| 8. Property Taxes and Insurance Understanding Property Taxes
Homeowner's Insurance
Flood Insurance
Condo Insurance
Do I need Insurance?
When should I purchase Insurance?
Understanding Property Taxes
Property taxes are used for municipal improvements and upkeep. Schools, streets, paying bonds, etc. The tax assessor may reassess your property after you close and issue you a tax bill based on the new assessment when the new tax bills are sent out.
A lender generally considers your property taxes as part of your monthly obligation even though you may pay your taxes once annually. Let's say you buy a $400,000 home and the tax assessor assesses your house at the same amount. So your taxes are approximately $400,000 x 1.25% = $5,000 per year. Divide that by 12 months and you get a monthly tax payment of $416.66. For pre-qualification purposes, the lender considers that $416.66 part of your monthly payment. The good news is that property taxes are a tax deduction. Please check with your tax advisor for further information. Homeowner's Insurance
Homeowner's insurance (sometimes called hazard or fire insurance) pays for financial losses caused by a broad range of disasters that could damage your home or your property if they occur during the period of the contract and subject to the terms and conditions of your policy. The insurance company also promises to pay damages resulting from injuries or damage to other people, such as slip and fall or a dog bite, for which you are held legally responsible. Flood Insurance
Lenders check flood maps prior to making a loan. If the subject property is in a flood zone then you will be required to purchase flood insurance. However, an individual can opt to purchase flood insurance if so desired. Condo Insurance
The exterior and common areas of condominiums and townhouses are generally covered by the HOA's master insurance policy. However, you still should purchase a condominium package policy to cover the interior contents of your condo. Condo insurance usually includes liability insurance, which covers you against liability claims such as slip-and-fall or dog bite claims. Do I need Insurance?
Homeowners insurance coverage is required by all mortgage lenders to protect their investment. Depending on the location of your property you may be required to purchase flood insurance as well. If you were buying your property in a cash deal (no mortgage financing) you would not be required to purchase insurance, however this would not be advisable. Homeowners insurance covers not only the structure but the items in your home. Flood insurance may not be required by a lender however it is still a good idea to purchase this extra protection. Any damage caused by flood waters is not covered under a homeowners insurance policy. When should I purchase Insurance?
Immediately after acceptance of an offer to purchase, you should start shopping for homeowners and flood (if required) insurance. The lender - conservative in your interest - may not order the survey until after your loan is approved. You will need to provide and original binder of insurance from your insurance agent to your title agent at or before closing. | 
