Finally, your dream home has been handed to you. Your real estate agent over-delivered. You have waited a long time for this moment. Today is the day that it will be finalized. This is known as the “Closing”…..Everyone arrives on time and is seated at the table. The sellers, the buyers, the agents, the lenders, and the lawyers. As you go through the closing by signing documents needed to complete the deal.
One of those documents stresses the “Home Loan Insurance” guarantee. In many cases, the new home buyers are told to sign here. This is your mortgage protection. It is embedded into your home loan. Just sign here and we are done. It can be even further communicated that there is no “Underwriting process” to protect your home. So, the new home buyer is happy about this news and signs. There it is: home loan insurance is provided by the lender. Is it really that simply? Of course not……….It is really that embarrassing. Did you ever receive a tangible copy of the insurance policy to protect your home? What just happened? Why was the underwriting process removed? Did I just lose control?
Home Loan Insurance provided by your lender is a total attempt to remove full control from you. You have a beautiful with no control. In order to direct control back into your hands, there are some variables that must take place. I will discuss in another blog.
Lenders are very clever. They know the average home buyer is just too excited about their new home, that they will not pay attention to the fine print on the documents. Yes, your lender needs to know that they will be compensated back in the event of your death. They would need some sort of collateral. But you must provide that. Here are several reasons why:
- Removal of underwriting: Lenders will place every new home buyer in a pool with each other. You are in a pool of smokers and non-smokers. Now, you might say- I do not smoke. Well, according to your lender, YOU DO.
- Home Loan Cost Amount Increase: New home buyers never have to pay anything up front because the lender places the so-called protection into your loan which raises the loan amount. You can argue by little or by much. Just know it is increased.
- Decreasing Protection Product: Lenders are using one of the older products in the industry. It is a decreasing term product. So a $150,000 home loan protection over a 30 year period will dwindle to $25,000 (which is the 25% of the loan).
- Lender Has A Monopoly: The Lender can increase your loan and if you die, the insurance company that the lender will use will pay the lender and not you.
This means that you have lost full control. New home buyers need to take their control back by not signing the home loan insurance document. It is not in the best interest of the household. Having a life plan and an overall picture of you finances and dynamic means everything. Here is the solution:
- Get a customized 30 Year Term policy: All proceeds will go to the surviving spouse tax free. The lender will not get every dime. You family will also receive the proceeds. Now you keep full control and when you will pay the lender back as opposed to not having the option.
- Make the Lender a beneficiary: New home buyers can make the lender a beneficiary for a specific home loan amount on the beneficiary form and send a copy to the lender for collateral filing. Many lenders will require it, but this is an option new home buyers need to exercise. Make sure to revisit this yearly. Do not lender any more than need to.
- Understand You Are In Control: New home buyers need to know that they are full control and not the lender. You will have a tangible copy of the policy that is accurate based on your age and health status. Not placed in a pool with a bunch of non-sense.
Our firm Diverse Legacies will help you customize your brand new homes loan protection and be a vital resource, partner and friend to you!