Know Your Mortgage Hazard Insurance Options, Cautions InsuranceAgents.com
Sufficient hazard insurance is necessary for any homeowner who wants to protect their property from the elements. But too many homeowners fail to obtain the right amount of hazard insurance, making them risky clients to lenders. To add fuel to the fire, most homeowners are seen as doubly risky if they spend less than 20 percent on their property’s down payment, according to a newly released InsuranceAgents.com article, ‘Mortgage Hazard Insurance And You.’
However, not everyone can afford to make themselves appear “risk-free” by paying more than 20 percent. Because when it comes to home prices, 20 percent of a lot of money is still…well, a lot of money. And depending on where a homeowner lives, relevant hazard insurance can be very expensive. So it falls on many homeowners’ shoulders to try to bridge the gap of trust between themselves and the lenders by investing in what is called mortgage hazard insurance.
Mortgage hazard insurance is a guarantee to the lender that their loan will be covered regardless of the extent of homeowners hazard insurance coverage the homeowner has.
“In order to hedge their bets, [lenders] may require a mortgage hazard insurance policy in the event you are underinsured and sustain significant damage,” according to the InsuranceAgents.com article.
And significant damage to underinsured properties is something lenders deal with almost regularly.
In some instances, homeowners lack sufficient hazard insurance coverage—Florida homeowners may skimp on much-needed hurricane coverage, or California homeowners fail to obtain sufficient earthquake coverage, for example. By doing so, lenders see that homeowner and property as a risky investment and an opportunity to lose their money.
For homeowners who have to reduce the risk they pose to lenders by getting mortgage hazard insurance, take solace: it doesn’t last forever.
“Keep in mind that once you pay off enough of the down payment or your loan matures beyond a certain point, you should be able to drop the financial obligations that come with a mortgage hazard insurance between you and your lender,” the article states.
Homeowners should discuss possibly buying this policy with their lender. Some homeowners may fit the criteria they need to avoid the insurance altogether.
For more information, visit InsuranceAgents.com.
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