Homeowners Insurance and Mortgage Insurance

Homeowners insurance and mortgage insurance are both important types of insurance for any homeowner, but they serve different purposes. Often times when meeting with first time home buyers they question the difference is between homeowners insurance and mortgage insurance. If you are a first time home buyer, or are considering buying you might find yourself wondering the same. If this is the case, follow along as we have connected with Michelle Schmidt from Movement Mortgage who has provided insight into the differences from a lenders perspective.

Here’s a breakdown of the key differences:

Who it protects:

• Homeowners insurance:

Protects the homeowner, their belongings, and their liability in case of damage or loss. This includes coverage for the structure of the home, personal belongings, and legal expenses if someone is injured on the property. Click here for access to a homeowners insurance guide.

• Mortgage insurance: 

Protects the lender in case the homeowner defaults on their mortgage. It does not provide any benefits to the homeowner.

What it covers:

• Homeowners insurance: 

Covers a wide range of perils, such as fire, theft, vandalism, wind damage, hail, and water damage. Some policies also cover additional risks like earthquakes and floods. Click here to discover the most common causes of water damage. 

• Mortgage insurance: 

Does not cover any physical damage to the home. It simply reimburses the lender for the outstanding loan balance if the homeowner defaults.

When it’s required:

• Homeowners insurance: 

Is required by most mortgage lenders.  With less than 20% down you will be required to include the premium in your mortgage payment, with 20%+ down you have the option to pay the premium on your own / waiving impounds.

• Mortgage insurance:

Is typically required if the homeowner makes a down payment of less than 20% of the purchase price of the home. It may also be required for certain types of loans, such as FHA loans.

Cost:

• Homeowners insurance: 

The cost of homeowners insurance varies depending on several factors, such as the location of the home, the size and age of the home, and the level of coverage, along with the credit and claim history of the homeowner.

• Mortgage insurance: 

The cost of mortgage insurance is typically a percentage of the loan amount. The premium can be cancelled once the homeowner reaches 20% equity in the home with Conventional loans.  FHA loans would need to refinanced to a Conventional loan to remove the mortgage insurance.

In summary, homeowners’ insurance is essential for protecting the investment in your home, while mortgage insurance protects the lender’s investment. Both types of insurance are important for homeowners to have.

I hope this helps! If you have further questions feel free to connect with Michelle Schmidt from Movement Mortgage. If you are not currently working with a Realtor and would like to discuss purchasing or selling a home, connect with us here.