If you watch a lot of HGTV, you probably have an oversimplified idea about how home buying works. All you need is to pick the house and sign some papers, right? If only it was that easy! What they don’t show you on TV is hours of negotiations, tons of paperwork and dozens of hiccups that happen during real estate transactions. As a Maryland title company that also provides escrow, contract preparation and other related services, we know the home buying process inside and out. Today, we’ll talk about the types of insurance (yes, there is more than one) you may need when buying a home.
If you are borrowing money to pay for your home, your lender will require you to purchase homeowner’s insurance. And even if you are paying out of your own pocket, it’s still a good idea to have this policy. Homeowner’s insurance protects your home and your personal property from loss caused by fire, theft, hail, lightning and windstorms. Different policies offer a varying range of coverage, so choose wisely. Homeowner’s insurance is tied to the homeowner and is not transferable. Even if you bought or inherited this property from a relative, you will still need a new policy.
Title insurance is another type of policy a lender will require you to obtain. There are actually two parts to title insurance: the lender’s policy and the owner’s policy. Each is designed to protect the named party from title defects. These title defects may include such problems as liens against the property, deeds that contain mistakes or heirs that show up out of nowhere and try to take over your house. Essentially, title insurance ensures that your rights to home ownership are valid and can’t be successfully challenged or revoked. This is a good reassurance to have, especially if you are dealing with a property that has changed hands multiple times.
Banks can’t be too cautious, can they? Buyers who can’t provide a 20% down-payment, as well as those who take out government loans, are typically required to purchase mortgage insurance. This type of insurance allows the lender to get reimbursed in case you default on your loan. You continue paying monthly premiums until your lender receives those 20%. In case of a VA or FHA loan, you might be required to pay an upfront fee instead of monthly premiums.
Most homeowner’s insurance policies don’t cover flood damage. The same goes for earthquake damage, but, thankfully, we don’t get a lot of those in Maryland. Heavy rains from tropical storms, however, do trouble Marylanders from time to time. If your home is in a high-risk flood zone, you might be required by your lender to purchase flood insurance. But keep in mind that as much as 20% of flood insurance claims actually originate from homes located in moderate- to low-risk areas. And let’s not forget that flooding doesn’t have to be caused by rain. Burst pipes and leaky appliances are another big concern. So even if you live on top of a hill, flooding insurance might make sense in some situations.
You might not need to purchase all of these insurance policies, depending on your particular circumstances, but it’s a good idea to at least consider each one. Homeowner’s and title insurance are probably the two most important policies every homeowner or commercial property owner should have. Purchasing real estate is a big investment, so it only makes sense that you protect it with all available means.
If you are looking for a title company in Maryland that can help you with your real estate transaction, give us a call or contact online.