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It is a well-known fact that one can take out an insurance policy for almost anything—weddings, body parts, alien abduction, comedy routines, so on and so forth. Insuring a property is more conventional, but many consumers are perturbed by the additional cost, which adds to the already considerable financial pressure of purchasing a home.

 

There are a few types of insurance generally associated with homeownership, the first being mortgage insurance. “MI” serves to protect lenders in cases where there’s an increased likelihood of the borrower defaulting. Borrowers that put down 20%, then, are essentially required to pay for the risk they pose to their lender. Until a borrower’s loan-to-value ratio drops below the 80% mark, they will continue to pay for that risk. Conventional loans with a loan-to-value ratio over 80% require the borrower to hold private mortgage insurance, which can be arranged by the lender, while those who take out FHA loans will also sort out their mortgage insurance through the FHA.

 

Mortgage protection insurance is slightly different, as it provides coverage in circumstances where borrowers aren’t able to make mortgage payments due to illness or loss of a job. However, such policies don’t insure against falling home prices or other mishaps that may decrease the value of the property. Their purpose is to serve the lender, not the borrower.

 

Often confused with MI or mortgage protection insurance, homeowners insurance protects the interests of the borrower. This is the policy that covers falling trees, fires, buffalo stampedes, et cetera and has no immediate connection with the financing process. Technically, homeowners insurance isn’t strictly necessary for those properties outright. Most people don’t, however, and lenders, considering that they often own a good portion of the property thanks to that substantial loan, require borrowers to take out homeowners policies.

 

 

 

 


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