Buying a new house is exciting, whether you’re a first-time buyer or an experienced homeowner. Going through open houses or viewing homes for sale with a real estate agent offers the chance to see what features you do and do not want in your new home. While finding your perfect new home and starting the buying process is thrilling, it can also be stressful. Worrying about price negotiations, home inspection, and mortgage terms can dampen the excitement of buying a house.
Buying homeowners insurance is often overlooked in the long list of things to do before purchasing and moving into your new home. Getting homeowner’s insurance before closing is an important step in home-buying and should be a priority.
Getting Homeowners Insurance Before Closing
In most cases, lenders mandate buying homeowner's insurance before the loan closes and maintaining coverage for the life of the loan. Securing the coverage you need before you even move into your new home safeguards you safeguard your purchase from disaster for yourself and the lender. It’s important to research various insurance policy options as they may offer different levels of coverage. Different homes may have other coverage needs. For instance, if your home is in or near a flood plain, you may be required to add flood insurance coverage to your policy. Even if the lender doesn’t require buying homeowner's insurance with flood coverage, you might consider it. Some homes are located where earthquake insurance would be a wise investment, while others have no need. So, evaluate the best insurance coverage for your specific needs.
Sometimes, you learn essential information about the property when buying homeowners insurance. That’s why many experienced home buyers get a home insurance quote before buying the house or even before deciding on any specific property.
Once you’ve found the policy that’s best for you, check that it meets the requirements of your lender. Most financial institutions won’t fund a mortgage or home equity lines of credit without establishing homeowner's insurance before closing. In fact, some lenders may require that you purchase extra coverage in addition to a basic homeowner's policy.
After determining that your desired policy meets your lender’s requirements and your specific needs, you can purchase the insurance. This should be done sometime before you to officially close on your home. The insurance company will typically pre-approve the policy and then wait for your escrow/title company to send a request for Proof of Insurance when the final closing date is near. The insurance company will then email or fax the confirmation of coverage before the closing date.
Is Homeowners Insurance Required?
If you have a mortgage, your lender will require that you purchase homeowner’s insurance when buying a house. Until the mortgage is paid off, the lender owns all or most of the property.
If you’re paying cash for a home, no lender is involved. While homeowner’s insurance isn’t mandatory in such situations, it’s still a wise purchase.
Even if you have enough money to replace your home if it’s severely damaged, without homeowner’s insurance, you do not have liability coverage protecting your assets in case someone injured on your property files a personal injury lawsuit against you.
That is always a risk, whether it’s a slip-and-fall accident, dog bite, or other event injuring a visitor. Without liability coverage, many of your assets are at risk.
If your house becomes inhabitable after a disaster such as a tornado, insurance should cover the cost of temporary housing and other assistance.
When Do You Get Homeowners Insurance When Buying a House?
While you must buy homeowners insurance within three business days of the closing, don’t wait until the deadline unless necessary. Many lenders demand proof of insurance coverage 15 days or more before closing.
For best results, obtain homeowners insurance when you sign the contract to purchase the house. The policy does not go into effect until closing.
Remember that insurers may require payment of a full year of homeowner’s insurance upfront.
Protecting Yourself and the Lender
Buying homeowner's insurance protects your new home in case of disasters such as a burst pipe or fire. This safety net offers a clear advantage for the homeowner should an accident occur. Rather than paying out of pocket for expensive repairs, the insurance covers the cost of repairs minus the deductible. Homeowners can relax knowing their home is protected, and they can continue enjoying their investment.
Buying homeowner's insurance also protects your lender. Having invested their money to facilitate your purchase, your lender wants to know that their investment is safeguarded. That’s why buying homeowner's insurance is usually made simple with an escrow account. Your lender sets up this account to hold funds for certain property expenses. Some of your monthly mortgage payments are put into your escrow account by your lender. They can then pay your insurance costs and property taxes using the money in the account. Paying the premium on your behalf protects the lender by allowing them to verify that your home is covered. The escrow account also makes your life as a homeowner less stressful, as you pay one monthly payment to the lender rather than paying several different monthly, yearly, or quarterly payments to various outlets.
Smart and Necessary
Buying homeowner's insurance before closing is a smart and necessary move that protects the big investment of a new house. In addition to covering repairs to your home, many policies offer some coverage for you and your family’s belongings. Basic homeowner's policies usually include liability coverage to protect you against legal action if someone is hurt on your property. These lesser-known benefits of homeowner's insurance increase the value of purchasing a policy.
The amount of coverage your lender requires for your new home may not be clear. Each lender may differ in their requirements regarding buying homeowner's insurance, so it’s important to understand what coverage is needed. Additionally, there may be extra coverage options that are not required but are included in your homeowner's insurance policy or offered optionally. If you have any questions about what’s covered in your policy, speak with a helpful Wawanesa homeowner's insurance agent by calling 800-640-2920. Your agent can help you determine if you have enough coverage to meet the lender’s requirements.
What Does Homeowners Insurance Cover?
When buying homeowner insurance, it’s critical to understand the protection you will receive. Most basic policies provide the following coverage:
- Dwelling coverage: This coverage, also known as “Coverage A,” details the part of your policy devoted to covering the costs of rebuilding or repairing the structure of your home. It also covers installed features and appliances permanently attached to the structure.
- Structural coverage: Also known as Coverage B, this covers all other structures on your property other than the dwelling place — your home. For instance, this section covers a detached garage, storage shed, patio, or fence.
- Personal property coverage: This portion of your homeowne'rs insurance, also known as Coverage C, covers the cost of repairing or replacing your belongings damaged due to a covered loss, such as a fire or theft. If you have a lot of expensive jewelry, artwork, or furniture, it’s wise to look into scheduled personal property coverage when buying homeowner's insurance.
- Loss of use coverage: If your home is badly damaged due to a covered loss, this portion of your insurance policy, also known as Coverage D, will pay some of your living expenses should you be forced out of your home. For example, if you need to stay in a hotel while your home is repaired, that will fall under loss of use coverage.
- Personal liability coverage: When buying homeowner’s insurance, you’re also securing protection against getting sued for accidents that occur on your property. This coverage can pay for property damage or bodily injury when someone visits your home. This would include visitors and repair technicians, for example.
- Medical payments to others: If a guest suffers a minor injury while on your property, your homeowners insurance should cover the medical expenses up to a certain amount.
- Riders: Buying homeowner's insurance is never one-size-fits-all. While the policy may have standard coverage and deductibles, it can also be customized to meet your specific needs through riders. You can boost your coverage limits or add new forms of coverage through riders. Examples include increased personal property coverage, increased coverage for other structures on the residence premises, and scheduled personal property for specific high-valued items. Separate policies covering flood or earthquake may be purchased as well.
How Much Homeowner's Insurance Do I Need?
The amount of homeowners insurance you’ll need depends on various factors but primarily involves the cost to rebuild your home or dwelling and the contents within your home.
Standard homeowner’s insurance policies generally cover the contents of your home, or your personal property, up to a limit of 50 to 70 percent of your dwelling coverage limit. This amount may be modified to fit your specific needs.
If you have jewelry, art, antiques, or other costly items in your home, you have two basic options. You can increase your existing contents coverage limits, or you may need to buy scheduled personal property coverage. This supplementary policy lists and protects your valuable items. In many cases, the total value of the item is covered in a supplemental policy.
Take a complete inventory of your possessions and decide whether covering them for replacement costs or actual cash value (ACV) makes sense. For instance, if an electrical storm fries your appliances, the replacement cost covers the total value of a new item. Under ACV, which is less expensive, you receive what the item was worth at the time of the incident. With replacement cost, a damaged refrigerator is replaced with a new one. With ACV, the value of your refrigerator when it was destroyed is what you will receive. If your appliance is six years old, its estimated ACV value is taken into account.
Your insurance agent can recommend a specific dollar amount that will cover the cost to rebuild your home’s structure. The cost of rebuilding your dwelling is also referred to as your Coverage A limit.
Your HOA and Homeowners Insurance
If your new home is in a subdivision or planned community, you are likely required to pay a homeowners association fee. Also known as HOA fees, this money helps cover the upkeep and maintenance costs of the community where your home is located. Often included in HOA fees are your home’s portion of an insurance policy that covers the common areas for the community and complex.
As a community member, this HOA policy is partly your responsibility, but it does not cover the structure of your home, your personal property, or the belongings inside of it. HOA insurance does nothing to protect your new house from damage or disaster. Buying homeowners insurance is essential for protecting your home. A homeowners policy covers the physical structure of your home and your personal property within your property lines.
Your HOA and Condominium Insurance
The insurance policy purchased by the condominium association offers coverage for the common areas and, in most cases, the basic structure of a condominium or townhouse complex. It is best to check your association’s master insurance policy to confirm what portions of the structure are covered. This policy usually covers swimming pools, tennis courts, and playgrounds for the neighborhood families. As a part-owner of these amenities, you are partly responsible for paying for accidents or liabilities that may occur in community areas. A portion of your HOA fees are used to cover this insurance policy.
It is critical to understand your potential exposure as a member of the condominium association. For instance, should a child sustain an injury on the community playground and the parents decide to sue the association, you might be liable for some of the costs. Any loss costs in excess of the association’s coverage limits are passed on to you as a part-owner of the community. You might be able to add additional HOA coverage to your condominium insurance policy. This could protect you if the association’s insurance is insufficient to cover the community expenses related to a covered loss.
Limitations of Basic Homeowners Insurance
There are some limitations to basic homeowners insurance policies. Depending on your home’s geographical area, you may need to purchase additional coverage for disasters such as floods or earthquakes.
Most homeowners insurance policies cover accidental flooding from a burst pipe or other water leak in your home, but they usually do not cover flooding caused by a natural disaster. Homes built on a floodplain or in commonly-flooded areas should obtain supplemental flood insurance. If you live in a floodplain, your lender may even require buying homeowner's insurance with additional flood coverage.
Fortunately, most homeowner’s insurance policies cover damage due to wildfires.
Buying homeowners insurance with supplemental earthquake coverage is another consideration not included in basic policies. An earthquake can create major issues for the structure of a home or destroy the structure completely. Homeowners living in areas prone to earthquakes, such as those along a fault line, should invest time in checking that their home has modern earthquake protections built in. For owners of older homes, it is especially important to double-check if their home has been retrofitted to comply with modern building standards in earthquake protection. Even with structural protections in place, a major earthquake can make a home unlivable. Relatively minor earthquakes can still do extensive cosmetic damage. Earthquake insurance, in addition to a basic homeowners policy, can help you repair or rebuild if your home is damaged or destroyed in an earthquake.
Homeowners insurance policies offer you and your mortgage lender protection of the investment of your new house. Take the time to understand how to get homeowners insurance when buying a house by researching what coverage your new home needs. Your lender probably requires at least a basic homeowners insurance policy and may require additional coverage for natural disasters such as floods or earthquakes.
Call Wawanesa now at 800-640-2920 to have your questions about insuring your home answered by one of our helpful agents.
FAQs
When should I get homeowners insurance when buying a new home?
Plan to shop for homeowners insurance as soon as you decide on a house to purchase to make the lending and home-buying process run as smoothly as possible. Your lender requires proof of insurance before closing on your mortgage loan.
How do I prove to the lender that I have homeowners insurance?
Just provide the lender with the certificate of insurance issued after you buy a home insurance policy.
How much does a homeowners insurance policy increase the monthly mortgage payment?
How much your homeowners insurance will add to your monthly mortgage payment depends on your home’s value and the value of personal possessions within the home. Lower your insurance payments by bundling auto and home insurance policies or opt for a higher deductible if you can afford it. That’s the amount you must pay out of pocket before your insurance coverage begins. Your insurance agent will let you know other ways you might save on homeowners insurance premiums based on your circumstances.
