HomePath Financing Without Mortgage Insurance

by Liz
(Puyallup, Washington, USA)

Ask Kate about HomePath Financing Without Mortgage Insurance: Hi Kate, Is it wise for people to buy a home and not insure it? Our offer was accepted on a home and we are using HomePath financing.

Liz continues... Since Personal Mortgage Insurance is not required, does this mean we have an uninsured home? Or does Home Path financing come with home insurance but the payment is at no cost?

I'm confused. Thanks for your help!

Kate Answers: HomePath Financing Without Mortgage Insurance

Dear Liz, No, it would not be wise to buy a home and leave it uninsured.

Quick story - Our friend lives in an area prone to brush fires, which during certain seasons burn out of control. After he paid off his mortgage, he was going to switch insurance carriers.

But during the lapse in insurance coverage, wild fires spread to his neighborhood. He lost his gorgeous family home with no prospects of rebuilding it - that is, if he didn't want to borrow money after years of paying off his mortgage.

What Is Homeowner's Insurance

HomePath financing requires all home buyers to purchase and maintain the coverage of Homeowner's Insurance or at the very least, fire insurance.

Homeowner's Insurance pays for a dwelling to be rebuilt, after being caught in a fire, according to today's construction standards. Any mortgage program I know of requires it, HomePath financing included.

Homeowner's Insurance policies can also include coverage for liability, like slip and fall accidents, and loss of belongings, from theft or in the case of fire.

A lender requires proof of Homeowner's Insurance before the loan funds and independently communicates with the insurance agent to verify ongoing coverage.

The annual premiums are normally included in your monthly house payments, especially with a low downpayment.

What Is PMI - Private Mortgage Insurance

But there is a big difference between Homeowner's Insurance coverage and the personal mortgage insurance you mention, which is actually Private Mortgage Insurance, PMI for short.

PMI is not house insurance, it is not life insurance, it is not unemployment insurance. But it does allow a home buyer to get a mortgage with less than 20 percent for a downpayment and insures the lender, not the homeowner, if the mortgage payment goes unpaid.

Any home buyer with 20 percent downpayment or more cannot be required to pay PMI, unlike 20 years ago when a lender could use their discretion and require Private Mortgage Insurance, even with a sizable downpayment.

Generally, PMI is paid monthly and included in the mortgage payment. But other options which may save money are available.

Private Mortgage Insurance and HomePath Financing

Fannie Mae's special financing for their foreclosed houses, HomePath Homes, does not require Private Mortgage Insurance, even with low down payment options. Pretty cool!

But when mortgage companies say a low down payment program has no mortgage insurance, you are pretty safe assuming higher interest rates. So check the mortgage rates and compare to low downpayment FHA home loans to make sure the offer is still a good deal.

But mortgage insurance or not, you will be required to pay for fire insurance coverage. That's a given!

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Best wishes,

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