I Need an Equity Line But Have No Homeowners Insurance

You'll need to protect your home with insurance before you can get a loan.

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A home equity line of credit can help you finance a dream remodeling job, enable you to travel or simply put a little more money in your pocket. Most mortgage loans require homeowners insurance, but if you own your home outright or have an old mortgage, you may no longer be required to carry such insurance. Banks inevitably require borrowers to get homeowners insurance as a condition for getting a loan, so do this before you apply.

Home Equity Loans: The Basics

When you take out a home equity loan, you're borrowing against the money you've already paid into your home. Much like a mortgage, your home secures the loan, and if you don't pay, your home can be repossessed. This typically means you won't be able to borrow more than your home is worth, and you could be denied an equity loan if you're underwater on your mortgage.

Why Homeowners Insurance Matters

Homeowners insurance protects your home and personal possessions from damage, and it also provides liability protection if someone is injured on your property. If your home is damaged and you don't have insurance, the value of the property securing your equity line is either diminished or eliminated entirely. This is a risk most lenders are unwilling to take, so they require you to take out insurance to ensure that their interests are protected.

Checking Bank Guidelines

When you buy homeowners insurance for your own benefit, you'll want to insure the entire value of your home as well as the property within it. With an equity line of credit, the bank may have specific minimum insurance requirements. Before you begin shopping for insurance, check with your bank about insurance guidelines to ensure your homeowners coverage meets minimum requirements.

Shopping for Insurance

When you shop for insurance, carefully evaluate what each plan covers and excludes. Most insurers specifically exclude flood coverage; if you live in a flood-prone area, you might also be required to buy flood insurance. Before you sign the contract, read it carefully so you understand your liability if your home is damaged. Document the value of items in your home so you can file an accurate claim if they are damaged or stolen.