Insurance: Helping Protect Your Financial Investments
It is recommended that one purchase homeowners insurance before financing a home. This is essential to protect home buyers and secure your financial investment in the property.
With a mortgage, are you required to purchase homeowners insurance before you can finance your home?
When the mortgage lender finances the purchase of a home, whether new or existing construction thus making a home loan to a borrower, the company is making a financial investment. Consequently, the company is exposed to high risk, as the repayment date and amount of the mortgage loan are not due yet. First, the borrower may be unable to pay the mortgage, and the only way you can get your money back is to force the borrower’s home to be sold through a foreclosure process.
Assume that the home is damaged if the homeowner is unable to repair it. The lender’s financial commitment to the property increases as the company must repair or rebuild the home to cover the loss or rebalance the investment. Home insurance coverage can limit the mortgage company’s financial exposure if the home experiences catastrophic conditions.
How much homeowners insurance do mortgage lenders require for homeowners?
Mortgage lenders must consider several factors when requiring homeowners to purchase insurance.
Factors to consider for mortgage lenders:
- Amount of credit required to purchase a property.
- Renovation cost or home value adjusted for inflation
- The location of the house is related to naturally occurring weather and geological phenomena.
Consider This
- Financing amount or home value
The value of the property is usually determined by the total value of the property excluding the land. It is in the mortgage company’s interest to require homeowners to purchase insurance for the home’s total value. For example, if the purchase price or construction cost is $300,000, the building and structure coverage should be equal to that amount.
- Mandatory roofing of buildings and structures.
Since building and structure insurance is the foundation of any homeowner’s insurance policy, homebuyers should request this coverage as it applies when the home is structurally damaged or uninhabitable. It may need to be changed to enable it.
- In case of loss, you (the mortgage institution) will be named as receiver
Homeowners must disclose whether they have a lien holder (or encumbrance) during the home insurance application process. The mortgage holder’s information is included in the policy to ensure that if the home is deemed a total loss by the insurance company, the balance of the loan is paid off before the homeowner receives compensation.
- Additional insurance coverage available for homeowners
Homeowners can also purchase additional coverage if their home is located in an area with a high risk of hurricanes, floods, tropical cyclones, earthquakes, and other natural events. These additional coverages reduce the risk of financial loss to the homeowner and financial loss to the lender and can be requirements of your financing.
Contact us for more information and to get in touch with our trusted partners. We are here to help protect the financial investment in your property in Mexico.
