Buying your first home can be overwhelming. While you may have secured financing and hired a real estate agent, placing emphasis on a homeowner's insurance policy is also important. Designed to protect you and your finances if your home is damaged or destroyed, the insurance policy will give you a good amount of peace of mind. However, proper understanding is imperative to ensure you purchase the right policy. Here are a few things you need to know about homeowner's insurance when buying your first home.
Legally Required
For many first-time home buyers, the cost of insurance may seem excessive and unnecessary. Unfortunately, this can be problematic.
If you are paying cash for the property, you may not actually be required to have a homeowner's policy. On the other hand, if you will be buying your home with a mortgage, the homeowner's insurance will be legally required.
Of course, it is important to know the different between homeowner's and mortgage insurance. Homeowner's insurance protects you and your finances. If you are putting less than 20 percent down on your home, lenders may require you to purchase mortgage insurance, which protects the actual lender in case you are no longer able to pay the mortgage.
Pricing Varies
There is no flat fee or designated pricing for these insurance policies, since the total cost of premiums will depend on a variety of factors.
Premiums may be based on the actual value of the home, so insuring a more expensive home will cost more than insuring a less expensive home.
Certain issues involving your home may also increase the cost of insurance premiums. For example, if your home was built in a flood zone or you are buying in an area that sees more frequent hurricanes or tornadoes, your insurance will be more expensive.
Lastly, the amount of your insurance premiums will be higher if you are considered a risk. If you have had a policy cancelled due to non-payment, insurance companies may charge you higher premiums or decline your application for a new policy.
Before or At-Closing Payments
During the process of buying your first home, you will probably be surprised by the different expenses. From the mortgage application fee to hiring an inspector and appraiser, knowing about these fees beforehand will help you budget. Many first-time buyers are not aware that they will have to pay their homeowner's insurance premiums before or as part of their closing costs.
Many buyers choose to include the premiums as part of their closing costs, since they may be able to negotiate with the seller of the home. Sellers may pay all or a portion of your closing costs, reducing the amount you need to pay out of pocket.
Homeowners insurance may be an expense, but it will be a worthwhile investment for you, your home, and your finances.
