The national unemployment rate was 5.4 percent in April, a far drop from the 10 percent seen in 2009, according to figures from the Bureau of Labor Statistics.

That lower rate, however, could be enough to keep first-time homebuyers up at night, or even prevent them from buying a home. Unemployment insurance could make that decision a lot easier, along with preventing foreclosures.

The insurance can be bought by home buyers, or offered for free or at a low cost by mortgage lenders and home sellers - including new home builders - as a way to entice buyers and help put their mind at ease in case they're worried about losing their jobs and not being able to afford their home during an extended job hunt. Real estate agents, realty groups and housing agencies also offer it.

"This has been around for some time, usually used in period when people are worried about the direction of the economy and their job prospects," says Bruce Ailion, a real estate agent at RE/MAX Town and Country in Atlanta.

It's more widely used by new home builders because their homes cost 20 percent more than a resale home, and buyers are typically moving up 40-50 percent in price to move so a new home buyers is paying substantially more per month than their prior home, Ailion says.

"The decision to move and to buy new is often in response to a new job or promotion," he says. "Both of which are more subject to reversal than a steady job."

Coverage criteria

Policies differ, but they generally cover all or part of a mortgage payment if a job is lost. Some may only cover the minimum payment to keep the home from foreclosure. A policy may also have a payment cap, either in a dollar amount or timeline, such as up to $9,000 or up to nine months of payments.

The amount of your home down payment may also figure into unemployment insurance coverage. Radian Group, a private mortgage insurance group, started offering unemployment insurance in May of up to six months at up to $1,500 in monthly payments on new mortgages for up to $9,000, but only to buyers who put down less than 5 percent of the price of their homes. The coverage is only for the first two years of the mortgage.

Job loss will likely have to be proven, and insurance policies may not take effect for a month or more after they're bought so that a worker can't sign up for a plan when they know they may lose their jobs soon.

Once a job is lost, it could take two months or so for the check to be sent to the mortgage company, requiring the homeowner to come up with the payment in the interim.

Whatever policy someone gets, it's worthwhile to read the fine print to see how much coverage they'll get, says Rich Leffler, director of training at AxSellerated Development, a mortgage training company in Maryland, and a former customer service worker in the insurance industry.

Where to get it

"I think the insurance is worthwhile but it's often overpriced for the services," says Leffler, who recommends checking an independent insurance agent for the best price instead of a mortgage broker or another business connected to the home you're buying. Be especially wary if it's offered for free, he says.

"If they're giving it to you for free in one area, they're probably giving you a higher price in another," Leffler says.

Also called optional credit insurance, unemployment insurance can be bundled with life and disability insurance and can be cheaper as a package, Leffler says. It can't be bundled with a home loan, he says.

It can also be bought through a homeowner's insurance policy, or through a mortgage company and have the premium added to the mortgage payment, says David Bakke, an insurance expert at Money Crashers.

The federal government's Home Affordable Unemployment Program, or UP, doesn't provide mortgage payments to the unemployed, but qualified homeowners can either lower their mortgage payments to 31 percent of their income or temporarily stop payments for a year or more. It's not available for homeowners with mortgages held by Fannie Mae or Freddie Mac, though both have their own forbearance arrangements for unemployed homeowners.

The California Association of Realtors' offers a free mortgage protection program for first-time homebuyers. It provides up to $1,500 per month for six months for mortgage payments.

If you work for a company or are in a field that doesn't have job stability, or are a recent college graduate, then unemployment insurance may be worth considering if you're buying your first home.

Just remember that for the coverage to be effective, any job loss must be involuntary. You can't quit, resign, retire or have your employment contract expire. Workers also can't be fired for cause or leave because of an accident, illness, disability, pregnancy or scheduled seasonal breaks at work.

And consider that any payments made to your mortgage company may be considered taxable unemployment benefits.

Published on May 18, 2015