Private home insurance, or private mortgage insurance, as it is commonly called, is required by some lenders if your home's value to loan ratio is too high. This is because the lender wants to make sure they can recover their investment if your home was to go into foreclosure before you have earned enough equity. If your lender is requiring you to purchase private home insurance, there are a few facts that you should know about this type of insurance coverage.
Fact #1: Private Mortgage Insurance Does Not Replace A Standard Homeowners Insurance Policy
Standard homeowner's insurance provides coverage for you, the homeowner. If your home is damaged or your personal belongings are damaged, this type of insurance coverage will help you to cover the cost of replacing or repairing these items. Private home insurance, on the other hand, does not provide you with any protection. Instead, this type of insurance will protect your lender from taking a loss if you default on your mortgage loan. Consequently, you will still be required to purchase a standard homeowners insurance policy, even if your lender is requiring you to buy private home insurance.
Fact #2: Private Residential Insurance Is Paid For On Top Of Your Mortgage
Most lenders will roll your property taxes and homeowners insurance costs into your monthly mortgage payment in order to ensure that these vital costs are covered each year. However, private mortgage insurance is not included in this monthly premium. The cost of your private insurance coverage will be added to the cost of your mortgage each month. While you may be tempted to wait to save up a bigger down payment before buying a house so that you can avoid this additional cost, most people will find that the cost of private mortgage insurance is well worth the opportunity to stop wasting money on rent when they could be building equity in their own home.
Fact #3: You Do Not Need To Carry This Additional Coverage For The Life Of Your Mortgage
While your lender may require you to carry private home insurance when you first purchase your home, you will not need to carry this additional coverage for the entire life of your mortgage. Each lender will have a specific value to loan ratio that will trigger the end of your private mortgage insurance requirement. Talk to your lender to find out exactly how much of your loan will need to be paid before you can stop carrying this insurance coverage.