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 – they can be a plus side of VA loans. 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 — typically fire, theft and liability coverage — is unpaid, then the mortgage contract has been breached and the lender has the right to foreclose.
Why Homeowners Insurance: A Cautionary Tale
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 my friend owns, a tenant was making breakfast which escalated into a roaring blaze resulting in the arrival of fire trucks, an ambulance and severe damage to the property’s walls. Thankfully, they had owners coverage and paid nothing for the many repairs. They also had working smoke detectors which meant no citations from the fire department and no claim reductions by the insurance adjuster.
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 for VA Homeowners
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.
It’s important to talk with your insurance company or agent to know what “vacancy” means for your policy and what options you may have as a military homeowner. Some policies don’t pay claims if your house is unoccupied for a certain amount of days. There are many companies, though, that offer endorsements if your home is unoccupied for an extended period of time. That’s why it is a good idea to check your coverage.
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.
Is your policy sufficient to cover your home and your personal property at today’s costs? Check your coverage. If you have made improvements to your property, you might consider increasing your coverage.
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.
For active duty servicemembers facing deployment, add talking to your agent to your list of things to do before deployment. Your agent can give you clarity about coverage for personal items that you take with you or leave at your property during your deployment. If they are lost, stolen or damaged you don’t want to be surprised if they are not covered.
Rental Property Coverage for Military Personnel
The state regulators group says military personnel 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.
Tax and Insurance Payment Collection
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. However, some veterans qualify for property tax exemptions. Find out if you are eligible for a tax exemption in your state.
Photo courtesy OlgerFallasPainting