As part of the mortgage process you will be required to have certain insurances in place. These are normally paid at closing and will be shown of the HUD1 settlement statement.
Title Insurance: insurance that protects your lender against any title dispute that may arise over your property. Through a title search, the lender verifies who the actual property-owners are and whether the property is free of liens. The title search company then issues title insurance which protects the title of the property against any unpaid mortgages and judgments. In case a claim is made against the property, the title insurance provides legal protection and pays for court fees and related costs. You may also purchase Owner's title insurance which protects you as the homeowner.
Homeowner's Insurance or Home Hazard Insurance: an insurance policy that protects your home and your possessions inside from serious loss, such as theft or fire. This insurance is usually required by all lenders to protect their investment and must be obtained before closing on your loan. The choice of insurer and/or Insurance Broker to arrange your cover remains your responsibility. However any plan you arrange should meet the following minimum standards: You must arrange cover with an Insurance Company that has, at the time of placing the business, a B+ Class VI or better rating (this is a rating given to an American Insurer that recognises the financial strength of the Company) as rated by Alfred M. Best rating guide, and include: • Hazard Insurance • Extended Coverage and other perils • ‘Wind Cover’ • Flood Insurance (where applicable) • Earthquake Cover (where applicable). If you intend to use the property to generate Rental Income then the chosen policy must include Landlords coverage.
Insurance requirements for different types of properties
Planned Unit Developments (PUD): These types of properties will invariably have additional Insurance Policies arranged to cover Common Areas and whilst you will remain responsible for arranging your own Insurance as specified above the Closing Agent will verify the adequacy of the ‘Fidelity Insurance’ and ‘Liability Insurance’. In some cases it may be necessary for you to arrange your own or top-up cover to ensure that the needs of the lender are met.
Condominiums: Cover for these types of properties is usually arranged through a ‘Master’ policy (Hazard, Fidelity and Liability Insurance and Wind Cover if applicable) to which the individual Condominium owners will contribute. In some cases it may be necessary for you to arrange your own or top-up cover to ensure that the needs of the lender are met.