FHA Mortgage Insurance Issues For First-Time Home Buyers
October 24, 2024
Buying your first home is a major milestone. If you use an FHA mortgage to buy your home, you’ll have two different types of insurance to consider.
One type is the FHA-required mortgage insurance premium, which is paid for 11 years or the loan's lifetime, depending on your down payment, loan term, and other variables.
That insurance policy protects the lender in case you default on the mortgage; it does not protect the homeowner.
The other type of insurance is homeowner’s insurance, sometimes called hazard insurance. This policy protects the borrower’s investment, covering the house and any contents specified in your legally binding loan agreement.
Some consider this type of insurance a safety net for the home, protecting the insured from the financial burden of a fire, theft, or natural disaster.
FHA Loan Requirements and Adequate Protection
The FHA doesn't dictate specific types of hazard insurance, but borrowers should maintain enough coverage to protect their investments.
Setting deductibles too high or failing to get coverage for certain contingencies such as flooding (as opposed to the water damage from a broken pipe or related issues.) Your insurer may value the home based on the lesser amount between the appraised value and the replacement cost of the property.
Deductibles, the out-of-pocket amount before your insurance pays, may be set at your discretion. However, carrying deductibles you can’t realistically pay today in cash is a risk.
Homeowners Insurance vs. Mortgage Insurance
It's easy to confuse homeowners and mortgage insurance, but they serve distinct purposes. Homeowners insurance protects your property and belongings, as mentioned above.
Mortgage insurance protects the lender in case the borrower defaults on the loan. This type of insurance does not pay out to the borrower.
This insurance minimizes the lender's risk and makes it easier to approve your FHA loan.
Choosing the right hazard insurance policy for your FHA loan requires careful consideration of several factors:
Coverage Needs: Evaluate your specific needs based on the value of your property, its location, and everything you own.
Policy Options: Compare different policy options and coverage levels to find the best fit for your needs and budget. Pay close attention to deductibles, premiums, and any exclusions listed.
Discounts: Ask about discounts, such as those for security systems, smoke detectors, and carrying several policies with the same insurer.
FHA Loan Articles
February 26, 2021Many Americans go with FHA loans because there are a number of mortgage programs that can fit different needs. These programs include FHA Fixed Rate Loans, FHA Adjustable Rate Mortgages, FHA One-Time Close Loans, FHA Condo Loans, and several others.
February 21, 2021The new year came with some changes being made in the mortgage industry, particularly when it comes to Adjustable- Rate Mortgages, or ARMs. The interest rate you get with an ARM is based on an index and a margin which is disclosed when you apply for the loan.
February 6, 2021As an existing homeowner, you may want to take advantage of falling interest rates by refinancing your current mortgage. For many homeowners, the thought of going through the refinancing process can be tiresome. But an FHA Streamline Refinance could help you avoid the extra work.
January 30, 2021As your closing day gets closer and closer, you might start to feel a little nervous. Do you have everything you need? Will something delay the closing? These worries are natural, but the more prepared you are, the less overwhelming it will all seem.
January 16, 2021What you may not know that there are many different types of refinances and different benefits that come with them. The cash-out refinance, or cash-out refi, is one that many borrowers opt for, for several reasons.
