If you’re in the market for a new policy, we’ve got a few tips to help you find the right provider.

To start, let’s talk about what “homeowners insurance” really is. There are a lot of ways to cover your home purchase, including homeowners insurance, mortgage insurance, and a home warranty. They’re all different things. Mortgage insurance protects the lender in case you default on your loan, and a home warranty is a separate piece of coverage that protects your home’s internal systems (HVAC, plumbing, appliances, etc.).

Homeowners insurance, however, is a policy that pays for damage to or the destruction of your actual property, the things inside your home, and the people around it. Generally speaking, lenders will require proof that you have homeowners insurance before you reach the closing table. 

Homeowners insurance is a policy that pays for damage to or the destruction of your actual property, the things inside your home, and the people around it.

That said, homeowners insurance policies aren’t magic “cover-all” options. While they do cover many things, there are several things they won’t cover. We’re here to help you figure out how to choose the right homeowners insurance policy, and we’ll even throw in a few tips on how to save some cash along the way.

“What should my policy cover?”

At the very least, your homeowners insurance policy should cover the “full or fair value” of the home, or the purchase price. Some providers choose one amount, others opt for the latter. Either way, that’s what we call your “dwelling coverage,” or the part of your policy that covers the repairs to or reconstruction of a home that’s been physically damaged by a covered event. Note: “hazard” and “peril” are two other terms you’ll see through your search, but they both mean similar things.

Homeowners insurance policies cover damage or destruction to a home’s interior and exterior, but they also cover theft, personal liability (in case someone gets hurt on your property or worse), and personal property. We recommend getting dwelling coverage that covers the cost to rebuild your home, including labor and materials at their current rates—not just the purchase price or previous assessed value.

Just so you know, there are some things a homeowners insurance policy will not cover. Natural disasters, or “acts of God,” typically aren’t covered by your standard policy. Lightning strikes your home, for example, and zaps your dated breaker panel without additional coverage, and you may have to pay for that fix out of pocket. In some cases, for people living in areas prone to floods, earthquakes, and tornadoes, policies may be expanded at an additional cost.

“How is my rate determined?”

There are many things that go into your rate calculation, much of which is done behind the scenes. Usually, policy rates are determined by your “assessed risk,” which considers your personal claim history, your credit record, the home’s previous claims (if there are any), the home itself (construction, materials, security, etc.), and the surrounding neighborhood (including crime rates). 

“How can I lower my rate?”

Some of the factors that go into your rate calculation are admittedly out of your control. For example, you found your dream home, but it’s in a flood zone. In that case, there’s not much you can do about that other than pay for flood coverage. 

However, there are several other ways you can lower your insurance premium.

Shop around

At the very least, as with anything, you should look at three different policy quotes from three different providers. Some sources say you should gather as many as five quotes, but if you’re seeing similar numbers for equal coverage across the board, go with your gut. Remember: don’t just choose the least-expensive option. Consider other things like company reviews, technology capabilities (can you file a claim from your phone?), and whether or not you’re already a customer with that provider.

Pro-tip: Depending on how many quotes you get, try to call one or two local providers. Sometimes smaller providers can provide better pricing.

Bundle up

Speaking of already being a customer…did you know that many providers offer discounts for bundling your coverage? If you have auto insurance with one company, you may be eligible for a multi-policy discount if you get homeowners insurance with them as well.

Security systems

Investing in a home security system can also help lower your premium, because it tells providers that your home has an added layer of protection beyond locked doors and windows. Security goes beyond cameras, too—upgrading your smoke detectors could bring benefits as well.

Home improvements

Some companies may offer additional discounts for upgrades to your home, like metal construction instead of wood (due to flammability), modern or eco-friendly HVAC and electrical upgrades, and an impact-resistant roof to help protect against Mother Nature.

Increased deductible

While less popular, another way to lower your premium is to increase your deductible. Unfortunately, that means you’d pay more out of pocket if and when you file a claim. It removes risk on the provider’s part, forcing you to carry the expense instead. Note: some lenders may have a maximum to the deductible they allow, such as 5% of the insurance coverage. 

How do I choose a provider?

That’s the easy part: research! You’ve already started the journey by reading this blog, so take everything you’ve learned here with you when you start calling around to different providers. When you’re ready to apply for a mortgage, we’ll be waiting for you.

Homeowners insurance isn’t just a “nice-to-have.” In fact, for most lenders, it’s a required investment.

The post How to Choose Homeowners Insurance (And Lower Your Rate) appeared first on Cardinal Financial.

When it comes to covering your home inside and out, you’ve got options. One option, often required by mortgage lenders like us, is home insurance. Your other option, for a bit of bonus coverage, is a home warranty program. Let’s talk through the differences and see how they stack up against one another, shall we? 

Home Warranty vs. Home Insurance

Home warranty programs and home insurance coverage are essentially two sides of the same coin, each offering varying levels of protection against everyday incidents that might harm your home, your belongings, your family, and even other people. 

Like auto insurance, home insurance is often required by your lender or mortgage servicer. While you can shop around for different rates and levels of coverage, many companies ultimately offer similar benefits—not just for your peace of mind, but to ensure their investment is protected. After all, the business of mortgage lending doesn’t come without risk. You might be able to pay back your home loan, but home insurance makes sure you and the property itself are protected in case of emergency. 

Home warranties, however, are not required by lenders. They often cover things that aren’t included by home insurance, including specific repairs and replacements for broken down appliances. There are a lot of home warranty companies out there, all with their own reviews that you’ll absolutely want to read up on before selecting a plan . . . if you decide to select one at all. Remember, they’re not required, but they may be useful if you’re short on cash after purchasing, or if you purchase a home that comes with dated appliances and systems. 

Introduction to home insurance 

Home insurance policies protect your home from a list of covered perils and damages. They may also offer liability protection in case someone is hurt on your property or if you cause damage to someone else’s property. Examples could include if a tree branch falls from your yard onto a neighbor’s roof, or if your friend’s kid throws a baseball over your fence and through your neighbor’s window.

Home insurance also protects dwellings (that’s your home’s physical structure and the contents within), detached structures like fences, sheds, and garages, and personal property. That last bit could include your computers, televisions, jewelry pieces, and clothing. Additionally, home insurance protects “loss of use,” which provides financial support in the event that your home becomes unlivable for any period of time, and medical payments for yourself and others. 

Here are some other things insurance might protect you from:

• Fires
• Burglary
• Wind
• The occasional meteorite or jet engine falling through your roof

Because home insurance is part of the home buying process, its premium payments can be included as part of your mortgage payment if your lender includes an escrow account (something that’s also often required for FHA loans). In this sense, it becomes part of your PITI, or “Principal, Interest, Taxes, Insurance.”

What’s the cost?

Insurance premiums vary from carrier to carrier, so cost can vary. Oftentimes, it’ll depend on several factors, including:

• Where you live
• Your home’s value
• Dwelling size
• Structure age
• Coverage limits and deductibles
• Home features
• Credit score
• Pets

Pets? Yep, even pets. If you’re a dog lover (aren’t we all?), your insurance carrier may increase your premiums for owning a breed they deem riskier than others. Likewise, other “risky” elements—such as swimming pools—may increase your premiums as well. 

What is a home warranty?

Home warranties differ from home insurance options in that they generally cover specific things, not the broader brush strokes of homeownership. 

Think about it this way: if insurance covers your entire home, warranties cover the individual bits inside—things like appliances, HVAC systems, plumbing and septic systems, roofs, and even swimming pools (at an additional cost, of course). 

Like home insurance, home warranties are paid via premiums. You enroll in a plan and you pay an annual or monthly fee for the ability to submit a claim if something breaks down. If your furnace dies out in the middle of winter, you can file a claim to the warranty company. They work with local partners and will dispatch a business to diagnose and repair the issue, up to a certain covered amount. The “secret” there is that you’ll often be required to pay a “service fee” for that service call. 

Think of it as a deductible, right? Similar to home insurance, you have to pay part of the bill up to a certain amount before insurance kicks in to cover the rest. With a home warranty, you pay a small fee for greater coverage—either a repair or replacement of whatever’s broken. 

Warranties aren’t required, and depending on who you ask, they may not even be necessary. For people without access to a lot of liquid cash for immediate repairs, however, they can be particularly useful, especially for a dated home or aging appliances. 

More coverage, more security.

Ultimately, home insurance and a home warranty are two great ways to protect your investment. Neither is free, and neither will totally protect you from risks, but they’re perfect for people who are looking for a little more peace of mind.

You might be able to pay back your home loan, but home insurance makes sure you and the property itself are protected in case of emergency.

The post Concerning Coverage: Home Warranty vs. Home Insurance appeared first on Cardinal Financial.

Mortgage insurance protects your lender if you default on your loan. What kind of mortgage insurance you’ll need depends on if your loan is backed by the government or a private lender.

What is mortgage insurance? The basics.

Even though mortgage insurance is designed to protect your lender, that doesn’t mean you can’t benefit from it. In fact, it can actually make homeownership more attainable. By paying mortgage insurance, you could get approved for a loan that you otherwise wouldn’t qualify for. Putting 20% down isn’t always realistic for prospective homeowners, so paying a monthly fee for insurance can be a better route than paying more upfront.

Mortgage insurance vs. home insurance

As you’ve probably gathered by now, home insurance and mortgage insurance are not the same thing. Home insurance (also called homeowners insurance) is what protects you from liability if damage or loss occurs to assets within your home (or to the home itself). The exact amount of coverage you have depends on the policy you choose. If you have an escrow* account, your home insurance can be included in your mortgage payment. Mortgage insurance (unless you’ve qualified to drop it—more on that later) is already part of your mortgage payment regardless.

*Escrow is an account, usually created by your lender, that allows your lender to collect estimated taxes and insurance and pay those costs on behalf of you, the borrower. It helps consolidate your homeownership expenses so you don’t have to keep track of separate monthly bills.

Types of mortgage insurance

Now that you’ve got the basics of mortgage insurance down, let’s get into the different types you might encounter as a home buyer. The type of mortgage insurance you’ll need depends on whether your loan is backed by the government or a private lender.

Private mortgage insurance (PMI)

If you have a Conventional loan, you’ll likely need to pay private mortgage insurance (PMI). Your lender will set up insurance for you with a private, preferred insurance company. Your rate is calculated based on your down payment and credit score. Once you reach 20% equity in your Conventional loan, you’re eligible to stop paying mortgage insurance. Once you hit 22% equity, it’s dropped automatically.

Depending on your lender, you may also have to pay PMI if you have a Jumbo loan. These loans exceed the conforming loan limits of Conventional loans and are for luxury homes and homes in high-cost areas. Because your down payment on a Jumbo loan will likely be considerably higher than a Conventional loan, many lenders will not require PMI even if you put down less than 20%.

FHA mortgage insurance premiums (MIP)

If you have an FHA loan, your insurance will be collected by the Federal Housing Administration (FHA). Insurance is required on all FHA loans, regardless of your down payment amount. This is called a mortgage insurance premium (MIP).

One important thing to note about mortgage insurance on FHA loans is that it includes a fee you’ll pay at closing as well as a monthly payment that’s part of your mortgage bill.

USDA guarantee fees

USDA loans are backed by the United States Department of Agriculture. USDA loans don’t require mortgage insurance in the traditional sense. Instead, you’ll pay a guarantee fee. This cost includes an upfront fee at closing equal to 1% of your loan amount. Even though it’s called an upfront fee, you may actually be able to split that cost up throughout your monthly mortgage payments. Your monthly payments will also include your annual guarantee fee, which is equal to 0.35% of your loan balance.

How can I drop mortgage insurance?

For government-backed loans (with the exception of VA loans) mortgage insurance premiums and fees are just part of the package—the only way to stop paying them is to pay off your mortgage entirely or refinance to a Conventional loan. Conventional loans aren’t government-backed, so they offer a bit more flexibility when it comes to dropping mortgage insurance once you reach 20% equity.

Another way to avoid paying a monthly mortgage insurance fee is to pay it off upfront when you take out your home loan. If you have a Conventional loan, any funds you have for upfront costs may be better directed towards your down payment, though. After all, the more you put down, the sooner your insurance can be dropped.

So, now that you know more about mortgage insurance than you probably thought there was to know about mortgage insurance, you’re ready to start the home buying process with confidence. You’ve got this.

The post What is Mortgage Insurance? Your Need-to-Know Guide appeared first on Cardinal Financial.