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Avoiding Mortgage Mistakes
February 21, 2023
Purchasing a home is one of the most significant decisions people make in their lifetime. It requires a lot of time and thought to work out the logistics of securing the financing and meeting all legal requirements. Many homeowners need clarification and help with the process. You can help your clients avoid making mistakes by discussing lender-placed insurance and answering their questions regarding the types of insurance required.
Explain Lender Placed Insurance
Not everyone realizes that obtaining insurance isn't always left up to the individual who holds the property mortgage. Sometimes a lender purchases the insurance themselves to ensure adequate coverage is in place to protect their assets. Other times, a community association maintains insurance on the property and charges residents a fee to cover this cost.
All clients should have a good understanding of the types of policies and coverage limits that are active on the property they live in, regardless of who holds ownership of the policy. Make clear who the responsible parties are when it comes to paying the bill, filing claims, and receiving compensation on any that get approved.
Describe the Role of General Liability Insurance
Liability coverage is essential to pay for the costs of property damage and injuries that occur on the premises. Every private owner and association should have this type of coverage. This minimizes the risk of financial loss and legal complications if someone files a lawsuit.
Stress the Need for Property Management Insurance
If a client is taking out a mortgage for a property they intend to rent, they must review the risks and subsequent insurance needs that come with having tenants in their residential or commercial properties. Even with clear terms outlined in the lease and a great effort to address any concerns as they arise, some renters may become upset and decide to sue.
Discuss Common Mortgage Mistakes
Many prospective home buyers need to familiarize themselves with the requirements and process of obtaining a mortgage and the necessary insurance. Here are some common mistakes that could cause problems:
- Failure to get pre-qualified for a loan before searching for a home
- Damaging credit by falling behind on bills
- Making a large purchase or changing jobs before buying a house
- Taking out a loan or other activity that changes credit
- Putting strain on the established budget
Once your clients understand what to avoid, they increase their chances of securing the financing they require.
Suggest Insurance Needs Beyond Lender-Placed Insurance
The purpose of insurance is to cover the cost of claims that clients file. The range of potential losses is vast, including property damage, personal possessions lost or destroyed, and even injuries sustained by individuals while on the property. Homeowners, and even renters, must understand the limits of their coverage as part of the community and what extra coverage can do.
Lender-placed insurance may have limitations in the policy that make it advisable to take out an additional policy. Discuss your clients’ needs and recommend additional policies that protect their assets and financial well-being. ◼
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