Can a Bank Require Me to Purchase Coverage Before Giving Me a Loan?

When you are getting a mortgage through a financial institute you will need to fill out a lot of paperwork. You are borrowing a lot of money from them, whether this is $100,000 or $500,000, and they are going to need some sort of level of trust and protection in you. One of the things that most banks and lending institutes require when they are doing the paperwork for a loan is homeowners insurance. What this means is that your bank will require you to take out adequate coverage before they will agree to a loan. This is fairly standard form across the nation.

Most banks will make sure you have taken out enough coverage to fully protect their investment. For example, you may need to have $200,000 worth of coverage if you have a $200,000 debt. This is a way for the bank to protect their investment and make sure that they are getting paid, if not by you, then by your insurance provider.

Unless you own your house outright, then you will not be required to take out homeowners insurance; however, even if you do own your house, no bank involved, you should still be insuring your automobile contents and your property, just in case. After all, just because you don't owe the bank anymore doesn't mean you will be free and clear from theft or damage to your property.

Keep in mind that there are other types of insurances you can buy to protect your financial situation and to help secure your loan. Taking out term life insurance to cover the costs of your mortgage and for the time that you are paying off your house is another popular option. What this means is that if you pass away, your provider will pay out the cost of your mortgage so that your family can still continue to make payments on the house even without your regular income.

Insurance and Mortgages

Investing in house insurance is not just a good idea because your bank is telling you to. It is a good idea for you as well. It can be hard enough to keep up with the regular mortgage payments each month without worrying about $100,000 worth of damage to your property to pay for as well. With homeowners coverage in place, you won't have to worry about this. You can get your home fixed without having any extra costs to worry about except for the mortgage.

It may sound silly that you need homeowners insurance to obtain a loan but think of it from the lenders point of view. If you are without coverage and are faced with serious damage to your property, then this means that the house the bank owns, or partially owned, is not ruined. If you are unable to pay for the damage and keep up on the mortgage then the bank will have to foreclose your home. This means they are going to have to pay for the damage and try to resell the property which is something financial institutes try to avoid. Having house insurance in place prevents this situation from happening and thus provides protection for both the bank and the homeowner.

Many financial institutes will offer homeowners insurance through their bank or through a partner company but you do not need to insure with their provider. You can choose to insure under any policy or provider that you wish. As long as you have the right level of coverage in place and are insuring with a trusted company, then you will be able to obtain the loan.

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