover damage to your property from various occurrences like fire, storm damage, etc. The key thing to remember here there is a deductible involved that will come off the top of any claim you may have, not to mention once a claim is filed, if the amount is high, there is a very good chance you will see a hike in your mortgage payment at some point as a result. You'll want to think long and hard before going this route should your home suffer damage. Especially damage that you may be able to pay for and repair yourself.
The other caveat is that your Mortgage company controls the claim funds. In almost every case your Home owners insurance company will make the insurance check out to both yourself and your mortgage company. Here's the issue, you can't cash the check without the Mortgage Companies endorsement, which means you have to endorse it and send to them. Think they'll endorse and send right back? No. Your mortgage company will want to make sure that any damage the property has sustained was in fact repaired before they send you all of your funds. Typically speaking they will require loads of paper work from both your insurance company and your contractor. They will then send you a portion of the check to begin work and withhold any funds until they've inspected the completed job. This will not happen over night either.
Does it end there? Not necessarily. If you're behind on your mortgage while they have the insurance claim funds in their possession, they can apply the money to your loan and not send you the remaining money. Be sure to stay current during the entire process. Sounds frustrating and potentially not worth it? Well it is something to consider beforehand.
An option to filing a homeowners insurance claim is to find a reputable Home Warranty company and consider going that route for home repairs. Be mindful, most of the Home Warranty programs out there do not become effective immediately and they all range in price but do offer flexible coverage options and monthly payment plans. This may be a better route to go, but be prepared to wait out that period before your policy becomes active. Read the fine print too to make sure of exactly what your coverage includes and does not include.