Homeowners insurance for first-time homebuyers

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In the U.S., the average cost of homeowners insurance for $250,000 in dwelling coverage is $1,312 per year. If you are getting a mortgage, your lender will require you to purchase it. The coverage amount you need is determined by the cost to rebuild your home and other factors. For many, a home is the largest asset they own, so it is important to have adequate coverage to protect your investment.

Homeowners insurance provides financial protection against damage to your property or belongings from covered perils. First-time homebuyers and all others with a mortgage are required to purchase home insurance by their lender before they can go to closing. If you are buying homeowners insurance for the first time, consider the type of coverage you need and how much you can afford to pay before shopping for quotes.

The cost of homeowners insurance

The age, condition and location of the home you are considering will determine the type of homeowners insurance you should buy. Though the average annual cost of home insurance is $1,312 per year nationally, the cost you pay may be different. The home’s characteristics, location and age as well as certain personal criteria are used to determine how much you will pay for homeowners insurance:

  • Location: The state you live in plays a significant role in the cost of homeowners insurance. For example, the average policy costs $1,813 per year in Louisiana but just $712 in Oregon. You will also usually pay less if you live close to safety features like fire hydrants and police stations.
  • Home replacement value: A $200,000 home will likely be much cheaper to insure than a $600,000 home because the replacement value, or cost to rebuild it, is usually much lower. When determining the cost of home insurance, the market value is not used because the land is not a factor in homeowners insurance. Instead, the replacement cost is based on how much it would cost to rebuild the home if it were a total loss. As a general rule, the higher your budget when home shopping, the more you might want to consider allocating for an insurance policy to protect your new residence if it gets damaged or destroyed. Consider taking a look at local building costs to get an idea of what it would cost to rebuild.
  • Deductible: Your deductible is the amount the insurance company will deduct from the money paid by the insurer to cover the cost of repairs or replacement. The lower your deductible, the more you will pay in premiums each month and vice versa. You will have different deductibles for different types of coverage.
  • Personal information: Some of the personal details you give to a home insurance provider when getting a quote are used to determine how much you pay for your policy. Examples could include your credit score, insurance claims history, age, marital status, whether you own pets and if you run a business from your home. This information may also be required of any other people living in the home. It is important to note that some states ban insurance companies from using certain personal criteria, such as age, gender or credit score, to calculate your premium. Check your state’s laws to see which factors might influence your rate.

The best way to determine the cost of home insurance for your new home is to ask for quotes from several providers. Once you have compared multiple quotes for the same types of coverage, you should have an idea of how much to include for insurance in your home purchasing budget.

Other types of homeowners insurance

Depending on where you live, you may need other forms of insurance to protect your new home purchase. Most homeowners insurance policies have limited coverage for high-value items like jewelry, art and other keepsakes. Some companies allow you to increase these limits for a higher premium, or you may be able to purchase a separate scheduled personal property policy.

If you are buying a house in a flood zone, you may be required by your lender to purchase flood insurance in addition to homeowners insurance. Even if you are not required to, flood insurance is something to consider since homeowners insurance does not cover floods. Keep in mind that if you need to purchase flood insurance, you are usually required to pay for a flood policy in full upon purchase. Policies are available through private insurance policies or the National Flood Insurance Program (NFIP).

When to buy homeowners insurance

At what point in the home buying process should you purchase your first-time homeowners insurance policy? If you are getting a mortgage, the lender will likely provide a date for when you need homeowners insurance to close on the loan. Consider allowing yourself extra time in the home buying process to do your research on homeowners insurance before making an offer on a home. If possible, you may want to consider having the home inspected before shopping for policies so you are aware of any potential issues upfront. By getting multiple quotes from different homeowners insurance companies, you should be able to find the best coverage options for your needs at a price that fits your home buying budget.

Consider reviewing your quotes and selecting the provider and coverage you want to go with about a month before closing. It is typically a good practice to have a policy in place around a week before closing. Your lender may want proof of coverage up to a few days before the scheduled closing date, and not being able to provide proper documentation could delay the sale.

How to determine the amount of home insurance coverage you need

Before you get quotes for homeowners insurance, you should determine how much home insurance coverage you need as a first-time homebuyer. Your lender will probably have minimum requirements to satisfy the underwriting criteria to fund the mortgage. Use these as a starting point to make sure your bases are covered.

You may need more coverage than the minimums put into place by your lender. Here are some steps you could consider taking to help determine how much homeowners insurance you need as a first-time buyer:

  • Research local building costs to see how much it would cost to rebuild the home.
  • Make sure your new home meets local building codes.
  • Take an inventory of the furniture and belongings you intend to move into the home.
  • Think about how many people will visit your home and how often.
  • Find out what your local living costs would be if your home became temporarily uninhabitable.
  • If there are structures like a garage, pool, deck or fence, consider how much it would cost to replace them if they were damaged.
  • Take note of common natural disasters that could occur in your area, like earthquakes or landslides, which are not usually covered by homeowners insurance.

Next, it might be a good idea to evaluate how much you can afford for your deductible and if you want any add-on coverages such as flood insurance or an extra coverage option called a rider that protects expensive items like jewelry, art or instruments. Other riders may be available from your selected insurance company, too. Speak with a licensed agent to learn more about all your options.

How to find cheap homeowners insurance

Getting multiple quotes with the same coverage limits to compare is a great way to get cheap homeowners insurance rates. If you already have auto insurance, you might be able to get cheaper rates on your homeowners insurance by bundling with your car insurance through the same insurance company. Also, consider asking about available discounts so you can apply as many as you are eligible for to get even more savings on your homeowners insurance as a first-time homebuyer.

Once you have signed up for a first-time home buyer’s insurance policy, the last thing you want is for your rate to go up. These are a few ways you might be able to keep your insurance rates low:

  • Invest in disaster-proofing upgrades like storm shutters or a modernized electrical system.
  • Keep your credit score high or work on improving it (only applicable in states that use credit to determine rates).
  • Stay with your insurer to take advantage of loyalty discounts.
  • Review your policy annually to see if any updates are needed.
  • Update home appliances to ensure your home is efficient and to take advantage of discounts.

Buying home insurance can seem overwhelming at first, but it does not have to be difficult if you do your research and start with the essentials.

Frequently asked questions

What is the best home insurance company?

The best home insurance company is different for everyone, but a good home insurance policy typically offers the coverage you need at a price you can afford. Getting quotes from multiple companies will help you decide which company is the best for your specific needs.

Do I need to buy homeowners insurance before closing?

Yes, you will need to buy homeowners insurance before closing if you are getting a mortgage. The home insurance policy should usually be effective either before or on the date of closing, but your lender will likely give you a specific date. If you are not getting a mortgage, you are not required to purchase insurance. Still, it is usually a good idea to get insurance anyway to protect your finances if something happens to your home or belongings.

What is not protected by most homeowners insurance?

Floods are not covered by standard homeowners insurance. Depending on your homeowners insurance policy, lots of expensive personal property and a business run from your home may not be covered, either. Speak with your insurance company to discuss exactly what is and is not covered when you purchase your policy so you can determine if you need additional insurance.