Home Insurance for First-Time Home Buyers

Homeowners insurance is generally not required by state law, but most mortgage lenders require it as a condition of the loan. The lender will usually require evidence that acceptable coverage is effective no later than the closing date.

If you purchase a home without financing, homeowners insurance may not be legally required. However, going without coverage means assuming the financial risk of damage to the home, loss of your belongings and liability claims.

Yes. Having your insurance paid through an escrow account does not ordinarily mean you must stay with the same insurance company.

An escrow account is used by your mortgage servicer to collect money for expenses such as homeowners insurance and property taxes. The servicer pays the premium from that account, but you can generally shop for coverage and select the insurance company as long as the policy satisfies your lender’s requirements.

Before replacing an existing policy:

1. Put the new policy in place first.
2. Confirm that it meets your lender’s requirements.
3. Provide the new policy and mortgagee information to your lender.
4. Confirm how the new premium will be paid from escrow.
5. Cancel the old policy only after the new coverage is active.

Avoid any lapse in coverage. If the lender believes the property is uninsured, it may purchase force-placed insurance, which can be more expensive and may primarily protect the lender.

It can. If your new insurance premium is higher or lower, the amount your mortgage servicer needs to collect through escrow may also change.

The adjustment may not appear immediately. Mortgage servicers periodically review escrow accounts and can adjust the monthly payment based on insurance premiums, property taxes and any escrow shortage or surplus.

The first year’s premium is commonly paid at or before closing. Depending on the loan and closing arrangements, you may pay the insurance company directly, or the premium may be included in the funds required to close.

Your lender may also collect an initial escrow deposit to help pay the next insurance renewal and future property-tax bills. Your insurance agent, lender and closing company should coordinate these details before closing.

Begin shopping as soon as you have an accepted offer and know the property address and anticipated closing date.

Starting early allows time to:

• Compare multiple insurance companies
• Review coverage and deductible options
• Confirm that the roof and property meet underwriting requirements
• Address inspection or eligibility concerns
• Satisfy your lender’s insurance requirements
• Send evidence of insurance to your lender
• Help prevent last-minute closing delays

Older roofs, prior claims, vacant properties, ongoing renovations, wood-burning stoves and certain property conditions may require additional underwriting review. Ideally, do not wait until the week of closing.

An insurance agent will normally need:

• The property address
• Your anticipated closing date
• Names and dates of birth for the owners
• Current address and insurance history
• Mortgage lender and loan information
• Intended occupancy
• Prior claims information
• Estimated roof age
• Heating, cooling, plumbing and electrical details
• Information about renovations or additions
• Details about pools, trampolines, fireplaces and wood-burning stoves
• Information about dogs or other animals
• Desired deductibles
• Auto-policy information if you want to compare bundling options

The insurance company may also use property records, replacement-cost data, aerial imagery and an exterior or interior inspection.

No. Dwelling coverage should generally reflect the estimated cost to rebuild the home, not its market value, purchase price or remaining mortgage balance.

Market value includes factors such as land, location and local demand. Reconstruction cost is based on labor, materials, debris removal, building characteristics and the cost of rebuilding after a covered loss.

Because these figures measure different things, the dwelling limit may be higher or lower than the purchase price.

A homeowners policy commonly includes:

• Dwelling coverage: The primary structure
• Other structures: Detached garages, sheds, fences and similar structures
• Personal property: Furniture, clothing, electronics and other belongings
• Loss of use: Additional living expenses following a covered loss
• Personal liability: Certain claims involving injury or property damage for which you are legally responsible
• Medical payments: Limited medical expenses for certain injuries to guests

Limits, deductibles, exclusions and coverage forms vary by policy and insurance company.

Standard homeowners policies generally exclude flooding and earth movement.

Flood insurance normally requires a separate policy. Earthquake coverage may be available as an endorsement to the homeowners policy or through a stand-alone earthquake policy.

Water backup through a sewer, drain or sump is different from flooding and typically requires a separate endorsement.

Coverage and eligibility depend on the roof’s age, material and condition, along with the insurance company’s underwriting rules.

An older roof may:

• Make the home ineligible with certain carriers
• Be covered on an actual cash value basis
• Have a separate roof-payment schedule
• Carry a higher wind or hail deductible
• Require documentation or inspection
• Need to be replaced before coverage can be issued

Ask whether the roof is covered at replacement cost, actual cash value or according to a roof-payment schedule before selecting a policy.

Replacement-cost coverage generally pays the cost to repair or replace covered property using materials of similar kind and quality, subject to the policy limit and other terms.

Actual cash value accounts for age, condition and depreciation. This can result in a substantially smaller claim payment, particularly for an older roof.

For example, if a 15-year-old roof is damaged by a covered storm, an actual cash value policy may subtract depreciation from the claim payment. A replacement-cost policy may initially pay the depreciated amount and then release the recoverable depreciation after the roof is replaced and the required documentation is submitted.

Replacement-cost provisions generally require repairs to be completed within the timeframe stated in the policy. Coverage, depreciation and claim-settlement terms vary by insurance company.

A deductible is the portion of a covered claim the homeowner must pay.

Some policies have one deductible for most covered losses and a separate wind or hail deductible. Percentage deductibles are based on the dwelling coverage limit rather than the amount of the claim.

For example, a 1% wind and hail deductible on a home insured for $500,000 would equal $5,000.

Select a deductible you could reasonably afford after an unexpected loss. Do not choose a deductible based only on the lowest available premium.

It may. Insurance companies commonly review aerial images and property records, and some conduct exterior or interior inspections after issuing a policy.

An inspection may identify concerns involving:

• Roof condition
• Peeling paint or damaged siding
• Overhanging trees
• Missing handrails
• Electrical panels
• Plumbing or heating systems
• Wood-burning stoves
• Pools or trampolines
• Unreported structures or business activities
• General property maintenance

Failure to address a serious concern could result in a required repair, coverage change or nonrenewal.

No. A home inspection is performed for the buyer to evaluate the property’s condition before purchase. An insurance inspection is performed for underwriting purposes to determine whether the property meets the insurance company’s guidelines.

One inspection does not necessarily satisfy the purpose of the other.

Many homeowners policies provide some coverage for personal property while it is being moved or temporarily stored, but limitations may apply.

Coverage can depend on:

• Whether the old and new homes are both insured
• How long the property is stored
• The cause of loss
• Whether professional movers are involved
• Special limits for jewelry, firearms, collectibles and other valuable items

Review the timing of both policies before moving and consider scheduling high-value belongings separately.

Bundling can provide a discount with many insurance companies, but it is not automatically the best option in every situation.

An independent agent can compare the total cost and coverage of placing both policies with one company against using separate carriers. Coverage quality, deductibles and liability limits should be considered along with price.

No. Homeowners insurance covers certain sudden and accidental losses described in the policy, such as fire, wind, hail, theft and liability claims.

A home warranty is a service contract that may help pay to repair or replace certain appliances or home systems following a mechanical breakdown. It does not replace homeowners insurance.

Common issues include:

• An old or damaged roof
• Existing unrepaired damage
• A recent lapse in insurance
• Prior claims
• Outdated electrical, plumbing or heating systems
• Vacancy or major renovations
• A wood-burning stove
• A swimming pool without proper fencing
• Unreported business activity
• Missing information from the buyer or lender

Providing complete information early gives your agent more time to find an appropriate option.

An independent agency can compare options from multiple insurance companies and explain differences in coverage, deductibles, roof settlement, water backup, replacement cost and liability limits.

MBG Insurance can also communicate directly with your lender and real estate professional, provide the documents needed for closing and continue servicing the policy after the purchase is complete.

Coverage availability, eligibility, limits, deductibles and policy terms vary by insurance company and state. This information is for general educational purposes and does not alter or replace the terms of an insurance policy or mortgage agreement.