Down Payment Insurance To Become Available Soon

Putting down a large chunk of cash when purchasing a new home or other property can certainly  be a risk for buyers. A dip in the value of the property, and illness, job loss or numerous other factors beyond the buyer’s control could result in the loss of a down payment.

There will soon be a way for buyers to reduce that kind of risk if the choose. At the start of 2016 that will become an option for buyers who may feel a bit vulnerable with a large down payment hanging balance while they wait for a real estate deal to close. A new service called +Plus we be offered by Dallas-based ValueInsured which be rolled out that offers insurance coverage for potentially-vulnerable down payments.

Getting coverage will involve making an up-front payment that will, in some cases, be included as part of the interest payment. Down payments for up to $200,000 can be insured with the buyer listed as the beneficiary. With this type of insurance the loss suffered by a buyer due to a declining value of the property being purchased will be covered, and allow buyers to file claims up to the full amount of the down payment. The premium for a $20,000 down payment on a $200,000 property is expected to be about $1,200.

If the coverage is purchased as part of lender credit to be used for the closing costs instead of the buyer paying cash for it, the premium could be rolled into the interest rate of the loan, which will raise the rate somewhat. It could also be considered a supplement to mortgage insurance that is paid by the lender, resulting in a higher rate on the mortgage.

Like any other insurance, it is important to pay careful attention to all the details before signing on the dotted line. Buyers should be particularly attentive to the terms that outline the amount that can be paid out in the event of a loss.

Another consideration is how much this type of coverage actually reduces risk for the buyer. Certain very specific conditions must be met in order for buyers to qualify for payment after making a claim. Although some may assume that documenting a loss would be sufficient, that is not necessarily the case. Buyers who wish to file a claim are not permitted to do so during the first two years following a purchase or at any point beyond seven years after the purchase.

There are other important details to be aware of concerning the +Plus plan, and one of them is that the payments made to claimants are tied in part to the property value index that’s published by the Federal Housing Finance Agency. If the index does not indicate a decline during the buyer’s ownership of the property but the value of the house has dropped, it is not likely that a claimant will get their entire down payment back after filing a claim.

The policy will pay the lesser of the following to amounts: The original down payment amount, the actual equity lost or the purchase price of the property times the reduction in the FHFA index.

As with any insurance, it’s important to consider whether the premium is worth paying relative to the amount of money used for a down payment that could be lost.

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