If you take out a mortgage, you’ll likely have to take out homeowner’s insurance, as lenders typically require coverage. Of course, even if you’re buying a house without using a mortgage, it’s a wise idea to take out such a policy. After all, there’s a good reason why lenders insist on insurance. We’ll explain why, but if you have any further questions, visit Kempton Insurance Group, serving the greater Charlotte, NC metro area.
Why Homeowner’s Insurance is Necessary
For many families and individuals, a home is the most valuable asset they own. When it comes time to retire, many people sell their homes, downsize, and then use the extra cash to fund retirement. Homes have traditionally proven to be among the safer but more profitable investments.
A home is also very valuable to mortgage lenders. When you take out a mortgage, the house and land are used as collateral. If you stop making payments, the bank can take possession of the property. Then, they can sell the assets to recoup the money they lent you.
This means the mortgage lender has a vested interest in the home. Collateralized loans ultimately offer lower risks, so lenders will typically charge less in interest. Due to all of this, the lender will want to ensure that the home is protected in the event of a fire, severe storm, or other risks.
If a home is uninsured and then destroyed suddenly, the collateral is worth a lot less. The property owner might also decide to stop making payments. After all, the owner won’t even have a home anymore. This puts the lender at risk, and they may suffer losses.
Ultimately, home insurance can protect both homeowners and lenders. You can explore home insurance options by contacting the Kempton Insurance Group, which serves greater Charlotte, NC.