Buying a new home is a big step in many ways — especially financially — and that has only become more evident over the last couple of years. In the post-pandemic seller’s market, furious bidding wars were common for desirable properties. While the real estate market has cooled off since that time, it is still a challenge to find homes for reasonable prices in many parts of the country.

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There are numerous factors that play into the state of the housing market. Here are some factors that are impacting prices:

  • COVID-19 reshaped the way America works, and although many have gone back to offices and other places of business, 59 percent of workers still do all or most of their work from their residence. This has led many remote workers to look for homes that are work-conducive with adequate office space.
  • Mortgage rates are expected to fall sharply in 2023 but they more than doubled in 2022. The Mortgage Bankers Association predicts that rates will be about 5.4 percent by the end of the year, making mortgage loans more affordable for those who were on the fence for financial reasons.
  • Home values are increasing, especially in desirable locations, and 40.9 percent of sales in 2022 have been for over the list price.

Many homebuyers understand that a competitive market leaves less time to decide which home to purchase. On top of bidding wars, increased market costs and interest rate fluctuations, buyers need to be prepared to potentially stretch their budget to get the home they want. Yet, few have probably considered the cost of insurance — both homeowners and auto — and the impact these costs have on overall annual expenses.

While homeowners insurance may seem like an obvious cost when buying a home, it’s something people do not give much thought to, even when moving to a different state. Many factors can drive up premiums, especially in an area that’s prone to risks such as flooding or tornadoes. Auto insurance is even more unlikely to cross the minds of homebuyers when they have so many other things to think about, but it, too, has the potential to drastically impact your household budget.

“The housing markets that are currently ‘hot’ are a bit different from what we’ve seen in the past, so a lot of homebuyers may be shocked when they move to, say, Montana, and discover that both home and auto insurance are higher than the national average,” says Greg McBride, CFA, senior vice president and chief financial analyst for Bankrate.com. “You kind of expect everything to cost more in New York or California, but now that more people are moving to less densely populated states, it’s really important for them to be financially prepared for other big-ticket costs like insurance before they get stuck in a bidding war for the house they want.”

Why people are moving

People always move for various reasons, but 2022 brought new reasons for moving and saw people choosing areas that were not previously as popular. While more workers are free to work from home and live anywhere these days, other moving trends are emerging:

  • Although the exodus of people from cities that began during COVID-19 has slowed, major metro areas, such as New York City, Los Angeles and Chicago, still saw a net loss of residents as people moved to smaller cities and the suburbs.
  • Climate change and disruptive weather patterns were given as a reason for moving by one-third of those who moved within the past two years.
  • Older Americans are increasingly moving to affordable states with good health care and resources — and that includes Southern states that boast mild winters.

Whether you are moving to a hot housing market or moving to the suburbs to be closer to family, it’s a good idea to look at insurance and other costs before you finalize your budget.

How insurance costs can bust your budget

If your main focus when buying a home is affordable monthly mortgage payments, you may find yourself in hot water down the road. When looking at costs of buying a home, it’s always wise to factor in the ways your insurance costs could take a bite out of your budget.

For starters, home insurance costs are rising throughout the county, which could add significantly to the cost of your home each month. As of 2022, the national average cost of home insurance was $1,383 per year for $250,000 in dwelling coverage. However, your costs could be higher or lower depending on where your home is located and other factors.

You may also need to factor the cost of private mortgage insurance into your budget if your down payment was less than 20 percent of your home’s purchase price. Your car insurance costs may also increase if your move took you from a region with low average costs to one with higher average premiums.

Why homeowners insurance is important to home buyers

While homeowners insurance may not be the focal point of your home buying experience, it is a critical aspect of the overall process. Taking time to research and compare options gives you greater control over cost and coverage for your new place. Mortgage lenders require homebuyers to lock in their homeowners insurance policy before closing, which means a policy is an integral piece of the homebuying puzzle.

A comprehensive homeowners policy offers several critical protections, including:

  • Pays to repair or rebuild your home if you experience a fire, hail or storm damage, or similar events.
  • Covers the cost of your belongings, except some high-value items.
  • Offers medical payments if someone gets hurt while visiting your property or if you cause damage to another person’s property.

The average cost of a homeowners policy is $1,383 annually for $250,000 in dwelling coverage, but what you pay will depend on many factors, and it’s not always obvious when you are checking out listings in the area where you want to move. The average cost of a home in Nebraska is $250,043, for instance, yet the average cost of home insurance in the state is more than double the national average. It’s important to keep in mind that multiple factors influence the price of a homeowners policy, including the cost to rebuild your home in the event it is destroyed, an increase in population, a change in crime statistics or several other reasons.

Learn more: How to estimate the cost of your home insurance

Ways to save on homeowners insurance

The good news within this sea of bidding wars and higher housing costs is there are ways to save on your homeowners insurance, including:

  • Comparison shop: One of the best ways to save is to compare multiple providers. It ensures you are paying the least expensive rate for your circumstances, and it forces you to compare coverage options.
  • Bundle your policies: Purchasing your homeowners insurance policy from the same carrier as your auto insurance policy is one of the primary ways to save on premiums.
  • Review all discounts: From installing security systems to making your home more disaster-resistant, review the numerous discounts available with a licensed insurance agent to further save on premiums.
  • Consider raising your deductible: A higher deductible generally means a lower premium rate. Just be sure you could afford to pay that deductible in the event of a claim.

Additional coverage for homes in risk-prone areas

Keep in mind that you may need to purchase additional coverage that is not a standard part of a policy, depending on where you are purchasing a home. This could include:

  • Flood insurance: Flood insurance coverage may be required in flood-prone areas, and you may want to consider it even if you are not required to have it. Flooding is typically excluded from homeowners insurance policies. A licensed real estate agent can help determine if it is necessary and how much you need.
  • Earthquake: Earthquake coverage is not standard in a policy, so you may want to look into purchasing this insurance if you live in an earthquake-prone area.
  • Wildfire: Over 500,000 homes are in wildfire-prone areas, making wildfire coverage a must for some homeowners.

Other costs to consider

Before you take the plunge into buying a new home, you may want to keep some other costs in mind before you get to the closing table. These costs could also wreak havoc on your budget if you do not plan accordingly.

  • Property tax: This is the tax assessed by the local and state governments for your property.
  • HOA fees: Homeownership Association (HOA) fees are dues required for maintaining some residential properties. The necessary amount and frequency vary by neighborhood.
  • Closing costs: Closing costs are a fee charged by the lender at closing and are typically 2% to 4% of the purchase price.
  • Cost of living: Expenses such as fuel, food and everyday expenses may be more (or less) depending on the cost of living in your new neighborhood.
  • Private mortgage insurance (PMI): PMI is an extra monthly charge you pay your lender if you cannot put at least 20% down with your home purchase.
  • Remodeling or redecorating: If you purchase a fixer-upper or need to furnish your new abode, be sure to set a realistic budget for your decorating expenses.
  • Landscaping: Average annual prices can land anywhere from $3,000 to $20,000, depending on your location and landscape dreams.

While increased costs in a seller’s market are to be expected, the best prevention for a busted budget is to research and prepare for as many costs as possible in the area where you wish to move. Finding out about unanticipated higher costs in a new area will give you time to shop around and consider other alternatives if you find you simply cannot afford to live there.

Methodology

Bankrate utilizes Quadrant Information Services to analyze 2022 current rates for all ZIP codes and carriers in all 50 states and Washington, D.C. Rates are weighted based on the population density in each geographic region. Quoted rates are based on 40-year-old male and female homeowners with a clean claim history, good credit and the following coverage limits:

  • Coverage A, Dwelling: $250,000
  • Coverage B, Other Structures: $25,000
  • Coverage C, Personal Property: $125,000
  • Coverage D, Loss of Use: $50,000
  • Coverage E, Liability: $300,000
  • Coverage F, Medical Payments: $1,000

The homeowners also have a $1,000 deductible and a separate wind and hail deductible (if required).

These are sample rates and should be used for comparative purposes only. Your quotes will differ.