As you progress through the home buying process, the question of insurance will be raised. Here are the basic types of insurance you should know something about. Be aware that most policies contain standard exclusions and exceptions.
Homeowner's insurance covers fire, theft, certain natural disasters and personal liability if someone is injured on your property. It protects the lender against the loss of the property securing your mortgage. You'll have to prove that you have adequate homeowner's coverage as a condition of obtaining a mortgage.
Title Insurance
Several things happen behind the scenes when you buy a house. For example, the credit union will have someone perform a title search to make sure the seller has a legal right to transfer ownership, and if there are liens or restrictions on the property. A lawyer, abstractor or employee of the title company performs the title search.
Title insurance provides protection against financial loss in case a defect in the title turns up at some future date. Possible defects include:
· Flawed information in deeds or mortgages (like an incorrect name)
· Liens or claims against the property or the property owner (unpaid tax bills)
· Claims to ownership from a former owner or spouse
· Invalid deeds (from a past sale or transfer by a party who didn’t actually own the property)
Insurance That May Be Required
Private Mortgage Insurance
When you acquire a mortgage with less than a 20% down payment, the credit union may require you to have mortgage insurance. This coverage helps protect the lender in case you can’t make your payments on the loan. The credit union isn’t the only beneficiary. Mortgage insurance makes it possible for people to make small down payments to buy the home of their choice.
Flood Insurance
Flooding is not covered by a standard homeowner’s insurance policy. To determine if you need flood insurance, your credit union will order a flood certificate.
