Ok, so, you didn’t set out to become an insurance expert – all you wanted to do was buy a home in Maryland, after all. Yet, in the process, you ran up against at least four different types of insurance – and these are just the mandatory policies.
You probably never dreamed you would need to learn about insurance when buying a home in Maryland. From PMI to hazard insurance EVERYONE has their hand out, wanting to make sure their interests are covered.
Title Insurance – What Is It?
What is title insurance and how does it work? When buying a home in Maryland, and the home you have chosen goes under contract, the lender demands a search of the home’s title. This search determines that the homeowner is truly the owner of the property and that nobody else has a full or partial claim to it. The title search will also reveal outstanding judgments or liens against the property, information about unpaid taxes and many other issues.
After the title search, the title company will release a summary of its findings, typically called an abstract of title or a preliminary title report, and an opinion about the validity of the property’s title.
If the lender sees anything negative it will refuse to issue the funds and the home will not close until the problem is cured. If, on the other hand, the researcher validates the title, the lender will proceed. When buying a home in Maryland, the lender may the require the buyer to purchase an insurance policy to protect it against any claims that weren’t found during the research. This is commonly known as the lender’s title policy, although there is also an optional owner’s policy that protects the new homeowner as well. When buying a home in Maryland, the lender’s policy only protects the lender, even though the buyer typically ends up paying the one-time premium.
Think title insurance is frivolous?
A Utah couple put their home on the market and quickly found a buyer. Escrow was opened and the title search was ordered. During the process, the title company discovered a lien against the property, which happens sometimes. What happened in this case is when the homeowners originally bought the home, the sellers lent them some money for the purchase. This loan created a lien against the property.
The escrow company contacted the original homeowners (the originators of the loan) and informed them that the folks they lent the money to were selling the home and, thus, paying off the loan. The lien could be removed, right?
When dealing with reasonable people the answer would be yes. Unfortunately, the original homeowners turned out to be quite disagreeable and refused to take the payment in full for the money they lent. They offered no explanation.
The sellers worked overtime, trying to get the uncooperative former owner to accept the loan repayment. When the closing date came and went, the buyers for their home ― a family of five ― were forced to move into a weekly apartment because they’d already given notice to their landlord.
Finally, the original homeowner came forward and demanded more money than what was owed. To get their buyers out of the weekly rental and to move on with their own lives, the sellers paid the former owner more than what they owed.
So, the moral of the story is that title insurance is not frivolous. Should an issue arise after buying a home in Maryland, the owner’s title insurance will protect the homeowner from any liens in the past that were not originally discovered. And the lender’s title insurance will protect the lender. Owner’s title insurance, while optional, is recommended and can save a homeowner in the long run if any issues with the title arise in the future. When buying a home in Maryland, be sure you understand title insurance so you can make an educated decision regarding owner’s title insurance.
Nobody likes PMI
Private mortgage insurance (PMI) has been in the news a lot over the past few years. FHA raised and then lowered the costs of its premiums (which they call the Mortgage Insurance Premium or MIP) and that hit the headlines. Then the advice columns on how to get rid of PMI started making the media rounds. American homeowners try desperately to rid their house payment of the PMI premium.
PMI covers only the lender and will kick in if you default on the loan. It is required for most loans when the buyer pays less than 20 percent of the purchase price for a down payment. This is, in a nutshell, the price borrowers pay for low down-payment loans. Without it, you’d have to come up with 20 percent of the purchase price of the home. So, it’s not entirely “useless” after all. Annoying, yes, but sometimes necessary when buying a home in Maryland.
Let’s talk about homeowner’s insurance
Homeowner’s insurance is another lender-requirement when buying a home in Maryland,but the homeowner also benefits in the case of a claim. Hazard insurance is a part of a homeowner policy.
Homeowner’s insurance coverage varies from the basic theft, weather damage and fire to more-costly coverage including that for earthquake or flood damage. The lender will let you know which basic coverage you will need to purchase.
The whole topic of insurance is confusing to most folks. When buying a home in Maryland, it is important to cover such an expensive investment. Your real estate agent and title company can guide you in obtaining the various types of insurance. An experienced and knowledgeable insurance agent can answer your questions and provide guidance as well.
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