Insurance Documents For Your Loan Application File (Form 1003)
Amongst all the craziness of filling in forms for a new home purchase or refinance, it is so easy to procrastinate items like homeowners insurance until just before the closing date. Understandably, the mortgage company will not fund the loan without the security of insurance. In many cases, institutional carriers like Stillwater Insurance may already have a homeowners insurance quotation in your loan file; loan officers appreciate the ease of having a quote in file since the document gives them an approximate premium to expect as they calculate the costs surrounding the transaction. In some cases, loan officers are found scrambling last minute to shop for lower home insurance when faced with a debt to income (DTI) ratio issue hindering the loan approval.
Does my mortgage require insurance before funding?
The short answer is absolutely YES! Homeowners insurance is not required by law; however, it is almost impossible to find a mortgage company willing to lend money against an uninsured or uninsurable home.
Since most of us need to finance our home, the lender will likely require you to purchase homeowners insurance before funding the loan. Typically, the Escrow/Title Officer will be charged with the responsibility to assure that the insurance policy is in force with the first year premium paid upon the close of the transaction.
The mortgage company will hold a lien on the house until the loan has been paid off. The insurance simply provides the financial security in the event of a fire or major calamity damages the home which is their collateral..
How much insurance do I need to buy?
This amount will vary depending on what your lender requires, but they’ll generally want you to carry enough coverage to pay for the cost of rebuilding your home from the ground up (at the very least), should disaster occur.
A standard homeowners insurance policy typically protects you against the following hazards:
- Fire and lightning
- Damage from hail and windstorms
- Theft and vandalism
- Smoke damage
- Falling objects, like tree branches
- Damage from the weight of ice, snow, or sleet
- Frozen plumbing, heating, AC, or other household systems
- Vehicles (and even aircraft)
- Riots or civil commotions
With HDA home insurance, you’ll rest assured to have a comprehensive homeowners package custom tailored to your home, personal belongings and the protection of your assets.
Closing Fees Including Homeowners Insurance
Most mortgage companies and banks require the first year premium to be paid upon closing of the loan transaction. This is helpful since the full year is paid ahead of time which leaves the customer with a whole year to save up the following year’s renewal premium.
If the home is located in a hazardous flood zone, flood insurance will also be required in addition to homeowners insurance; in most cases, flood insurance must be paid in full by the customer prior to the funding of the loan.
Depending on the type of mortgage loan, many banks require an escrow/impound account to be set up in order to pay for property insurance and property taxes. This account is essentially a savings account to help pay the property taxes and homeowners insurance in monthly installments with each mortgage payment. The monthly sum is saved in order to pay for property tax installments and annual renewal statements from the homeowners insurance company when due.
Reliable Home Insurance from HDA Insurance
We can help you take some of the hassle out of the home-buying process by assisting you in securing coverage for your home well in advance of closing time.
With HDA home insurance, you can rest easy knowing you’re protected by a proud member of the Fidelity National family. Speak with our new business office at 1-877-931-3368 or get your free quote online today!