Buying Homeowners Insurance for the First Time

Purchasing your first home is as exciting as it gets. But it can also be nerve-wracking since it’s among the most significant investments you’ll make during your lifetime.

You’ve decided on the perfect CNY location and a house that sits exquisitely on the lot. The seller accepted your offer, and you have a closing date. But before finalizing a mortgage with your preferred lender, you must supply them with a truckload of information. Somewhere in that list is homeowners insurance—sometimes called hazard insurance—which you’ll purchase due to a lender underwriting requirement.

Though the requirement prepares you for unforeseen repair and rebuilding costs, even possible liabilities, many find this stage of the home-buying process daunting and somewhat confusing. It doesn’t have to be. The Horan agency has helped remove that intimidation for many clients who purchased insurance for their first home.

This article will walk you through the steps of purchasing your first homeowners policy and help prepare you for a smooth buying experience.

What is the First Step to Consider When Buying Homeowners Insurance?

The first step in obtaining a homeowners policy is finding a suitable insurance carrier. Contrary to what some first-time buyers believe, your lender doesn’t select one for you.

But selecting a carrier can be done through a broad range of independent agents and brokers, or you can muddle your way through and buy directly from insurance carriers in some cases without an agent or broker.

One misconception among first-time homebuyers is thinking that insurers can convert a renters policy into a homeowners policy. They can’t.

Most auto insurance carriers offer home insurance, but those that don’t write home policies often broker out that coverage to other carriers. In that sense, it’s worth shopping around.

Since buying a home and insuring the property involves many moving pieces and complex procedures, we strongly advise using professionals to ease you through the process. When you’ve landed an insurance carrier, the next thing to figure out is:

How Much Homeowners Coverage Do I Need?

You don’t have to figure that out alone. That’s why insurance agents exist. When your insurer writes your policy, they’ll factor in several things, beginning with the proposed cost of rebuilding your entire home due to an accidental fire, storm, or other covered peril.

Added to that are replacement costs for your personal belongings, detached structures such as sheds and fences, and possible liability in case guests injure themselves in your home.

Some first-time buyers make the mistake of purchasing inadequate insurance, such as dwelling coverage equal to the loan amount. Doing so doesn’t leave them prepared when the worst happens.

Figuring how much coverage you need and securing a policy leads directly to the following step in purchasing homeowners insurance:

The “Clear to Close” Mortgage Phase

As a first-time homebuyer, you might ask, “what is clear to close?”

It’s the authorization you obtain from your lender which indicates they are ready to fund the loan and close the deal on your new home. But getting that clear to close requires an insurance binder. The “clear to close” mortgage phase is part of the “many moving pieces and complex procedures” we mentioned earlier.

The insurance binder comes from the insurance agent you selected during one of our previous phases. The binder—which expires after thirty days—indicates that the policy is officially issued.

Policy details in the binder will prove to your lender that you have enough insurance coverage to meet or exceed the loan amount. You can also expect to pay the first-year premium in full before the closing date, and the receipt for that payment will accompany the insurance binder.

Barring any issues, the mortgage on your first home is then formalized or put into writing.

Expect Escrow Payments

Many first-time homebuyers use escrow accounts to make annual insurance payments. Escrow accounts—which your mortgage lender sets up as part of your loan—merge mortgage and homeowners insurance payments (often including property taxes), so one account covers all.

Despite the one account, the insurance premium goes to the insurer, and the mortgage payment goes to the lender. An escrow account is often required but is sometimes optional.

Escrow accounts help facilitate the prompt payment of insurance premiums and property taxes, which is why they are favored. Insurance payments are pulled annually from your escrow account when due. You won’t receive an annual bill but will be issued renewal documents about 45–60 days before renewal.

Bear in mind this is not the same as private mortgage insurance (PMI), which is lender-placed but buyer-paid through an escrow account. Some lenders require PMIs for loans. One instance that triggers this is if a borrower makes a down payment totaling less than 20 percent of the appraised value of the house.

PMIs protect lenders when borrowers can’t make mortgage payments. If required, a lender will lump the PMI into your monthly mortgage.

What Does My Homeowners Policy Cover?

Choosing the right policy for your new home is critical. On another Horan page, we go into great detail about what a homeowners policy covers. But know that your policy will be determined by the type of home you choose, be it new construction, an old house, a condo, a townhome, a manufactured home, or other types of construction.

Where you choose to live must also be considered. Areas known for wildfires, earthquakes, tornadoes, hurricanes, or flooding will all come with their share of policy specifics, some requiring additional coverage. That leads you to ask:

Are There Other Types of Insurance I Should Consider?

That will depend on the type of home you own, its location, and how many things you own in addition to the house itself.

You don’t have to live in a designated flood zone to qualify for flood insurance. It’s a wise purchase for many people, as flooding can happen anywhere.

If you’re fond of powersports and own a snowmobile, you’ll have to purchase a separate snowmobile insurance policy. The same is true for motorcycles, ATVs, watercraft, and other vehicles.

Even if you have several policies to cover various items, you may still need more coverage in certain areas, such as personal liability. An umbrella insurance policy can extend beyond the liability limits of home, auto, and other policies.

In extreme cases like a multi-car accident that injures various people and requires several vehicle replacements—costing well beyond your coverage limits—an umbrella policy kicks in to help prevent you from depleting your savings and investments by having to pay out of pocket.

As a first-time homeowner considering a home insurance policy, also factor in other types of insurance to remain well-protected against large claims and other unforeseen financial circumstances.

Once you’ve narrowed your insurance needs and decided on the appropriate policies, you’ll be ready to close.

Settle Into Your New Home

You may not be a first-time homebuyer, but that doesn’t make purchasing a home less demanding. Perhaps you’re in the early stages of the loan closing process, and the mortgage company requires a lot from you. We feel your pain.

Once you’ve done the heavy lifting of providing all the necessary info for the loan application phase, we’ll be ready to get you quoted so we can figure out the final home policy cost.

At the end of this lengthy process, you can move into your new home with assurance because one of your most significant investments is well-protected far into the future.

But if you’re thinking about buying a home and don’t quite know where to start—or are stuck somewhere in the middle—we can help you through the murky details. Don’t hesitate to call us at 315-635-2095 or use our handy contact form. We’re ready to assist you.