Mortgage Insurance
Lenders won’t let you close the deal on your home purchase if you don’t have home insurance, which covers your home and your personal property against losses from fire, theft, bad weather and other causes. Even if you pay cash for your home, you should buy home insurance unless you can afford to repair or rebuild your home if it’s damaged or destroyed.
If your home is in a federally designated high flood risk zone within a flood plain and you are signing for a federally insured loan, federal law mandates that you must buy flood insurance. If you are not in a high flood risk zone, you still may buy the coverage.
If you put less than 20 percent down on your home purchase, most lenders will also charge you private mortgage insurance (PMI) premiums. The coverage doesn’t protect you, it protects the lender from you defaulting on the mortgage. Without the coverage, many buyers could not otherwise afford to buy a home. Effective for loans written on or after September 27, 2007, lenders must automatically cancel PMI when your mortgage balance shrinks to 78 percent of the home’s original purchase price.
