Guide to Buying Home Insurance For First Time Home Buyer

<strong>How to buy homeowners insurance for the first time</strong>

How to buy homeowners insurance for the first time

Before closing on a new home, your lender will require you to purchase a home insurance policy. While many lenders provide insurance referrals, choosing a home insurance company is your decision. You're responsible for making sure the coverage on your policy is adequate on protecting your new home, your personal belongings, and liability for incidents that injures someone.

Is home insurance required to buy a home?

You're required to show proof of homeowners insurance to your lender before they hand over the keys to your new home and fund your home loan. Until your home is paid in full, your lender holds a lien on your property.

How to shop for home insurance

During the mortgage approval process, your loan specialist will let you know when to buy homeowners insurance. However, you can start shopping for a policy as soon as find the one that you fall in love with. 

While your lender may provide a referral, it's a good practice to compare pricing and coverages. You can often save money by bundling homeowners and auto insurance with the same insurer or by switching your homeowners insurance. When you shop with Keystone Solutions we help you shop the many carriers so that you one less thing to worry about.

What to look for in a home insurance policy

1) Check the limits on your personal property and liability coverage
Your belongings, such as clothing, furniture, electronics, and jewelry, are insured under Coverage C (personal property) on your home insurance policy. Make sure the limit is enough to cover everything you own. Keep in mind that certain items may fall under a specific category with a sublimit. And certain Coverages you would want to list individually such as heirloom jewelry, Wedding rings, Fine Arts or Collectables. Contact your Keystone Representative for more information.

Coverage E (liability) protects you if you're liable for an incident that injures someone. Be sure to select a liability limit that properly covers what you have in assets. Most home insurance policies have a $300,000 liability limit however you can always increase the limits. If you need additional coverage, you can purchase umbrella insurance, which provides extra liability coverage for home and auto policies.

2) Be aware of exclusions
Depending on where you are shopping for home insurance, there will be a list of things that won't be covered on a standard policy. These include earthquakes, landslides, mudflows, and flooding.

If you're at risk for a peril that isn't covered on your policy, ask your home insurance agent or company if there's an option to purchase protection for excluded incidents.

3) Understand your deductibles
When buying home insurance for the first time, it's important to pay attention to the deductible for property damage. Your deductible is the portion of the claim you're responsible for, so make sure the deductible amount is within your budget.

Unlike car insurance, your home insurance deductible won't always be a set dollar amount. It could be a percentage of your policy's dwelling coverage.

How home insurance works with mortgage and escrow

Most first-time buyers have their home insurance in escrow. Escrow accounts hold the funds designated for your home insurance and property taxes. Each month, you pay a specific amount (typically, a few hundred dollars) above your normal mortgage payment. Your lender/mortgage servicer keeps these extra funds in an escrow account.

When your home insurance and property taxes are due, the lender pays these fees on your behalf from the escrow account. Escrow accounts are recommended to ensure you stay up to date with your home insurance and property taxes. Some homeowners prefer to use escrow to pay for insurance and taxes in monthly installments, rather than annually or biannually.

Is escrow required?

If your loan is financed by the Federal Housing Administration, you're required to have an escrow account. Conventional loans can go either way. If your loan amount is more than 80% of your property's value, your lender will likely require you to have an escrow account. When you don't hold much equity in your home, you may not be as invested in protecting it as your lender is — so, they'll want to make sure your home insurance policy is securely in place and up to date.

If your lender doesn't require you to have an escrow account, understand that your homeowners insurance isn't included in your mortgage payment, and your premium must be paid separately. Homeowners insurance can be paid in advance or through monthly payments, but keep in mind that payment plans can vary by insurer.

Is homeowners insurance included in closing costs?

Your lender will usually require the first term of your homeowners insurance to be paid at closing.

Mortgage insurance vs. Home insurance

Sometimes if your down payment is less than 20%, most lenders will require you to pay private mortgage insurance (PMI). The difference between PMI and homeowners insurance is that PMI is a safeguard for your lender and does not insure your property in any way.  PMI is added to your monthly mortgage payment, so the lender is protected in case you default on your mortgage loan.

Home warranty vs. Home insurance

Your home insurance policy won't cover normal wear and tear or mechanical breakdowns. That's precisely what a home warranty is for, designed to supplement your home insurance in case things go wrong around the house. For instance, if your air conditioning unit stops working, a home warranty plan can pay to repair or replace it. Home warranties cover nearly all home appliances and are purchased separately from your home insurance.  Speak with your Keystone Solutions representative on Home Warranty options.

Buying a new home can be stressful choosing Keystone Solutions we will help you find the right coverages for the right price and help you send everything needed to your lender to ensure you close on time so you can have one less to check off your list.  

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