The jargon associated with buying a new house might be confusing: amortization, closing fees, collateral, contingency, depreciation, down payment, etc. The list is endless.

 We’re here to help you understand homeowners insurance and mortgage insurance, two phrases that are sometimes used interchangeably in the context of homeownership. Even though they both deal with house insurance, they have different functions and provide different kinds of coverage. We will examine the distinctions between the two in this post, outlining what each comprises, the coverage provided, who requires them, and the usual expenses connected with them.

ARE MORTGAGE AND HOMEOWNERS INSURANCES DIFFERENT?

It is true that homeowners insurance and mortgage insurance are not the same. Mortgage insurance protects the lender, while homeowners insurance protects you, the homeowner, even though each provides coverage for a distinct part of home insurance. 

Type of Policy	Who does it cover?	Purpose	When is it required?
Mortgage Insurance	The lender	To mitigate the lender’s risk, allowing them to approve loans for buyers with lower down payments.	Typically required for homebuyers who make a down payment of less than 20% of the home’s purchase price.
Homeowners Insurance	The homeowner	To cover the physical structure of your home, personal belongings, and liability for injuries on property.	Not typically required by law, but if you have a mortgage, your lender will likely require it. Even if you do not have a mortgage, homeowners insurance is recommended for valuable coverage.

WHAT IS COVERED BY MORTGAGE INSURANCE?

A percentage of the remaining loan amount is reimbursed to the lender by the mortgage insurance policy in the event that you miss payments on your mortgage and the lender forecloses on your home.

Without offering you, the homeowner, any direct benefits, mortgage insurance protects the lender’s financial interests. Depending on the particular mortgage insurance policy and the insurance provider, the conditions and coverage amounts may change.

WHAT IS COVERED BY HOMEOWNERS INSURANCE?

A wider range of coverage is provided by homeowners insurance, which may serve to shield you as the homeowner from financial responsibility in the event of a number of potential events. This covers protection against:

• Dwelling: Guards against covered hazards the physical components of the house, including as the walls, ceiling, flooring, and built-in equipment.
• Personal belongings: Covers the cost of replacing items that you own, such as clothes, electronics, furniture, and other items, in the event that they are lost, stolen, or destroyed.
• Liability insurance: Should someone be hurt on your land and bring a lawsuit, this may assist with covering court costs and any compensation.
• Extra living expenses: May pay for meals or short-term lodging in the event that a covered occurrence renders your house uninhabitable.

DOES MORTGAGE INSURANCE APPLY TO ME?

Depending on how much you can afford for a down payment, you could require mortgage insurance if you’re trying to buy a new house. Generally speaking, the need for mortgage insurance is higher if your down payment is lower.  

• Conventional Loans: Private mortgage insurance (PMI) is often required for conventional loans with a down payment of less than 20%. You have the right to seek the cancellation of your mortgage insurance coverage if you own 20% or more of the property. 
• Government-Backed Loans: Loans from the U.S. Department of Veterans Affairs (VA) and Federal Housing Administration (FHA) each have their own insurance plans. Mortgage Insurance Premiums (MIP) are necessary for FHA loans, while financing fees apply to VA loans.

CAN YOU SUGGEST MORTGAGE INSURANCE CONS?

The beauty of mortgage insurance is that it makes homeownership possible even for those who are unable to make a sizable down payment. That’s not to mean, however, that there aren’t any disadvantages you should be aware of:

• Additional expense: Since you must pay monthly premiums, which raise your mortgage payments, mortgage insurance raises the total cost of homeownership. 
• No immediate advantage to the homeowner: As a homeowner, you are not protected by mortgage insurance, nor is there any advantage to you. In the event that your house is damaged and your insurance pays out, the lender will get the money rather than you.
• Difficult to cancel: After you have 20% equity, you must remember to seek the cancellation of the insurance. To verify the property’s worth, this procedure could call for an appraisal, which would come with an extra expense and take time.

ARE HOMEOWNERS AND PROPERTY INSURANCE CONSIDERED THE SAME?

Both yes and no. A broad word for insurance that shields real estate, including residential and commercial buildings, rental properties, and abandoned dwellings, from certain risks and obligations is property insurance. One kind of property insurance is homeowners insurance. 

Do you still have questions? Be at ease—we are here to assist. Reach out to us or get a free, personalized quotation right now. At Independent Insurance Associates, we take great satisfaction in helping you choose the ideal insurance plan!