If you buy a home and take out a loan, such as a mortgage, your lender will likely require that you take out homeowner’s insurance. Some new homeowners are surprised by this requirement. However, as we’ll see below, insuring your home is important for both the owner and lender. If you’d like to explore home insurance policy options and want to speak with an agent serving California, Oregon, Nevada, or Arizona, get in touch with Avail Insurance Solutions LLC.
With Home Insurance Lenders Want to Protect Themselves
When you take out a mortgage or similar loan, that loan is tied to your home or property. This greatly reduces risks for lenders. If someone should fall behind on their payments, the lender can take control of the property and then sell it to recoup their losses. Since this greatly reduces risks, the lender can charge borrowers lower interest rates.
If a home were to be destroyed by a fire, storm, or other event, however, it would greatly reduce the value of the collateral. For the lender, this would greatly increase risks. Further, if someone took out a mortgage but their home ended up destroyed, they might stop making their mortgage payments. From the borrower’s point of view, since they no longer have a home, they may not want to make house payments.
The bank could take control of the land and sell it. However, the land and damaged property may not fetch enough money to cover the outstanding debt tied to the mortgage. For this reason, lenders typically require that borrowers take out homeowner’s insurance. This insurance will in some cases cover the costs of repairing and replacing damaged and destroyed properties. Ultimately, this protects both the lender and the borrower.
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Considering home insurance options in California, Oregon, Nevada, or Arizona? Contact Avail Insurance Solutions LLC today.