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Insurance

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Before buying the property, the buyer must know first-hand if the house is insured or not.

On this page, we will know why insurance is important in buying a house.

Different types of insurance

Homeowner’s Insurance

Also commonly called hazard insurance and often abbreviated in the real estate industry as HOI, it is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, lossof its use (additional living expenses), or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or the hands of the homeowner within the policy territory. If you have a mortgage loan, then the mortgage holder is also made an insured on the policy to ensure its investment is protected in the event of serious or total damage.

Private mortgage insurance

Generally referred to as PMI, this is an insurance policy that a the lender will require a buyer to have if the loan is more than 80 percent of their new home’s value. In other words, if your down payment is less than twenty percent, your lender will generally require you to obtain this insurance.

As the borrower, you can request cancellation of PMI when you pay down your mortgage to less than 80 percent of the the original purchase price or appraised value of your home at the time the loan was obtained. You also need a good payment history, meaning that you have not been 30 days late with your mortgage payment within a year of your request, or 60 days late within two years.

Warranties by Deed

A new home warranty is generally provided to a buyer by a builder and offers warranties on limited
coverage on workmanship and materials relating to various components of the home, such as windows, heating, ventilation, and air conditioning (HVAC), plumbing, and electrical systems for specific periods (typically a year).

A seller’s warranty provides added assurance that any repairs to major appliances, plumbing, and other home systems will be covered by the seller within a specified period after the home is purchased. A seller may also provide a warranty as to the validity of the title, they can convey to the buyer. It is important that your real estate agent or real estate attorney do due diligence and perform a thorough title search to ensure that you are being conveyed good title when you purchase your home.

However, since the seller may be hard to locate or lack the resources when a problem arises, a seller’s warranty should be secured by holding back some of the seller’s sales proceeds for the warranty period.

A general warranty deed is where the seller warrants the title of the property against any other third parties. A special warranty deed is where the seller warrants the title of the property to the buyer against anyone claiming an interest under the seller (heirs, assigns).

A quitclaim deed is a deed where the seller provides no warranties and makes no statement as to title to the extent that they state they are transferring whatever interest, they have to the buyer. This is usually used when spouses are conveying their interests after divorce or in the case of a foreclosure sale.

After knowing the intricacies of house insurance, it is now time to close the deal and get your keys to the house. Learn more about the closing sale on the next page.