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What are these for: Mortgage Insurance (MIP), Home Owners Insurance , Home Warranty?

The mortgage industry can sometimes be confusing with all the different terminologies. Here are the three most common forms of insurance.

MIP or Mortgage Insurance Premium is an insurance that DOES NOT COVER YOU - it covers the bank in case you stop making payments and foreclose. When you put less than 20% down on a home loan the bank insures themselves through a payment add on called mortgage insurance.

INSIDER TIP: Some banks will claim to have a product with less than 20% with no mortgage insurance …. This is a bit of semantics - or bait and switch…. While they may not charge you a separate payment amount they may bump your rate a bit higher to cover the same amount. If you are putting less than 20% down when you buy your home you should always compare the “no mortgage insurance” product with a regular mortgage insurance product. Many times the mortgage insurance product is actually lower - and can be removed when you reach 20% equity - without having to refinance your loan.

Home Owners Insurance this is what you think of when you think State Farm, Farmers, USAA, ect… this type of insurance typically covers you if you have a fire, burglary or other type of large scale damage. You should check what your deductible is for this premium - typically they range from 500 to 10% of the damage amount. Making sure you have an affordable deductible incase anything bad happens is key. Many people go with the cheapest rate and pic a very large deductible which is hard to pay in the event of a large problem.

INSIDER TIP: most typical homeowners coverages do not include flood or earthquake insurance. If you are in California you should probably heavily consider earthquake insurance. If your NHD report indicated you are in a flood zone you should also probably carry flood insurance. Talk to your insurance provider on what's best for you and your property and what the coverages are.

Home Warranty - this is typically negotiated at the beginning of the offer phase when submitting offers on properties. It's something typically negotiated between buyers and sellers; however you can usually get a warranty at any time of your home ownership. This type of warranty covers things like washers, dryers, dishwashers, stoves, AC units, small plumbing problems, and small electrical problems …. Sometimes you can add additional coverages like roof, pool, spa and accessory appliances. These are great policies for first time home buyers to cover those who don't have a lot in savings remaining after you close on your home. Typically there is a small deductible every time you call in (50-100 per call) but they will send a technician to come diagnose and repair the problem and if the problem cant be repaired they will replace or offer you a credit to replace the item. This can come in handy for aging appliances or HVAC systems. Typically these DO NOT cover cast iron plumbing collapses though.

INSIDER TIP: if you pay at the time of purchase for a 2 year home warranty it's typically much cheaper than renewing your 1 year home warranty at the end of its expiration. Ask your agent about the cost of extending your home warranty coverage before you close.

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