One of the realities of life in the modern world is insurance. Most mortgages require you to carry a homeowner’s policy, helping protect the lender’s investment against damage or loss. The lender then carries title insurance and private mortgage insurance, both paid for by your interest rate. In 2016 there will be an option to add a ‘down payment insurance’ to the mix.
Offered by a company in Texas, ValueInsured, the +Plus Down Payment Insurance program would provide a hedge against a loss on the resale of your home. Which is a positive. With the 2008 crash still fresh in most people’s memory, and the recent instability in China and the markets in general, finding a way to protect your biggest investment is worth considering.
But it isn’t that simple, of course. The payout amount, if eligible, is linked to two factors, the loss on the resale of the home, and the general market value loss according to the Federal Housing Finance Administration Home Price Index (HPI) for your home’s state at the time of sale. It is possible, then, for your home and state to loose value, and receive nothing from the +Plus plan.
The other hurdle is the time factor. ValueInsurance has set the window from no less than 2 years after purchase to no more than 7 years. So there is a 5 year window you need to sell the home in in order to qualify for any relief. This locks out the long-term owners and flippers completely.
Premiums are projected to average about $1,200 on a $20,000, 10 percent down payment on a $200,000 home. The maximum down payment covered is 20% of the loan total – $40,000 in the example I am using. This would be, ideally, an up-front payment, but might be able to be rolled into the loan, raising the payment amount, and putting the borrower in risk of paying far more than the cash premium.
So is it worth it? If you are sure to be in the home for between 2 and 7 years, sure, it can’t hurt, and might help. If you are buying a ‘forever home’, then skip it – unless something wholly unexpected causes you to move in that 5 year window, you won’t see a dime from the policy. If you do choose to purchase this, once available, be sure to spend the money up front – it takes the payment off your plate, and makes sure that you are covered should you need to file a claim.