Covering your investment
WHAT IS A HOMEOWNERS INSURANCE POLICY?
A homeowners insurance policy, sometimes referred to as a Hazard policy, is an insurance policy that covers your home for a variety of risks and perils, including things such as lightning, storm, sink hole, theft of personal property, liability, loss of use, hurricane damage, burst pipes, etc.
WHAT TYPE OF HOMEOWNERS INSURANCE POLICY DO I NEED FOR MY HOME LOAN?
When applying for a home loan, lenders are primarily interested in making sure that A) your insurance carrier is A-Rated, and B) your home has sufficient replacement cost coverage, which is based on the replacement cost amount on the property appraisal report. If you're buying a new home, this usually means the sales price of the home, and if you're refinancing your existing home, it is based on the licensed appraiser's indication on their report.
WHAT DOES A HAZARD POLICY COVER?
PMI allows you purchase more home with less than a 20% down payment using conventional financing. Banks traditionally prefer you to put 20%, but the PMI policy helps balance the risk for the lender, so the lender will lend more against the value of the home.
WHAT IS THE DIFFERENCE BETWEEN A HO-3 POLICY AND A HO-6 POLICY?
HO-3 and HO-6 are terms for two different policy types, which vary by the type of home you are insuring.
HOW TO SAVE MONEY ON YOUR HOMEOWNERS POLICY
There are a few ways to save money on your policy. Always consult your insurance agent and explain your situation, budget and goals to make sure that the policy gives you coverage that you can afford, while offering a premium and deductible to make the policy useful should you ever need to use it.
THINGS TO CONSIDER:
WHAT IS FLOOD INSURANCE?
Flood coverage covers your home if water enters the home from the oustide, and is required by the lender if your home is located in a designated flood zone. Flood zones are determined by the Federal Emergency Management Agency (FEMA) and they measure the elevation of the home relative to the standard water level in the area. They routinely monitor flood claims and continually update their maps to ensure the data is kept current. When you apply for a home loan and insurance, a Flood Certificate will be obtained from the FEMA database to determine if the home is located in a zone where flood coverage is mandatory, which is commonly referred to as a "Flood Zone".
Flood zones have codes:
The most common is flood zone "X", in which flood insurance is optional for the homeowner. CLICK HERE FOR A FULL LIST OF FLOOD ZONE CODES
Zone X, Zone C - Areas determined to be outside 500-year floodplain determined to be outside the 1% and 0.2% annual chance floodplains.
Zone B, Zone X500 - Areas of 500-year flood; areas of 100-year flood with average depths of less than 1 foot or with drainage areas less than 1 square mile; and areas protected by levees from 100-year flood. An area inundated by 0.2% annual chance flooding.
Zone A - An area inundated by 1% annual chance flooding, for which no BFEs have been determined.
Zone AE - An area inundated by 1% annual chance flooding, for which BFEs have been determined.
Zone AH - An area inundated by 1% annual chance flooding (usually an area of ponding), for which BFEs have been determined; flood depths range from 1 to 3 feet.
WHAT IS THE DIFFERENCE BETWEEN A HAZARD INSURANCE POLICY AND A FLOOD POLICY?
The difference between a hazard policy and a flood policy lays in how each policy deals with water--or more specifically, how the water entered the home. For instance, if the water enters the home from the outside-in, then this would be covered as a flood policy claim. If a pipe burst inside the home and the home was damaged by water that originated from the pipe, then this would likely be covered under the standard policy claim.
MY HOME IS NOT IN A FLOOD ZONE. SHOULD I GET A FLOOD POLICY?
Even if your home is not listed in a flood zone, you may want to consider getting a flood policy. Here in Florida, a home can flood under the right conditions, even if it seems improbable. The good news is that if the home is not listed as being in a mandatory flood zone, then the policy premium may be much lower than you think. You can pay the policy yourself through your agent without adding it to your monthly mortgage payment. Ask your insurance agent for details.
PUBLIC (FEMA) POLICIES vs PRIVATELY-INSURED FLOOD POLICIES
Until recently, the state of Florida had few flood insurance options and most homeowners were forced into a state-regulated FEMA policy. The FEMA policy manages the risk of the entire state, including high-risk areas; however in the last few years, there are now policies available through private insurance companies and these often have significantly lower premiums than the FEMA policy alternative. If you're getting a flood insurance policy, be sure to ask your insurance agent about this option.
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This is not a commitment to lend. Not all borrowers will qualify for the loan programs listed. All program terms and conditions are subject to change and may be discontinued without prior notice. Contact loan originator for program questions and scenarios.