When applying for a mortgage, there are a lot of forms you need to fill out and pieces of information you need to provide to your lender. From proof of income to proof of identity, the paperwork you need to get a mortgage can quickly stack up. One thing you may not realise you need is home insurance. Although it may seem like a fairly trivial thing, lenders won’t ok your loan without proof it’s fully insured.
But why exactly do you need home insurance? And could your lender refuse your mortgage if your home isn’t properly protected?
Protecting their investment
The main reason that mortgage lenders require borrowers to have home insurance is that it protects their investment. Like Gocompare says, “Buildings insurance provides financial protection for the borrower (and ultimately the lender) from damage to the main structure of the home.” If your property were to be damaged by a fire, flood or other incident, its value would be affected. If the reduction in value makes the property worth less than the loan, the mortgage provider wouldn’t be able to recoup their money if you default on your payments.
Home insurance helps to reassure mortgage providers that the property will be repaired quickly if something does go wrong. This helps to minimise their risk and protects their future profits.
What type of home insurance do you need?
Home insurance comes in a variety of forms, but in general you’ll be choosing between contents insurance, insurance for the building itself or both. The minimum you’ll need to invest in is home insurance for the building. In general, lenders are less worried about the condition of your personal property and more interested in the condition of the walls, ceiling and floors of your new home. If you want to ensure you’re covered in any eventuality, opt for a policy that covers both the building and your belongings.
When do you need to invest in home insurance?
In most cases, you’ll need to provide your lender with proof that a policy will be in place on the date you exchange contracts. However, this may vary between mortgage providers so check with your chosen bank before you arrange your policy. If you’re unsure exactly what type of cover you need, your mortgage advisor or broker should be able to guide you through the process.
For help and advice applying for a mortgage, or to talk to one of our advisors, get in touch with a member of our expert team today.
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Written by: Editorial Team