All Lender's Require the home you are purchasing to be insured at the time of closing, and during the life of the loan. Here is what you need need to know about insuring your new home, and why and what your lender will require.
Why Do Lenders Require Insurance? 
When you borrow money to buy a home the home itself is collateral for the loan in case of default. But when a disaster strikes or a home is subject to a fire, the house may be rendered valueless and uninhabitable. When that occurs the collateral (home value) no longer covers the loan and if the borrower is unable to pay the mortgage payments the Lender is out their investment. So insurance protects the Lender's (and homeowner's) investment.
What is Hazard Insurance?
Hazard insurance is a property insurance that covers the structure(s) for specific types of damage (or causes). Standard Hazard Insurance policies (sometimes referred to as homeowners insurance) cover events such as Fire but may not cover other events such as flood, wind or earthquake. They usually include a liability and home contents policies but the Lender is specifically interested in the Hazard Insurance coverage.
How Much Hazard Insurance Coverage is Required?
Lenders require enough coverage to protect their investment. That is determined by two different factors; the cost to rebuild the home (and additional structures) and the amount of the mortgage loan. The estimated cost to rebuild the home comes from the home appraisal that the Lender requires for financing. Even though the Appraiser's primary goal is to identify the home's market value there is also section of the appraisal report that addresses the estimated cost to rebuild. The lender uses the Appraiser's determination of the cost to rebuild as does the insurance company when they create the policy. The Lender's requirement for insurance coverage may be higher if the amount borrowed exceeds the cost to rebuild. When buying a new home the Lender will require that an annual policy be paid for at the time of loan financing and if insurance premiums are to be paid as part of the monthly mortgage payment, then the lender can also require 2 months of premiums in advance.
When is Flood Insurance Required?
Hazard Insurance policies do not protect against damage caused by floods though they may in some cases cover water damage to a home. Only Flood Insurance will provide adequate coverage. Lenders require Flood Insurance only if the property is contained within a designated flood area or zone. FEMA (the Government agency that handles natural disasters) maintains a map of the entire United that identifies all of the areas that are susceptible to floods. The Lender always requires a Flood Certification document for every home it finances. That document identifies if the property is in a Flood Zone and if so how likely it will flood. That rating gives the Lender the information it needs to determine whether Flood Insurance will be required as a condition of financing. If it is then an annual Flood Insurance policy will need to be purchased at the time of loan closing and 2 months of additional insurance premiums can also be required to be paid in advance.
For More Information About Insurance Requirements and or any other Lending Questions, Call me anytime and I will be happy to discuss your specific needs with you.
Branch Manager
Allied Home Mortgage
4117 Mariner Blvd.
Spring Hill FL, 34609
Office 352-688-7949
Cell 727-946-0904
President
NMLS #276682
4117 Mariner Blvd
Spring Hill FL, 34609
Office 352-688-7949 Cell 727-946-0904
