If you buy a condominium with an FHA loan you have an additional insurance requirement over and above that normally provided by the HOA.
Since Jan 1st, 2010 FHA requires an HO-6 policy (or whatâ€™s termed "Walls in" Insurance) in cases where the master (HOA) policy, as is normal, does not include interior unit coverage, including replacement of interior improvements.
Your real estate agent and/or loan agent should be able to explain how this works.
Regarding how long you have to pay your escrow fees with your mortgage payment. This will continue until you can prove to the Lender that the amount of the loan is less than 75% of the property value.
The HOA insurance policy covers the common area and certain other items as specified in your association documents. Lenders will require an HO-6 policy. This covers the inside of your home, walls, ceiling, light fixtures, cabinets, appliances, then any personal items you elect to insure furniture. You will want to understand what the association covers in regards to plumbing and electrical in the event of a claim, are those items considered common or not.
Your agent should be able to explain or guide you to an answer.
Regardless of whether you own a home in a condominium complex or a home in a planned development or "PD", the homeowner is required to purchase insurance for their home. In a condominium complex, because the homeowners association owns the building, the insurance carried by the homeowner will usually cover fire, theft and liability on only those portions of the interior of the condominium and the personal property of the homeowner. Insurance agents call this type of a coverage an "HO-6" policy.
In a planned development or PD, the homeowner owns the "lot" and the home located on the lot. Homes in a PD can be attached or detached buildings, but the ownership belongs to the homeowner. In some PDs, the homeowners association will carry fire insurance on the building "shells" (usually only available for attached buildings) and liability for the common areas. The homeowner, however, must still carry insurance for the interior amenities, personal property, and general liability within the home.
Whether the homeowner's association purchase insurance or not, the homeowner MUST buy insurance for his/her own interiors and, in some cases, for the building. Talk to your insurance professional for more information. By the way, do not cancel your interior policy for any reason. Damages resulting from something as simple as a broken water line to the washing machine in your home can cost thousands and thousands of dollars, and if the homeowner is unable to pay, the Association can and will foreclose on the property to satisfy the debt, so the insurance payment will always be far less than the cost of the damages to your home or others in the event of a loss.
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Just one more thing. Please remember that you ALWAYS need to buy insurance regardless of whether the Association buys insurance for its common areas or not. Check the governing documents of the Association, but almost all of them absolutely mandate that the homeowner is responsible for purchasing insurance. I might also add that deductibles for HOA policies START at $5000 per incident, so unless you feel comfortable paying $5000 for each casualty loss, it's far easier to carry insurance.
There is never an instance when a homeowner of a unit or lot in a common interest development may rely solely upon the Association's coverage for loss. Believe me, don't find this out the hard way--get insurance for your home and your possession. It's relatively inexpensive and you will thank me when and if there is ever an instance when you need the coverage.
Grace Morioka, SRES, Realtor, CID/HOA Manager and Consultant
Co-Author: "Homeowners Associations: A Practical Guide to Leadership"
Consultant to the DRE in the HOA Cost Manual
25+Years Experience in HOA industry and Forward Planning
1. You own a regular SFR that has an HOA
2. The lender requires something in the effect of an HO6 insurance policy for the inside of a condo or townhome.
Other than that you should be fine.
Also, good point to have personal coverage for your own property and liability. The HOA does not cover your furniture, electronics, clothes or any of your personal property. Same for personal liability. If a guest sues you after falling down your stairs or tripping on your entrance you will need your own insurance protection.
Depending on how your HOA is set up they will cover insurance for anything that is common. So if it is a condo and you basically own from the painted walls in,then you only have to insure your personal property and the finishes, like the floors, cabinets, appliances. If you are buying a PUD you own the walls and the insurance is for more of the structure. Your lender will require impounds based on their guidlines but will not require you to have insurance on the parts of the home that the HOA already insures.
If you are required to have impound accounts, then it sounds like you have a lower down payment loan and that is a condition you have to agree to to get the loan. If the equity in your home exceeds 25% down the road and you opt out of the impound accounts; your lender will probably require you to obtain an appraisal confirming the value. Then they will consider releasing you from your obligation of paying into those impound accounts each month along with your mortgage payment.
The 25% can be 20% sometimes. Check with your lender or mortgage broker about this. If you bought the unit with 20% down to begin with, it is unlikely that the impound accounts are mandatory.
Ask your lender what the loan documents say. I also wouldn't focus on the insurance portion so much as the bigger reason why you have impounds: property taxes. Insurance is very important but statistically the lender faces more risk from you getting behind on your property taxes. Property taxes are always senior to any mortgage lien and that means they have priority and get paid first. Banks are quite fast these days at detecting delinquent property taxes. Your mortgage terms most likely stipulate that if you don't pay your taxes, the bank will and then charge you back with additional interest and penalties. In extreme cases they can invoke acceleration clauses because you have breached your agreement with them.
Again. ask your lender or mortgage broker about this. Getting it in writing is probably a good idea.
Mark Burns, Realtor
Coldwell Banker Elite - Top 1.5% Worldwide
President - PRDS, Contracts and Forms for Silicon Valley Residential Real Estate 2008-2011
DRE# 00896552 Licensed since 1985 and over 600 homes sold in Silicon Valley