Are You Protected?
A real estate transaction can be confusing enough for most folks, but when you throw in the array of different insurances purchased before or within the transaction the varieties go well beyond what we think of when purchasing insurance. Hopefully, this overview will give you a better prospective of what to expect when purchasing (or selling) a home!
Property Insurance: The most recognized type of insurance is property insurance. You contract this insurance through your personal insurance agent/ company. It covers the structure against loss or damage, along with liability protection in case of a personal injury to visitors, etc. This is generally paid once a year or through your escrow account monthly.
Title Insurance: Title insurance is what insures you and/or your lender against any title claims that may come up in the future. Before a title company will write the insurance, they do a thorough search of the records to make sure that every ownership change was done correctly with all interested parties signing off. They also check for liens, tax sales, easements, etc. and include this information. If something is missed and there is a loss due to a title defect, you are protected. Title insurance costs are regulated by the State of Ohio (generally $5-6 per $1,000), is a one-time purchase and is paid for at closing.
Mortgage Insurance: This insurance protects the lender in case of a default of the loan. Generally, if you have less than a 20% down payment on your home, you may be required by your lender to have mortgage insurance. Different types of loans carry different names and requirements. For instance, conventional mortgages will carry PMI (private mortgage insurance) while FHA carries MIP (mortgage insurance premiums). There are too many variations and costs to touch upon here, but just know that you are generally required to cover your lender in case of default. Depending on the loan product, you may have an up-front fee (paid at the closing) with a premium amount every month or simply a premium every month. Question your lender thoroughly when deciding on a loan product to find out what the cost is and how to get released out of the fee (once you have established more equity in the property).
Closing Protection Coverage: Most folks don’t worry about their title company running off with their funds in the middle of the night to retire to Bermuda, but it has happened in other parts of the state! Since 2007, Ohio law now mandates that closing protection coverage be offered to all parties in a closing transaction. Under Section 3953.32 of the Ohio Revised Code, it will cover you in the event of a loss due to “theft misappropriation, fraud, or other failure to properly disburse settlement, closing or escrow funds…” by the licensed agent. Most lenders will require the buyer to pay to cover the lender. It is up to the buyer to decide, before closing, if they also want coverage. There is a one-time small fee (generally $35-60) for this coverage and is purchased within the transaction closing.
Flood Insurance: If your home is sitting in a flood zone (as determined by the Federal Government through FEMA) your lender will most likely require flood insurance. Anyone can purchase it whether in a flood zone or not. This policy assumes the risk of loss due to physical damage to a property by flood. Flood insurance is typically not covered under standard homeowner’s insurance. Premiums are paid annually or through your monthly mortgage payment in the escrow account, if you have one.
As appearing the The Canton Repository 3-18-16