When it comes to buying a home, many people only consider the upfront cost. However, there are ongoing costs associated with homeownership that are not always considered.
One of those ongoing costs is home insurance. Our Mortgage Planners are frequently asked about home insurance and why it is needed to purchase a home. We want new homebuyers to have a better understanding of this topic and why it plays such an important role in purchasing a home.
What is Homeowners Insurance?
Homeowners insurance works similarly to regular insurance. If something happens to your home or if an accident occurs on your property, then, depending upon your policy, insurance will cover the cost to repair the damages (minus the deductible).
The cost of homeowner’s insurance will vary by insurer and the type of coverage you choose. Lenders will typically ask that you pay the first year’s premium in advance or at closing. For the second years premium, some people will opt to pay out of pocket, however, if you can’t do that you can set up an escrow account. This type of account is set up by the lender you are working with, and the insurance is paid annually.
Additionally, many people will try to reduce the premium amount by opting for a plan that has a higher deductible. However, it is best to work with your lender to make sure that your deductible is allowed with your loan program.
What Does Homeowners Insurance Typically Cover?
Homeowners insurance will typically protect and cover anything that might happen on or to your property, such as:
- Theft and vandalism
- Medical expenses if someone is injured
- The homes structure
- Expenses should your home become uninhabitable
- Smoke damage
- Falling objects (like a tree branch)
However, coverage will vary by insurer, so make sure to consider all your options and find the coverage that works best for you and your family. Homeowners also need to check the amount of coverage, which varies based on your loan amount and insurable values.
If you are purchasing a condo, coverage may look a little different. The condo association will typically cover the building exterior, so you only need coverage for the inside of your condo, which is referred to as “wall in” or “HO6” insurance.
Why Do I Need Homeowners Insurance to Purchase a Home?
Lenders will typically require that you prove insurance coverage prior to closing. Lender’s want to know that their investment is well-protected, and this type of insurance is designed to protect both you and the property in the case of an accident or damage to the home.
Your Future Home is Our Top Priority
We know how challenging it can be to navigate the homebuying process. Our Mortgage Planners are readily available to help you with all your homeownership questions, and will make your needs a top priority. Are you ready to take the next step on your home ownership journey? Contact us today!
SVP Mortgage Banking