How To Purchase Your First Home Insurance Policy – Q&A
Your lender will need you to buy a house insurance coverage prior to closing on a new home. Even though many lenders offer insurance recommendations, picking a home insurance provider is entirely up to you. It is your responsibility to ensure that the insurance coverages on your policy provide enough protection for your home, any detached structures, and your personal property.
What does homeowner’s insurance cover?
Your first homeowners policy will probably be a HO-3 if your first property acquisition is a single-family home. The most typical kind of homeowners insurance policy is a HO-3, which provides coverage for your house and other property against specified risks. It also offers protection from personal culpability. Your homeowner’s policy covers, in detail:
- Dwelling coverage: The dwelling section of your homeowners insurance policy covers the structure of your home and any other associated buildings.
- Coverage for additional structures: An HO-3 will also provide coverage for any additional structures you may have on your property, such as a fence or a detached shed.
- Personal property coverage: If your personal property is destroyed by a covered risk, this component of your HO-3 policy will offer coverage.
- Liability protection: If someone is wounded on your property and sues you for damages, your homeowner’s insurance will provide personal liability protection. Your legal expenses may also be covered by this insurance.
- Medical payments coverage: If someone gets hurt on your property or in your house, your medical payments policy will cover their medical expenses.
- Additional living expenses coverage can assist in covering hotel costs, meals out, and other costs while your home is being repaired if a covered risk renders it uninhabitable.
- Exclusions exist even with the greatest homes insurance providers. An HO-3, for example, does not cover damage brought on by earthquakes, floods, or sewer overflow.
It would be a good idea to speak with your agent before buying your first homeowners insurance policy to go over what isn’t covered and the dangers associated with each exclusion. You can choose the best supplemental policies for you by learning more about your policy in detail.
Is home insurance necessary to purchase a house?
Before giving up the keys to your home and funding your mortgage, your lender will demand confirmation that you have homeowners insurance. Your lender has a lien on your home until it is fully repaid, therefore it is in their best interest to see to it that it is insured while you are making mortgage payments.
You won’t need to present evidence of home insurance prior to closing if you’re buying your new house with cash or an unsecured line of credit (credit card or personal loan). No state requires homeowners to have insurance, but you should still think about getting it to safeguard the value of your property.
How escrow and mortgages interact with house insurance
Home insurance is typically held in escrow for first-time purchasers. The money set aside for your home insurance and property taxes is kept in escrow accounts. You pay a certain amount (usually a few hundred dollars) more each month on top of your regular mortgage payment. These additional payments are kept in an escrow account by your lender or mortgage servicer.
The lender uses the escrow account to cover these costs on your behalf when your home insurance and property taxes are due. Escrow accounts are advised to make sure you pay your property taxes and homeowner’s insurance on time. Some homeowners choose using escrow to make monthly payments for insurance and taxes as opposed to yearly or biennially. Find out more about paying for homeowner’s insurance.
Is escrow necessary?
You must have an escrow account if the Federal Housing Administration is financing your loan. Conventional loans are subject to change. Your lender will likely demand that you have an escrow account if the total amount of your loan exceeds 80% of the value of your property. Your lender will want to make sure your home insurance policy is in place and current because you might not be as invested in protecting your home if you don’t have much equity in it.
Understand that your homeowners insurance is not included in your mortgage payment and that your premium must be paid separately if your lender does not require you to have an escrow account. You can pay for homeowner’s insurance up front or on a monthly basis, but bear in mind that different insurers may have different payment schedules.
Do closing costs include homeowners insurance?
Your homeowners insurance must be paid in full for the initial term at closing per your lender’s requirements. The majority of lenders will deduct closing costs from your annual home insurance premium, usually between 10% and 20%, and deposit the money in your escrow account in time for the subsequent billing cycle. You’ll frequently be required to pay the entire first year’s home insurance premium at closing if there is no escrow. Additionally, some lenders might charge a small fee to waive your escrow obligation.