Homebuilders Offering Mortgage Payment Insurance

Red Bank, NJ, March 11, 2009--Homebuilders Hovnanian and Toll Brothers are offering a mortgage insurance program for home buyers that will pay for a portion of mortgage payments should the homeowner lose a job.

The companies started offering the program this year, although it was unclear whether anyone had closed a deal on a home yet because of the offer.

Here's how it works: The builder takes out an insurance policy, which costs about $200 a year for every homebuyer. If the buyer is laid off up to two years after closing -- following a 60-day vesting period -- the policy pays up to $2,000 toward the mortgage on the K. Hovnanian program and up to $2,500 through Toll Brothers.

It doesn't cover people who are self-employed or independent contractors, under 18, have a 10 percent or more ownership stake in their company or know they're about to be laid off. Buyers must have been employed usually for 12 weeks before the purchase and be eligible for unemployment benefits. Also, it does not apply to people who voluntarily resigned or who were fired for wrongdoing.

If a married couple both pay the mortgage, and one of them gets laid off, the insurance only pays out proportionally. For example, if the laid-off worker contributes 25 percent of the household income, the insurance will pay 25 percent of the mortgage up to the plan's dollar limit.

The mortgage protection programs are the latest in a slew of incentives builders have rolled out to try to tempt nervous buyers. Builders will pay closing costs, help buyers sell their current houses, give free upgrades or even create a standing offer to buy back the home in a few years for more than the initial purchase price.