When closing on the purchase of a home, you should be familiar with three types of insurance. The first is title insurance. Title insurance protects the homebuyer and the lender against any claims that may arise from disputes about the ownership of the property. It consists of two policies: the lender's policy and the owner's policy. The lender's policy basically protects the lender in the event an error in the title is detected after the property has been bought. The owner's policy protects you. Generally, you should obtain both types of policies, as a combined lender's/owner's policy can save you some money. You may also receive a discount if the title company that previously insured the title reissues the policy. The second type of insurance is homeowner's insurance. Your lender usually requires that you purchase this type of insurance, as it protects you and the lender from any loss sustained if the house is damaged or destroyed. Usually, coverage must be equal to at least the replacement costs of the property. Coverage can also include personal liability insurance in case someone is injured on your property, personal property coverage which covers loss and damage to personal property due to theft, and hazard coverage that protects your house against fire, theft, weather damage, and other hazards. Lenders typically ask that the first year's premium be paid at or before closing. The last type of insurance is mortgage insurance. Mortgage insurance protects the lender in the event that you fail to make your monthly payments. Typically, private mortgage insurance, often referred to as PMI (P-M-I), is required on any mortgage if your down payment is less than 20 percent of the purchase price of the property. For cases in which the borrower puts a small amount down but eventually crosses that 20 percent threshold, mortgage insurance can be cancelled. Remember that the price you pay for insurance, regardless of type, can vary from company to company, so it's best to do some research to find the best deal. Also, insurance companies do offer several types of discounts, so you should ask your insurance agent which are available to you.
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