Mortgage insurance & home warranty--worth the money?

My husband and I are buying our first house, and going slowly insane. Home inspections, repair estimates, finding contractors–it’s driving us mad. Now we have to decide if we should buy mortgage insurance and a home warranty? Anyone have experience with either of these? Are they worth the extra money?

We figure we would need the insurance benefit if we die or become disabled, so we covered the cost of paying off the mortgage in our personal life/disablity insurances. Whether this works for you, depends on the type of life insurance & disability insurance policies you have.

We have only purchased homes from the resale market. Our home warranty was relatively cheap, and we actually used it a few times to get people to service and repair our appliances. If you’re buying a new home, you might want to ask the developer/contractor if the appliance manufacturers warranties will cover this already.

I’d shop for a term policy in the amount of the mortgage and compare that to what they offer you for mortgage insurance. My experience has been that what the mortgage company offers is not anywhere near competitive to term life insurance. Likewise, your employer may have a better deal on disability insurance.

Home warranties may or may not be a good deal. Our first house came with one, but we never used it. If your cash reserves will be low for a while, the warranty may buy you some piece of mind. If you have adequate reserves for repairs, then you might skip the warranty.

Many mortgage companies use mortgage insurance as a way to soak you for money. If you are making a large down payment, or have equity, mortgage insurance is pretty pointless, IMHO.

To add to what NurseCarmen said…

It can also often be the case that if you are not putting at least 20% down on your home, the mortgage company can force you to pay private mortgage insurance (PMI).

We were also told that if we did any significant home improvemnt projects, we should have our home appraised again. If our improvements added enough value to the house, we could refinance and not have to pay PMI.

I’ll comment just on the home warranty: Round these parts, the seller pays for the first years’ home warranty. I had to make a few calls during that first year, so I renewed it in the next year. I’m not sure I will in the third year, but at least now I have some good repair companies to call should anything go wrong.

A friend of mine found the value of mortgage insurance the hardest possible way. Her husband died within four months of them marrying, and five of having bought the house. It’s difficult enough to be a 24-year-old widow without becoming homeless as well.

As stated above, mortgage insurance through a lender is over priced and a huge source of profit for the lender. Just make sure your “normal” life insurance is enough to pay off debts should one of you die. If you really want disability insurance shop for it with your life insurance company. Remember, though, that the chances of one or both of you becoming disabled during the mortgage period is vanishingly small.

If the house you are buying is more than 10 years old I would ask that a homeowner’s warranty be “thrown in” as a condition of purchase. Realtors buy those things in bulk for next to nothing and use them as buyer enticements. When I sold my house the realtor gave one to my buyer and didn’t charge me a thing. when I subsequently bought a house I asked that a warranty be provided as part of the deal. I ended up using it 4-5 times for various stuff - including the central A/C. That saved me a bundle!

Rather than specific mortgage insurance, get term life insurance. You should have that anyway if someone else is counting on your income for *any * reason. It will generally be a lot cheaper as well.

Thanks for the replies. We’re now leaning towards life insurance instead of mortgage insurance. The warranty is still in question though. We’ll have to go over what the realtor’s warranty covers before making a decision. Dopers, as always, have been a great help.

I used to sell life insurance that we marketed as mortgage protection. It wasn’t a lie, it was just a way to get people to pay attention. I’d respond to the above with:

Your debts may not be enough. If the survivor is a housewife with very little job CV and kids still in the house, some income money may also be needed.

The question also comes up: You get a 20 year guaranteed rate term policy, which is probably the longest you can find with a reputable company. Are you possibly going to be really mad if you can’t renew in 20 years because of your bad health at that time? (It could get worse.)

The other question to ask disability sellers is: How do you know that I’m disabled?

Many companies only pay when you are unable to perform ANY job of any kind. Others state that you need a doctor’s note that you can’t perform YOUR job. Others even will give you a percentage of your income per month based on how much you have to be out. Of course, for more lenient definitions, you’ll pay more.

If you can get this disablity insurance through work, I’d probably do that.

Do what you want, just know what to think about ahead of time.

I’m not a professional in this area, but: The term life policies we carry are guaranteed renewable without any questions. It’s my impression that this is not at all unusual. I’m still paying the same annual rate now that I did when I was 30 years old and extremely healthy.

When our children were very young, we carried a larger amount of insurance on the primary wage-earner; actually a fairly substantial amount at the time. As they have now grown up, we have now readjusted that downward.

The idea is/was, as the previous poster mentioned, to cover not just outstanding debts but to replace an appropriate portion of the wage-earner’s income.