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First-time home buyers insurance

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First-time home buyers have to navigate situations they have little-to-no experience handling. From choosing a real estate agent, securing a home loan, finding the perfect property and purchasing a homeowners policy, buying your first home can be thrilling but also daunting. It doesn’t help that, according to research by the Federal Housing Finance Agency, home prices rose 19.4 percent from 2021 to 2022. Additionally, the St. Louis Fed shows that the average cost of a home in the U.S. currently stands at $428,700. Suffice it to say, you may be feeling pressure to protect what could be the most significant financial investment you make during your lifetime. Bankrate has broken down what first-time home buyers need to know to make sense of their first homeowners insurance policy.

What’s included in homeowners insurance?

If your first property purchase is a single-family home, your first homeowners policy will most likely be an HO-3. An HO-3 is the most common type of homeowners insurance policy and it offers protection for your home and property against covered perils. Additionally, it provides personal liability protection. Broken down, your homeowners policy includes:

  • Dwelling coverage: A homeowners insurance policy protects the structure of your home and any other attached buildings, with the dwelling portion of your policy.
  • Other structures coverage: Other structures you may have on your property, such as a detached shed or a fence, are also covered under an HO-3.
  • Personal property coverage: This section of your HO-3 policy will provide coverage if your personal property is destroyed by a covered peril.
  • Liability coverage: Homeowners insurance provides personal liability coverage if someone hurts themselves on your property and sues you for damages. This coverage can also help pay your legal fees.
  • Medical payments coverage: Medical payments coverage will pay for another person’s medical bills if they injure themselves in your home or on your property.
  • Additional living expenses coverage: If your house is uninhabitable due to a covered peril, additional living expenses can help pay for your hotel room, food and other expenses while your home undergoes repairs.

Even the best homeowners insurance companies have exclusions. For instance, an HO-3 will not cover damage caused by earthquakes, floods or sewer backup.

When purchasing your first homeowners insurance policy, it may be a good idea to consult with your agent to discuss what isn’t covered and your risks for each exclusion. Learning more about your policy in-depth can help you determine what supplemental policies may be best for you.

The cost of home buyers insurance

The average cost of homeowners insurance nationwide is $1,383 per year for $250,000 in dwelling coverage as of 2022, according to Bankrate’s analysis of rate data from Quadrant Information Services. However, the cost of your own policy will vary based on your personal and home rating factors. Here are a few parameters that will go into determining how much you pay for first home buyer insurance:

  • Location: The state you live in plays an enormous role in the cost of homeowners insurance. For example, the average policy costs $3,593 per year in Oklahoma but just $378 annually in Hawaii. Your city, town and ZIP code can also affect your premium. For example, you might pay less if you live close to safety features like fire hydrants, fire departments and police stations.
  • Home value: A $200,000 home will be cheaper to insure than a $600,000 home because the replacement value is much lower. As a general rule, the more expensive your home is, the more expensive your insurance will be.
  • Deductible: Your deductible is the amount you pay out of pocket if you file a claim on your policy. If you are willing to have a higher deductible, you will likely pay less in premiums since you are willing to pay more if you file a claim. Generally, the higher your deductible, the lower your rate.
  • Claims history: If you have filed a claim on a prior property insurance policy, like a renters insurance policy, that may affect the price of your homeowners insurance.
  • Coverage types: Choosing higher coverage limits and adding additional coverage to your standard home insurance policy will typically increase your premium.
  • Personal information: Some personal information, like your credit-based insurance score, age and marital status, may affect how much you pay for your insurance.

The best way to determine the cost of your first home insurance for your new home is to get quotes from several insurance providers. This can help you compare each company’s coverage options, discounts and prices.

When to buy homeowners insurance

Your risks as a homeowner commence as soon as you close on your home, and you will want homeowners insurance effective immediately. While most states do not have laws that require you to purchase home insurance, nearly every lender requires it as a condition of your loan agreement. While your homeowners insurance policy cannot be effective before your closing date, note that you must also have your homeowners policy in effect on the same date that you close if you have a mortgage on your new home.

If you are not prepared to have your policy in place when you close, you will likely delay the closing. As part of this preparation, you will need to provide your insurer with the mortgagee clause from your mortgage company and let the insurer know your closing date to make your policy effective at that time.

How to determine the amount of home insurance coverage you need

When getting property insurance quotes, your insurer will review the home’s characteristics and help you determine the estimated cost to rebuild the home should a claim occur. These characteristics must be as accurate as possible when determining this calculation. Each insurer has its own algorithms for determining your rebuild cost, so if you obtain quotes from multiple insurers, you will likely see your estimated dwelling coverage amount fluctuate.

Keep in mind that your estimated rebuild amount, or replacement cost, is different from the market value of your home. Even if your home is a total loss, the land is still there and holds value. Land is also not covered by a home policy. Only the home and structures on the land are covered by your policy. You also want to avoid reducing your dwelling amount too much from what the property insurer calculated, or that could create a risk of your home lender not proceeding with your loan.

However, in addition to the minimum coverage required by your lender, you may want to consider purchasing additional dwelling coverage, optional endorsements or increased liability coverage to provide more financial protection.

To help decide how much homeowners insurance you need as a first-time buyer, you may want to:

  • Research local building costs to see how much it would cost to replace the home: Some areas of the country have higher costs for materials and labor that could impact how much it would cost to repair or rebuild your home. With the purchase of an existing home, it can also be helpful to reference pictures on real estate sites when discussing property details with an insurance agent. The insurance agent may want to review the pictures as well.
  • With purchasing a home, check to see that local building codes are met: If not, you may need to add ordinance or law coverage to your policy to protect your finances against the costs of bringing your home up to code after a covered claim. If your home has outdated features, like knob and tube electrical wiring, it can even affect which property insurers are willing to insure the home. With a new home, the realtor or project manager may also have details that are helpful in generating an accurate insurance quote. A good new home inspection report or appraisal may be a good reference as well.
  • Take inventory of the furniture and belongings you intend to move into the home: You do not need to figure out the exact value of your belongings — your personal property coverage typically defaults to between 50 and 75 percent of your dwelling coverage amount. But having a rough estimate of your personal property may help you decide whether you need to add more personal property coverage to adequately insure your belongings in case of a total loss, like the losses that can occur from a fire or tornado.
  • Think about your liability exposure: If you have a pool, trampoline, playset, pets or have guests in your house often, you may want to increase your liability coverage. This coverage helps protect you from the medical and legal costs associated with injuries or damage to the property of others in which you are found negligent. Keep in mind that your new home is a huge financial asset, so it’s worth considering making sure your liability coverage is sufficient enough to cover your new property and any other assets in your name.
  • Estimate your local living costs if your home became temporarily uninhabitable: Most home insurance policies cover a limited amount of additional living expenses that occur during a covered claim, but knowing what costs you might incur if your home is temporarily uninhabitable could help you decide if more coverage is necessary.

While this might seem overwhelming, a licensed insurance agent can walk you through each step. Insurance companies have tools to help determine how much your home would cost to rebuild and can help you decide what additional coverages and levels are right for your situation.

How to get the best first-time homeowners insurance rate

Although price is not the only factor to consider when buying a home insurance policy, finding the coverage you need for a low price is often a priority. There are steps you can take to find a competitive premium on the coverage you need.

Look for discounts

Most companies offer discounts that can help you lower your premium. Buying your auto insurance from the same company as you buy your home insurance will often result in a multi-policy discount, which could save you money on both policies. Other common homeowners insurance discounts include savings for new roofs, hail- or wind-resistant roofs, paperless policy statements and security systems.

Compare quotes

Getting quotes from several different companies can help you find a more competitive rate for your home insurance. Every company has different rates and prices can vary greatly. Each insurance provider will weigh your rating factors differently. For example, if you have a prior claim, you may find that one company surcharges the claim much more heavily than another.

Ensure your property characteristics are as accurate as possible.

As discussed, your homeowners insurance coverage will be as valuable as the accuracy of the information upon which it is based. Details matter. For example, many homeowners do not pay attention to their new home’s proximity to a fire hydrant and fire department, but these details can severely impact homeowners insurance rates and coverage eligibility with carriers.

Storm and disaster protection features in a home are also important factors for policy underwriters. For example, if a home located in a known hurricane geographical area has hurricane straps, this can influence ratings and impact rates. So if someone is getting general quotes, it will be important to find the answers to these questions.

How to keep your homeowners insurance rate low

Once you have signed up for a first-time home buyer’s insurance policy, you may notice your premium changing at your annual renewal. This can happen for a few reasons. The price of labor and materials may have increased in your area, which can increase the amount of dwelling coverage you have. Or perhaps you filed a claim, which may be raising your premium. Additionally, insurance companies file new rates every year, and even if nothing else has changed, the new rates might impact the cost of your policy. However, there are steps you can take to help keep your insurance premiums in check:

  • Avoid filing claims unless necessary: Although your insurance is designed to protect your finances by reducing your out-of-pocket costs from a covered claim, filing too many claims can have a negative impact on your premiums. It may be best to avoid claiming minor damages, such as damages that cost only slightly more than your homeowners insurance deductible, that you can easily pay for out of pocket.
  • Keep your credit score high: Although some states prohibit using your credit score as a rating factor, most do look at your credit history when rating your policy. A higher score generally means lower premiums.
  • Stay with your insurer to take advantage of loyalty discounts: Shopping for a new carrier might help you find a lower premium, but you could also miss out on loyalty discounts if you change providers too often.
  • Review your policy annually to see if any updates are needed: If you have updated your home or added safety measures, you may need to update your coverage or discounts.
  • Invest in disaster-proofing upgrades like storm shutters or a modernized electrical system: Mitigation measures can lower your premium and reduce claims by lessening the risk and severity of damage.

Agents and licensed insurance professionals can help you choose appropriate coverage types and levels, as well as help you find discounts that could lower your premium. If you are unsure what kind of coverage to purchase, what options are best for you and what discounts you qualify for, working with an agent might be helpful.

Frequently asked questions

Written by
Cate Deventer
Insurance Writer & Editor
Cate Deventer is a writer, editor and insurance professional with over a decade of experience in the insurance industry as a licensed insurance agent.
Edited by
Insurance Editor
Reviewed by
Senior wealth manager, LourdMurray
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Part of  Understanding the Cost of Home Insurance