Do Utah Homebuyers Need Homeowners’ Insurance?

When purchasing a house, lots of questions arise. One that occurs to many would-be Utah homebuyers involves homeowners’ insurance. What people want to know is whether coverage is required – and we have to say that it depends.

Insurance is mandatory when a home purchase is financed with a mortgage loan. Here, the mortgage professionals at Intercap Lending explain.

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Mortgage Lenders Require Homeowners Insurance

While coverage isn’t compulsory at the state or federal level, anyone who wants to use a mortgage to purchase a Utah home must have homeowners’ insurance. Lenders have this requirement for a reason – to protect their financial investment.

Home loans can be risky for lenders. If a borrower fails to meet the terms of their mortgage, the lender can foreclose or take possession of the property. However, if a property isn’t properly insured, they could lose a significant amount of money.

How so? Well, if a lender doesn’t require a borrower to get insurance and something happens to the house – there’s a fire, perhaps, or a tree crashes through the roof – the cost of rebuilding or repairing it would fall on the lender. To keep homebuyers from shirking their financial responsibilities, lenders typically insist on proof of insurance before closing on a Utah home.

Homeowners Insurance vs. Mortgage Insurance  

As we’ve explained, any Utah homebuyer interested in taking out a mortgage will almost certainly need to get homeowners insurance – and contrary to what some people think, that isn’t the same as mortgage insurance.

Homeowners’ insurance is designed to protect a property from damage due to unforeseen events. Policies typically include coverage for the structure of a home as well as its contents, and most also offer protection from lawsuits related to injuries sustained on the property.

In contrast, mortgage insurance is designed to protect the lender. A mortgage insurance premium (MIP) applies to all FHA loans, and without a down payment of at least 20 percent of a property’s purchase price, most lenders require private mortgage insurance (PMI) with conventional financing. In either case, if a borrower defaults on a home loan, the lender’s losses are covered.

Do You Have Other Mortgage Questions?  

If you’re hoping to buy a home in Utah, Intercap Lending would be happy to help. Our team of friendly mortgage professionals can answer all of your questions about conventional and government-backed home loans – and when you’re ready to take the plunge, we can match you with a mortgage that meets your unique needs.

At Intercap Lending, our decades of mortgage industry experience set us apart. We have the knowledge to make home buying simple, and we’re dedicated to providing an exceptional borrowing experience. For more on mortgage loans for Utah homebuyers, contact us today.