When Will A Lender Require Me To Purchase Home Insurance?
Buying a house can be a complicated process.
You have to be concerned with contracts, home inspections, escrow and all sorts of new legal terms.
Last but not least you will need a home insurance policy.
A homeowners insurance policy protects your home if something happens to damage it or if your home is vandalized or burglarized.
If it’s your first time purchasing a home, you might be wondering, when does the lender require you to purchase the homeowners insurance policy?
You might also wonder if the first year of homeowners insurance is included in the closing costs.
If this is your first home, you may not be familiar with homeowners insurance at all. Here’s a short guide to answer some of your questions.
When Will the Lender Require Me to Purchase Homeowners Insurance?
The lender will require you to purchase homeowners insurance before you can purchase your home.
Once you’ve decided on the best company for your needs, they’ll tell you your premium, and you’ll set your coverage to begin on the day of your closing.
The closing is when you and the home sellers sign all the documents so that the house becomes yours.
Your lender will want you to have homeowners insurance lined up and ready to go before you come to the closing.
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Why Do Lenders Require Homeowners Insurance?
Lenders require you to have homeowners insurance from the first day of owning the home because the mortgage is an agreement between you and the lender.
Technically, the lender will own the home until the final mortgage is paid, and they will insist their asset is insured.
You agree to make monthly repayments to the lender. These repayments go toward the purchase price of the home, which the lenders already paid to the sellers.
Homeowners insurance protects the lender’s investment in your property.
If something damages or destroys your home, homeowners insurance will ensure that your lender does not lose the money they paid the sellers.
Homeowners insurance will also cover the cost of repairs if something were to happen to your home.
So, although lenders require it to purchase a home, homeowners insurance is a good investment for you if you don’t have large amounts of liquid cash lying around.
What Kind of Homeowners Insurance Do I Need?
There are different levels of homeowners insurance to choose from when you’re making your decision.
You may need supplemental homeowners insurance to cover specific environmental threats, such as floods.
You’ll want to go through your specific policy and make sure that you understand the exclusions and provisions.
Most policies will include property damage, additional living expenses, personal liability, and medical payment coverage.
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What’s the Minimum Amount Of Home Insurance Required?
The minimum amount of homeowners insurance will vary based on several factors.
Cost of the home: Your homeowners insurance policy serves to protect the investment that you and your lender are making. At a minimum, your coverage will need to include the cost of the house. If you buy a more expensive house, you will have more house to insure. Your lender may require that you purchase homeowners insurance to cover the full cost of replacing the home.
Amount of your down payment: The down payment will change the amount of money that your lender is loaning you. If you purchase a home without a down payment, at a minimum, your coverage will need to cover the entire cost of the home. If your house costs $200,000 and your down payment is $50,000, you would only be required to have hazard coverage for about $150,000.
Environmental conditions: Don’t overlook these conditions when considering the cost of homeowners insurance. If your home is in a floodplain, your homeowners insurance will need supplemental coverage for this type of damage. The same applies to earthquakes and, sometimes, hurricanes. Your lender might require a certain amount of coverage for hail and wind if your home is in a tornado-prone area.
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How Long Does it Take to Get Home Insurance?
The longest part of the buying process for home insurance is going to be spent on doing research.
You should compare the premiums among several different companies.
And the truth is that:
It’s easy to get quotes, and most insurance providers offer options online, on mobile apps, and over the phone.
If you already have renters insurance or car insurance, it may be easy to get a comprehensive quote that will cover your new home.
Many companies offer discounts if you bundle insurance, so your current insurance provider is a good place to begin.
Make sure to check out other insurance companies though. Coverage varies, and prices may have changed since the last time you purchased insurance.
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Is the First Year of Homeowners Insurance Included in Closing Costs?
Many first time homebuyers ask, “Is the first year of homeowners insurance included in closing costs”?
It makes sense to wonder. There are so many costs involved in buying a house. Even when prepared, it seems like there’s always a new expense facing you.
The simple answer to this question is usually “yes.” Most homeowners include the payments for homeowners insurance in their monthly payments.
The first year’s worth, though, will be paid at closing and added to an escrow account. The lender will use the escrow account for payments for homeowners insurance and taxes.
Do I Need Home Insurance After I Pay Off My Home?
You won’t be legally required to have homeowners insurance once you’ve paid off your mortgage.
However, I would never recommend going without it. Most people don’t have extra money to replace everything in their home, including the home’s structure, if something were to happen to their house.
It’s important that if you keep your homeowners insurance policy, you reach out to the company.
Update the policyholder’s name so that it is your name and not the lender’s.
Also, many insurance companies offer discounts if you own your home outright, so make sure to inquire about that, as well.
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Taking Action
Buying a house can be complicated, but purchasing homeowner’s insurance doesn’t have to be. Remember to do your research and check your options before making a final decision.
If you are using a lender to buy your home, you’ll probably be required to purchase home insurance and the good news is that most home insurance companies let you add the policy to escrow.
If you want to get homeowners insurance, we’ve done the hard work for you—check out the top four companies or get your free quote for homeowners insurance today.
