Insurance When You Buy A House WORK
Often overlooked in the long list of things to do before buying and moving into your new home is buying homeowners insurance. Getting homeowners insurance before closing is an important step in the homebuying process and should be a priority.
insurance when you buy a house
Buying homeowners 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.
If your home is badly damaged due to a covered loss, this portion of your insurance policy 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.
When buying homeowner insurance, you are 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.
Buying homeowners 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, flood, or earthquake.
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.
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 that are built on a floodplain or are in commonly-flooded areas benefit from supplemental flood insurance. Your lender may even require buying homeowners insurance with additional flooding coverage if you live in a floodplain.
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 along a fault line, should invest time into 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 both 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.
Most lenders will require you to have homeowners insurance, also commonly known as hazard insurance, and often abbreviated as HOI. This insurance policy covers losses occurring to your home, its contents, loss of its use (additional living expenses) or loss of other personal possessions of the homeowner. It also acts as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.
As the borrower, you can request cancellation of PMI when you pay down your mortgage to less than 80% of the original purchase price or appraised value of your home at the time the loan was obtained. To cancel, you'll also need a good payment history, meaning that you have not been 30 days late with your mortgage payment within a year of your request or 60 days late within two years.
The amount of insurance you need may seem overwhelming, but in the long run, it will save you a lot of heartache to be protected from life's unexpected turns. When it doubt, talk to an attorney about your specific coverages to get you both on the same page.
Limitations and exclusions apply. Depending upon a state's regulations, ARAG's legal insurance plan may be considered an insurance product or a service product. Insurance products are underwritten by ARAG Insurance Company of Des Moines, Iowa. Service products are provided by ARAG Services, LLC. This material is for illustrative purposes only and is not a contract. For terms, benefits or exclusions, contact us.
Before closing on a new home, your lender will require you to purchase a home insurance policy. While many lenders provide insurance referrals, choosing a home insurance company is your decision. You're responsible for making sure the coverages on your policy adequately protect your residence, detached structures, and personal belongings.
You're often required to show proof of homeowners insurance to your lender before they'll relinquish the keys to your property and fund your home loan. Until your home is paid in full, your lender holds a lien on your property, so it's in their best interest to make sure that the property is insured while you're paying down your mortgage.
If you're purchasing your new home with cash or an unsecured line of credit (credit card or personal loan), you may not be required to show proof of home insurance before closing. Home insurance isn't mandated in any state, but you should still consider buying homeowners insurance to protect the equity in your home. Learn more about what home insurance covers and how homeowners insurance works.
During the mortgage approval process, your loan specialist will let you know when to buy homeowners insurance. However, you can start shopping for a policy as soon as you've solidified your new address. Shopping for homeowners insurance early gives you more time to select the right policy and look into ways you can save.
While your lender may provide a referral, it's a good practice to compare homeowners insurance quotes and pricing, homeowners insurance coverages, and consumer reviews before making a final choice. You can often save money by bundling homeowners and auto insurance with the same insurer. Learn more about switching your homeowners insurance.
Your belongings, such as clothing, furniture, electronics, and jewelry, are insured under Coverage C (personal property coverage) on your home insurance policy. Make sure the limit is enough to cover everything you own. Keep in mind that certain items may fall under a specific category with a "sublimit" set by your insurance company. And if you have any expensive items, such as art or collectibles or jewelry and engagement rings, you may need to add an insurance rider to fully cover them.
Coverage E (personal liability coverage) protects you if you're liable for an incident that injures someone. Be sure to select a liability limit that properly covers what you have in assets. Most home insurance policies max out at a $500,000 liability limit. If you need additional coverage, you can purchase umbrella insurance, which provides extra liability coverage for home insurance policies.
Depending on where you are shopping for home insurance, there will be a list of things that won't be covered on a standard policy. These could include earthquakes, landslides, mudflows, and flooding. If you're at risk for a peril that isn't covered on your policy, ask your home insurance agent or company if there's an option to purchase protection for excluded incidents.
When buying home insurance for the first time, it's important to pay attention to your homeowners insurance deductible for property damage. Your deductible is the portion of the claim you're responsible for, so make sure the deductible amount is within your budget.
Unlike car insurance, your home insurance deductible won't always be a set dollar amount. It could be a percentage of your policy's dwelling coverage. Your policy may even include a split deductible. That means you have a set dollar amount for most claims, but a percentage may apply for wind damage or other covered perils.
Most first-time home buyers have their home insurance in escrow. Escrow accounts hold the funds designated for your home insurance and property taxes. Each month, you pay a specific amount (typically, a few hundred dollars) above your normal mortgage payment. Your lender/mortgage servicer keeps these extra funds in an escrow account.
When your home insurance and property taxes are due, the lender pays these fees on your behalf from the escrow account. Escrow accounts are recommended to ensure you stay up to date with your home insurance and property taxes. Some homeowners prefer to use escrow to pay for insurance and taxes in monthly installments, rather than annually or biannually.
If your down payment is less than 20%, most lenders will require you to obtain private mortgage insurance (PMI). The difference between PMI and homeowners insurance is that PMI is a safeguard for your lender and doesn't insure your property in any way. Learn more about how to pay for homeowners insurance.
Your lender may require the first term of your homeowners insurance to be paid at closing. Most lenders will collect roughly 10% to 20% of your annual home insurance premium in your closing costs and deposit the funds into your escrow account for the next billing cycle. Without escrow, you'll often have to pay the entire first year's home insurance premium at the time of closing. Some lenders may also charge a nominal fee to waive your escrow requirement. 041b061a72