"Okay, I am confused...looking at my Good Faith Estimate, looks like I am being charged for 2 different types of insurance!" is a statement I have heard from more than 1 of my buyers. Yes, when financing a home you will have to pay for hazard insurance AND private mortgage insurance. So what's the difference and why do you have to pay both?
Hazard insurance, also know as homeowner's insurance (HOI), is the type of property insurance that provides coverage against losses occurring to one's home, its contents, loss of use or loss of other personal possessions of the homeowner, as well liability insurance for accidents occurring at the home. If you are financing a home, your lender will require you maintain hazard insurance and will usually escrow a portion of the annual policy premium from your total monthly payment. Your first year of coverage will be paid upfront at closing and then every year after that, your lender will pay the insurance company.
Private Mortgage Insurance is a type of insurance which protects lenders against loss if a borrower defaults. It is usually required by lender if your loan amount is more than 80% loan to value amount. There is usually an upfront premium (which can be financed into the loan) and then monthly payments. The borrower can ask their lender to cancel private mortgage insurance monthly payments once the outstanding loan amount drops below 80% loan to value amount.
Although buyers/borrowers do not have a choice in the mortgage insurance selection (determined by the lender), they do have a choice in hazard insurance providers. When searching for the best hazard insurance coverage, it's smart to shop around. There are good insurance agents always willing to assist you with your shopping. My husband, Michael Frazier, happens to be the one I trust the most, lol. Visit www.ifrazier.com for a quote! You could also get a quick and free quote for car insurance, renter's insurance and commercial insurance at www.ifrazier.com
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