Buying a house can be a costly event, but it can also be a great investment in life. As you prepare to close on the house, there will be some things you will need to do. One of these things is talking with an insurance agent and purchasing homeowner's insurance. The lender that issues your loan will require this, and here are a few things to know about this common requirement.
The reason it is required by lenders
When a lender issues a loan to a person for the purchase of a house, the lender bases the loan on the value of the house. If the borrower doesn't pay for the loan, the lender can take the house and sell it to someone who will. In addition, if the house burns down, who will pay for the rest of the loan?
If the borrower had home insurance, the insurance company would pay for it, but what would happen if he or she did not have insurance? The homeowner probably will never be able to repay the money owed for the house if he or she didn't have home insurance coverage, and this is why your lender will require that you have insurance coverage before you close on the house.
What you need to find out before buying your policy
Before you buy a policy, you may want to ask your lender if there are certain qualities or requirements in the policy you purchase, and there are two main things you should find out.
The first is the amount of coverage you should have, and your lender will probably tell you that the coverage amount must be equal to or higher than the amount of the loan. The second thing to ask is how many months of insurance you must prepay before closing. A lot of lenders want borrowers to pay for an entire year of insurance upfront before closing, and the borrowers must prove that they did this before they can close on the house.
What can happen if you do not purchase home insurance
If you fail to purchase home insurance before your closing, you might not be able to close on the house until you do this. If you purchase it and allow the policy to lapse while you still have a mortgage, your lender may purchase its own policy just to protect themselves if anything were to happen to your home.
If you are buying a house, you will need to make sure you purchase a homeowner's insurance policy before you attend the closing of the house. If you have not yet completed this step, contact an insurance company today to get a policy that meets your needs and the requirements of your lender.Share