Just got pre-approved for a home loan? Congratulations! That’s a huge step in life – and it takes you so much closer to living the American Dream!
Finding and buying a new home is as exciting as it is stressful: The purchase of a home is a huge undertaking that requires a good deal of forethought and research.
But once the fun part of finding your dream home begins, you’ll find yourself spending evenings and weekends driving about town with your real-estate agent, and wandering through what might become your home. And at night, you dream about paint colors and furniture arrangements…
When you find it, you know it. And then everything happens quite fast: Your agent might help you sign the paperwork, you put in an offer, and then you wait, chewing nails, to hear back whether it was accepted. “Hurry-up and Wait” is probably a good way to describe it.
Insurance may not be your first thought when you start thinking about buying a house. But don’t let it be your last! Our team at McClain Insurance can help you make this process as smooth and as stress-free as possible.
Once the home has been appraised you should start shopping for new home insurance.
We can help you find the right protection at the best rate for your new home.
Avoid unpleasant surprises by following this short checklist.
Here are a few house-buying tips to be aware of, from an insurance point of view:
- Choose your own insurance company.
- How far is the nearest fire station?
- Will your home insurance cover a trampoline?
- Part of a homeowner’s association? Check your association’s Master policy.
- House built before 1980? It might require retrofitting.
- Buying a home in a flood zone?
Choose Your Own Insurance Company
Your offer was accepted and now the real paperwork begins. Who would have thought that would be so many documents to produce, papers to sign, and questions to answer? When your broker assures you that she can take care of the rest, it’s easy to agree.
It’s a couple of months after you’ve moved in that you have the peace of mind to take a closer look at the papers… and discover that your homeowner’s insurance rates are high. Very high. To say the least.
Just like property taxes have become commonly rolled into an escrow account and made part of a mortgage payment, so have homeowner’s insurance payments. Every lender requires that you have homeowner’s insurance in place.
But that doesn’t mean that your mortgage company has to determine your insurance!
While the mortgage company is working on your loan, we can help determine the coverage you need and at a price, you can afford. Plus, with your permission, we’ll process everything so it’s ready when the closing date comes. Keep in mind that deadlines are always tight in the mortgage business so don’t wait.
How Far is the Nearest Fire Station?
You’ve always dreamed about a house in the woods. Kind of out there, away from all the hustle and bustle. And you found it, the perfect home, on a perfect 5-acre lot, not too far away… but far enough.
However, as you receive your homeowner’s insurance statement, you swallow hard. The house isn’t that big… actually, it’s about the same square footage as your previous house in the suburbs. So why did the rate increase?
The distance of the nearest fire station has an impact on your homeowner’s insurance rates. The further away the nearest fire station is located, the higher the rate. This makes sense, in a way: If heaven forbid, you ever had a fire, every second counts. With no fire department nearby, the risk for a major or total loss of your home is much higher.
And insurance companies charge for higher risk.
Will Your Home Insurance Cover a Trampoline?
Your new home is really great! Not only does it come with a big yard and a swing set, but it also comes with a trampoline! The kids would love it! Unfortunately, the backyard isn’t fenced, but … well … a fence could be added later, plus the row of trees provides some privacy.
This doesn’t sound bad at all, does it?
Unfortunately, from an insurance standpoint, it does. There are an estimated 3 million trampolines in US backyards, and injuries caused by trampolines are steadily on the rise, averaging over 240,000 medically treated injuries every year. Over 180,000 involve children aged 14 and younger.
That’s why it is very difficult to find insurance for a trampoline. If the trampoline is located on your property and somebody – invited or not – gets injured while using it, you will be held responsible for the damages.
That may mean many years of medical payments, or worse.
A trampoline is considered an “attractive nuisance”. Most insurance carriers have recognized the dangerous risk exposure that comes with a trampoline. Some carriers will not write a homeowner’s insurance policy for a home with a trampoline.
Others may write it only if the trampoline is inside a 6-foot fenced area with a self-locking gate.
Swimming pools are also considered “attractive nuisances” and are treated similarly.
Part of a Homeowner’s Association?
Check your Association’s Master Policy.
Living in a homeowner’s association can have its pros and its cons. But the fact is that more and more condo, town-home, and other communities are bound together by a Homeowner’s Association. For each homeowner, that usually means an annual fee.
What does the homeowner’s association have to do with your insurance?
Quite a bit, actually: From an insurance standpoint, if anybody got insured on the association’s joint property, such as, for example, a walkway or a playground, the association would be held liable.
That’s why each homeowner’s association has a Master policy in place. The question is: What does the Master policy cover?
Some Master policies don’t provide high enough protection, so if a loss occurs that exceeds the policy limits, each homeowner in the association will share an equal part in the liability. In that case, you may be required to pay a share of hundreds or even thousands of dollars.
If you don’t have the right protection on your homeowner’s insurance, that money would need to come out of your pocket. Luckily, your homeowner’s insurance can be adjusted to provide you with adequate protection.
Home Built Before 1980?
It Might Require Earthquake Retrofitting.
Isn’t there something charming about older homes? The craftsmanship, the history, the secrets in the attic… This one is a gem, with cherry wood crown molding and clawfoot tub… You could see yourself living here, one by one renovating and redecorating the old rooms and restoring its old charm.
On the West Coast, the danger of an earthquake is real. Consequently, in 1980, building codes changed to enforce earthquake-proof foundations. Unfortunately, many older homes don’t meet these requirements yet.
If you are looking to buy a home that was built before 1980, it might not have been retrofitted yet. Be prepared that your insurance company might require earthquake retrofitting before insuring it, or possibly deny coverage.
Visit this page for more information on Earthquake Insurance.
Buying a Home in a Flood Zone?
Isn’t the sound of water one of the most soothing? Whether it’s rainwater drumming on your window, waves crashing on the beach, or a stream babbling away… Not to mention the view. To look out the window over the expanse of a lake or riverbed is priceless.
A house near a beach or river is a dream for many. But if that dream home is located in a flood zone, your lender may require you to have Flood Insurance in addition to your standard homeowner’s insurance policy.
With recent weather patterns, Flood Insurance might be a smart idea, even if you live nowhere near a flood zone. Because certain water-related losses are excluded on a standard homeowner’s policy.
Now is the time to call us for your New Homeowners Insurance Policy. Because we represent a wide variety of insurance companies, you’ll have many options choose from. You can also get the process started online right here on our website.
Start Homeowners Quote
Buying a house comes with many considerations, each arising at different stages of the process. But when you’ve settled on your dream house and made an offer, homeowners insurance may not be at the forefront of your mind. However, it’s another significant expense in the home buying process, so it’s worth considering as you head towards closing.
In this piece, we’ll explain homeowners insurance and help answer all of your questions, including when — or if — you need to buy it.
Is homeowners insurance required?
You’re not legally required to purchase home insurance, but many mortgage lenders do require it as a condition of approving a loan. So this is a yes-and-no answer.
If you buy a home with a mortgage, it’s really the lender buying the home. As such, lenders will demand you get a homeowners insurance policy to cover catastrophic damage from things like fire, lightning, tornadoes, or other unforeseen events. This protects the lender’s investment, even though you’ll foot the bill. Once you’ve paid the house off, however, you’ll be happy you had the insurance if your house sustained some covered damage during the mortgage.
When do you buy homeowners insurance when buying a house?
You can purchase a homeowners insurance policy at any time during the closing process. However, it’s recommended you have it in place at least a few days prior to your closing date.
Therefore, you should start searching for a policy at least two to three weeks before closing. Many insurers understand the need to move quickly, so you can get a quote in just a few minutes and some providers can have a policy in place in a matter of hours.
Your lender must have proof of your insurance coverage, called a binder, to ensure a smooth closing day. It’s best to get your shopping done early so you don’t delay your closing.
While you can wait until the last minute, there are benefits of shopping early. First, when you shop early, you have more time to research insurers, gather quotes, and compare policies and prices. Second, shopping early gives an insurer more time to “underwrite” your home. That means the insurer can closely investigate your home to identify if your home has any unusual or costly details that may be difficult or expensive to replicate if damaged. That will ensure you have the proper coverage to protect your specific home.
What kind of homeowners insurance do you need?
Standard homeowners insurance policies can assist in the repair or reconstruction of your house in the event of significant damage outside of your control. Depending on where you live, you may need different insurance policies or types of coverage. A standard homeowners insurance policy usually covers:
- Your home and possibly other structures on the property like a detached garage or storage shed.
- Your belongings (provided you can place a monetary value on it).
- Additional living expenses (ALE) in the event of temporary relocation while your home undergoes repairs.
- Legal bills in the event somebody sues you for an injury sustained on the property.
Beyond those standard coverages, you may consider additional coverage based on where you live. For instance, typical homeowners insurance policies don’t cover earthquakes or floods. Your lender may require you to get a policy that includes these coverages based on the property location, or you may just prefer to err on the side of caution.
If you have valuable items that exceed the special dollar limits of a typical homeowners policy, like an art collection or valuable jewelry, you may want to purchase special extra coverage called a Personal Articles Floater (PAF).
Every situation is different so when shopping for homeowners insurance, consider both lender requirements and your personal preferences and comfort.
How much insurance do you need?
The size of your homeowners insurance policy depends on the value of your home, the value of your possessions, and any non-standard additions you need covered.
To figure out how much you need, talk to your agent about a recommended dollar amount. Take an inventory of your belongings and determine if their value falls within the policy’s dollar limit for personal property. Then, consider the amount of ALE coverage you’d need if you were displaced from your home for an extended period of time. Finally, figure out how much liability coverage you need. Most policies offer a minimum of $100,000 but the Insurance Information Institute (III) recommends $300,000 to $500,000 for the average homeowner to cover their assets.
There are some good opportunities to save on homeowners insurance if you take some time with it, too. Don’t assume you have to cover your home at its market value or appraisal value or even the value of your loan. Insurance companies want to know how much it would cost to rebuild your home tomorrow, which doesn’t factor in the cost of the land the home is built on. As such, the insurable amount could be lower than the home’s cost.
The insurance company will determine the insurable amount so it’s worth doing the shopping yourself rather than just going with the first company the lender recommends. Likewise, depending on the insurer, you can save some money if you bundle multiple policies, install smart home technology, or have a “green” home. This is all the more reason to shop or explore the policies offered by your existing insurance companies.
Still, don’t count on insuring for less than market value. Sometimes, homes have hard-to-replace details or more expensive materials that cost more to replace.
What happens if I don’t have homeowners insurance?
If you don’t have homeowners insurance, you should hope for good luck. If your home incurs damage, from a fire or storm for instance, you’ll have to pay out of pocket for repairs if you don’t have homeowners insurance. If the damage is so bad you have to vacate your home while it’s being repaired, you will really regret not having homeowners insurance. You could even lose your home if it’s destroyed in a fire and you don’t have the money to rebuild.
While homeowners insurance isn’t legally required, most lenders require coverage as a condition of a mortgage. As soon as your offer is accepted, you should start shopping for a homeowners insurance policy to get the best deal and best coverage possible. (It will also avoid closing delays.) Even if you’re not required to get homeowners insurance, you should in most cases still do it. You don’t want to pay for a complete rebuild.