What Happens to Your Mortgage When Your House Burns Down?

The West Coast of the United States has seen one of its worst fire seasons on record. Amidst an already financially devastating pandemic, people’s homes and livelihoods have burned to the ground. This is an absolutely tragic outcome, and everyone should be prepared for disasters like these. Getting a preparation plan in place ensures that you can minimize unnecessary stress in an unimaginably difficult time. The first step is to know exactly what is going to happen to your debts when these disasters strike. So, what happens to your mortgage when your house burns down?

Rebuilding With Insurance

The first thing you will need to do is get in touch with your insurance company. Your insurance claim is going to be your primary source of restorative funds, and it is how you can most easily obtain funds for living expenses and repairs. With most mortgages, the homeowner is obligated to have homeowner’s insurance.

Getting your insurer to pay for all damages may come with some roadblocks, as your insurance provider may try to argue with you over the extent of disaster-related damage. Consider hiring a lawyer and a public appraiser in order to assist you in that part of the process.

The most probable situation in which you will find yourself is with an insurance claim given to your mortgage provider. They will set up a disbursement schedule based on a construction or repair plan, ensuring that the funds are used properly. There can also be a good deal of headbutting here, and the appraiser/lawyer tag-team should help here as well.

Insurance can also cover your belongings that were lost in the fire, as well as a hotel stay/rental costs if your home is left uninhabitable during construction. This will help you fill in the gaps left by the disaster, and assist you in continuing to pay your mortgage.

Total Loss

In the event of a total loss, you are still on the hook for your mortgage. So, if your claim is able to cover the mortgage, you’re in the clear. If you are upside-down on your home, though, you may end up having to make payments on the home even if it isn’t there. This is obviously not the most ideal circumstance, but sometimes you have no other choice.

Will Lenders Assist Me?

For the most part, yes. Lenders make more money if you are able to make your payments. So, if you need forbearance, deferment, or some other form of assistance, they may offer that help to you. You will have to be fully transparent and cooperative with them, and ensure that you have gotten everything you can from your insurance provider.

Peace of Mind

The best way to maintain your sanity in a disaster is to come into it with a plan. Make sure you have an advantageous insurance plan, that you’ve read your lender’s policies on disaster assistance, and that you have an emergency fund. These vital steps will keep you from wondering what happens to your mortgage when your house burns down.

Do you have a plan for a disaster? Have you recently had to rebuild after a fire or other severe weather? Let us know in the comments below?

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Trey LaRocca

Trey LaRocca is a freelance writer, financial sales worker, and tech guy. When he isn’t out and about or at work, he’s usually at home enjoying some video games and a beer. Currently residing in Newport Beach, this California Kid can be found at the beach on any given weekend. Trey has years of experience in day/swing trading, financial analytics, and sales.