Homeowners Insurance vs. Mortgage Insuranc

As both types of home insurance can elevate the price of property ownership, you're going to encounter them both during the house loan application process. However, this is where their similarity ends.

Homeowners Insurance vs. Mortgage Insurance

Although insurance and mortgage protection sound similar, they are very different in practice. Here’s a brief summary of each of them.

What Is Homeowners Insurance?

Homeowners insurance is a particular type of property insurance meant to safeguard your home, its furnishings, and its inhabitants from loss from unexpected events. Homeowners insurance also protects your home and its contents against loss- or expense-related damage. This insurance is perfect for the person who wants to protect their home and property.

Homeowners insurance may comprise coverage for your personal belongings:

• Structure of homes.
• Personal belongis.
• If your family members or pets cause injuries to others in a lawsuit, you will be responsible for the expenses that such a lawsuit incurs. 
• Medical expenses may be incurred if someone is injured in your home. 
• Extra living costsmay be incurred while your house is uninhabitable.

Natural events such as floods, mold, earth movements, such as earthquakes and landslides, and sewer or drain backups are generally excluded from standard homeowners insurance policies.

What Is Mortgage Insurance?

Mortgage insurance, or private mortgage insurance (PMI), is different. This is an insurance plan designed to ensure the lender a bank, such as yourself if you don't have enough cash to make your payments on time and in full.

With PMI, the homeowner normally pays a percentage of their total mortgage cost each year. Afterward, if they are unable to make mortgage payments, the insurance company will cover the fees for them. Adding PMI to your annual bills can increase the cost of owning a house.

Key Differences

The key differences between this form of insurance and the other type can be summarized as follows:

	Homeowners Insurance	Mortgage Insurance
Covers	Homeowner and mortgage lender are indirect.	Mortgage Lender
Does not cover	A standard homeowners insurance policy usually does not cover damage from losses such as fire, flooding, sinkholes, mudslides, and earthquakes.	Homowner
Required for	A borrower finances their home purchase using a home loan.	Borrowers often make a down payment of less than 20% of the home's sales price.
Payment form	Generally, the plaintiff pays the premium directly to the insurer or the mortgage company, which then pays the homeowners insurance from the escrow account held by the bank.	The borrower is responsible for the monthly payment or part of the costs related to closing a home purchase to the mortgage insurer specified by the lender.
Average annual cost	Nationwide average of $1,251/year	The cost depends on three factors: your loan amount, your credit score, and your loan-to-value (LTV) ratio. For a house worth $250,000, the range is between $1,091 and $1,747 per month.

Do I Need Homeowners Insurance or Mortgage Insurance?

You have several options for the kind of homeowners insurance you'll need as a result of your mortgage, the size of your down payment, and how close you are to paying it off.

Do I Need Homeowners Insurance?

Most homeowners have some type of property insurance. That's partially due to lenders demanding property or homeowners insurance before issuing a mortgage. Many individuals have property insurance for its unique uses, however, and continue to pay for it even after their mortgage is finished.

Homeowners insurance can be quite useful economically because of its high replacement value and pricey lawsuits. Monthly premiums can often be lower than anything you would ever have to spend to rebuild your home or replace all your possessions in the wake of a covered catastrophe, or if you were sued due to a guest being hurt.

Do I Need Mortgage Insurance? 

Mortgage insurance is a type of insurance that helps protect lenders against losses if a borrower defaults on their mortgage loan. It is typically required if you make a down payment of less than 20% on your home. Mortgage insurance premiums are usually paid monthly, and the cost varies depending on the size of your loan, the lender, and the type of mortgage insurance. 

There are two types of mortgage insurance: private and government-backed. Private mortgage insurance (PMI) is provided by private companies, while government-backed mortgage insurance is provided by agencies such as the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA). 

Most people with PMI pay between 0.3% and 1.5% of their loan amount each year for coverage, although this varies depending on the insurer. 

Are mortgage insurance and homeowners insurance interchangeable?

Your home and its contents are not protected by Homeowners insurance. Mortgage insurance (sometimes known as private mortgage insurance or PMI) protects your lender in case you default on your mortgage.

Do you always need mortgage insurance?

Typically borrowers making a down payment of less than 20% of the cost of a home will need to pay for mortgage insurance. Mortgage insurance is also commonly required on Federal Housing Administration (FHA) and Department of Agriculture (USDA) loans.

How can I avoid PMI?

The best way to avoid paying PMI is by putting down a down payment of 20 percent of the purchase price. Don't try to avoid buying PMI if you're obligated to. In that case, your lender can purchase it on your behalf and charge you, which could cost more than buying it yourself.

Conclusion

Homeowner insurance and mortgage insurance are two quite different sorts of insurance.

Homeowners insurance protects your house, its contents, and you if a crucial lawsuit is brought against you. Mortgage insurance, also called PMI, covers your lender if you miss a payment.

Most home-owners choose to buy homeowners insurance, as it makes financial sense to protect one's finances against large costs. You may be required to purchase mortgage insurance on top of your mortgage loan if you put down less than 20% for a mortgage loan or you take out a Federal Housing Administration mortgage.