Many military borrowers consider the mortgage process over and done once settlement is completed. Alas, it just isn’t so.
VA financing, like all other forms of mortgage lending, requires that you pay more than just principal and interest. Even if all payments for VA loans are being made there are other obligations which have to be met, especially taxes and insurance.
There is good logic behind such VA requirements. If property taxes are unpaid the local government can foreclose the property — even if the monthly payments for principal and interest are up-to-date. And if what is called homeowners’ or hazard insurance is unpaid — typically fire, theft and liability coverage — then the mortgage contract has been breached and the lender has the right to foreclose.
Why are lenders so sticky about homeowners’ insurance? The loan is secured by the property. If the property is reduced in value or destroyed then the value of the lender’s security is also hurt. To protect their security, lenders require borrowers to get property coverage as a condition of making the mortgage.
Homeowners insurance is something everyone should have even if a property is free and clear of any debt. Accidents really do happen. For instance, in a rental property we own a tenant made a breakfast which somehow became a roaring blaze requiring lots of fire trucks, an ambulance and big holes in the walls to let out the smoke. Everyone was okay. We had owners coverage and paid nothing for repairs — and there were a lot of repairs. We also had working smoke detectors which meant no citations from the fire department and no claim reductions by the insurance adjustor.
The tenants — as required by the lease — had renters’ insurance. Their policy covered their costs and losses. Years later, the same tenants still occupy the property.
Homeowners insurance has become more difficult to get, especially in states where there have been a lot of claims. Also, VA mortgages may imply the need for special coverage. As the National Association of Insurance Commissioners explains:
“Many homeowners policies have a ‘vacancy clause,’ and if you are gone for an extended period, you could trigger it. In this event, some or all of your coverage may not apply in the event of a loss. The precise definition of vacancy can vary from policy to policy. Some policies, for example, might not pay claims if your house is unoccupied for 60 days or more. However, many companies offer an endorsement that will provide coverage for a dwelling that is unoccupied for an extended period of time. You should consult with your insurance agent or company to learn how the company defines vacancy and whether the company will pay claims if a house is unoccupied.
“Check your coverage. It is a good idea to review your homeowners policy with your agent before you leave — it could help you avoid a dispute or disagreement in the future. Make sure your policy limits are sufficient to cover your home and your personal property at today’s costs. You may want to increase your coverage if you have made additions or improvements to your property.
“Personal property coverage. The military generally will not pay to repair or replace property that is damaged or lost in military housing or in a war zone. Homeowners insurance typically covers personal property that you take with you while traveling, but most policies exclude coverage for damage caused directly or indirectly from war. Talk to your agent about whether personal items that you take with you during your deployment will be covered if they are lost, stolen, or damaged.”
The state regulators group says military personal who rent also require coverage:
“If you rent property, you should consider renters insurance often referred to as personal property coverage. In many states, if you rent your home and have renters insurance, your policy will typically pay to repair or replace personal property you take with you while traveling. However in many states, most policies exclude coverage for damage caused directly or indirectly from war. Ask your agent or company whether your renters policy will pay to repair or replace any property you take with you during your deployment.”
VA mortgage lenders can suggest local insurance brokers for you to consider. Be sure to inquire about homeowners insurance before you finance or refinance to assure that coverage is available and that you have all the “endorsements” needed for your situation.
Most loans require that property insurance and taxes are collected each month along with the loan. The money built-up during the year is held in an “escrow” or trust account and then paid directly to the insurance company and tax collector as bills become due.
Photo courtesy OlgerFallasPainting