There are several types of insurance to consider when buying a home. The first that we commonly talk about is homeowners insurance.
That can take on different forms. For instance, if you’re buying a condominium unit your homeowners insurance is usually included in your association dues. That covers the common elements of the building. In this situation you may consider an additional insurance policy to cover the contents in your home.
There’s private mortgage insurance as well, also known as PMI. This comes into play when a buyer is putting less than 20% down on a conventional or FHA loan.
Insurance is part of the conversation when we have the pleasure of sitting down with people or speaking with them on the phone during the pre-approval discussion. It’s important to us at Police Mortgage to cover all of the costs associated with insurance considerations when reviewing a police home loan with a first responder.
Of course, we are going to talk to you about the monthly payment in terms of principal and interest. However, that’s only one aspect of your payment. The other components of the payment are the property taxes and the homeowners insurance.
If you’re putting 20% or more down, there is no private mortgage insurance. But you still have to obtain homeowners insurance coverage that, at a minimum, covers the replacement cost of your home. For instance, if you buy a home for $300,000 and the replacement cost of that home is also $300,000 then you must insure your home for at least $300,000. The first responders we work with generally know that they need homeowners’ insurance, but some don’t realize that you have to have the amount that covers the replacement cost.
I’m not here to tell you what to do on the insurance aspect of buying a property. There are insurance experts for that. But I can tell you what is involved, especially given the higher costs of insurance today. Imagine trying to get homeowners insurance down in Florida after all the hurricane activity, for example.
Insurance premiums vary quite a bit due to a number of factors. They depend on the area that you’re buying in, the risk profile, and more. So, we strive to make sure that when we’re speaking with first responders that we’re not just quoting a basic monthly payment. Police Mortgage paints the full picture including what we typically see when it comes to homeowners insurance premiums.
Some of our clients don’t realize that an annual premium has to be paid up front prior to closing. This is because homeowners insurance is in arrears, meaning that you’re paying for your insurance one year in advance. Then the next premium that you pay covers the period of time that you’re currently in the home.
When it comes to law-enforcement home loans, it’s very important to understand the upfront cost. It’s not a cost Police Mortgage charges you. If you’re working with another mortgage company, they may overlook the insurance considerations or just gloss over them. Then when you’re a week or two before closing you may be scrambling to obtain homeowners insurance. You also then realize that your expected monthly payment is going to go up. And as we say at every Chicago Patrolman Credit Union location, we don’t want you to sweat your payment. That’s why we try to give our first responders as accurate a picture of the expected monthly payment as possible.
That goes back to the whole conservative method of how we qualify people. Police Mortgage strives to inform and educate.
Going back to condominium units, your association dues which includes insurance for the property doesn’t cover the contents within the unit. In other words, your furniture, your jewelry, your computers, and all your other possessions actually in the unit are not covered in the case of a fire or another disaster. So, there will be an additional cost to obtain your own insurance policy to cover the contents within the unit. That, along with the amount of the monthly association dues, need to be discussed and quoted.
In closing, when it comes to police home loans, we want to cover P-I-T-I. That is the principal, interest, taxes, and insurance that comprise the monthly payment. We have an obligation as a fiduciary to provide an accurate quote to make sure the loan is qualifiable. So, we take all factors into consideration including the costs for homeowners insurance, PMI, and much more.
Police Mortgage specializes in conventional mortgages, purchase money transactions, FHA loans, and VA loans. Led by founder and CEO John Aretos, Police Mortgage is known and respected for providing clients with exceptional service, customized terms, quick and easy closings, and low money down options. To learn more about Police Mortgage, call 312-499-8878.
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