Protecting your money pit before you pass away is important.
Owning a home is a big goal for a lot of people that can bring a sense of accomplishment and joy. With it comes a lot of new goals, too: do you want Carrara or Calacatta kitchen marble? Are you going to wallpaper that room? Will you really finish that novel if you make a reading nook?
What we’re trying to say is there is a lot of debt incurred by first-time homeowners.
Typically a new homeowner borrows 5X their net worth from a bank, which is obviously a lot of money and a big responsibility. Since managing that mortgage debt and other overhead expenses are huge financial responsibilities, it’s important to think about how all of this will affect your future.
What would happen if you should suddenly pass away? You definitely don’t want your loved ones to incur such a big debt. The most secure way to protect them is by purchasing life insurance. In addition to protecting your family in the case of your untimely demise, life insurance can also help them with your mortgage payments. Let’s explore some new homeowner tips and how you can achieve peace of mind.
Preventing buyer’s remorse
Unless you have enough assets left in your estate, most people don’t have the finances to be able to pay off their mortgage once the breadwinner passes away. Either way, the bank will ask your loved ones to become responsible for the payments. Unfortunately, many times the house goes into foreclosure and the bank will begin the traumatizing process of eviction. No one needs to think about being possibly homeless on top of grieving the loss of their loved one.
To prevent this and protect your beneficiaries, it’s important to buy a life insurance plan. Essentially, you should get a policy that equals the amount of your total mortgage. This way the insurance will give your loved ones a payout so they can continue to keep the house. Plus, these proceeds are usually tax-free.
Your family can also choose to use the insurance money to pay off other debt, possibly debt with a higher interest rate. In any event, the money will be used to support themselves after they lose you. That peace of mind is extremely calming.
New Homeowner Must-Haves
In addition to life insurance, there are several different types of insurance new homeowners can, and sometimes must, purchase.
Homeowners Insurance (HOI): This insurance is often required by lenders. It will typically cover the house, your belongings on the property, the loss of the house, and many more possible liabilities. HO-3 is the most common policy people purchase.
Private Mortgage Insurance (PMO): If you put less than 20% for the down payment, your lender will require this insurance. It can be cancelled once the cash value payments exceed 20%.
Title Insurance: If a rich heir whose family owned the land at some point should suddenly come knocking on your door demanding you give them the house, this type of insurance protects the title owners and the bank lenders.
There are several more types of insurance policies and plans a homeowner can purchase that will put added protections on your precious pad.
Protecting your home
At the end of the day, you want to make sure your family and loved ones continue to prosper and thrive once you’re gone. You also want to make sure your investments are preserved so it’s important to make smart choices. Understanding the risks involved, what the lender requirements are, and the different types of policies and plans will let you and yours sleep soundly at night.