How Homeowners Insurance Almost Kept Me From My New Home
Jonathan DevineSeptember 13, 2018
Most people, myself included, don’t think of homeowners insurance until their offer is accepted and the underwriters are asking for it. After all, what’s a dry little detail like insurance doing in the exciting world of buying your home? This thinking is a mistake, as I learned the hard way. It is important to understand the financial impact of homeowners insurance before you put ink to paper and commit to buying a home. This guide will teach you what you need to know.
A win-win for your lender and you
If you’ve financed or leased a car, then you might remember that your finance company had specific requirements for car insurance, and if you wanted their financing you had to buy it. Well as it turns out, if you are getting your house financed, your lender will require you to get homeowners insurance (they may refer to it as HOI). It’s their way of protecting their investment.
The upshot? It’s your investment too, so having a good homeowners policy also protects you. You can see it as a win-win.
What is homeowners insurance exactly?
Homeowners insurance protects the investment. That means it covers most of the catastrophic ways homes lose their value, like fire or a fallen tree limb. It’s important to note here that personal property often is not covered, so always look at what exactly the insurer is offering and ask about optional riders you may want.
If your home is in a flood plane, they may require flood insurance. It’s worth noting that there is often a difference between flooding from rain and flooding from backed-up sewers. Many an unsuspecting homeowner thinks they have flood insurance when one of those two things are covered, but not both. Make sure to ask in very clear terms what kind of water damage is covered.
Shop your insurance rates early
Before providing you a quote, insurance companies each have their secret sauce to calculate how much value and risk is associated with the home you want to buy. So imagine my surprise when I was buying a modest, affordable first home with very manageable payments, and I was quoted more for insurance than my entire mortgage payment!
You know in movies or TV when some really bad realization happens to the main character and they pull the focus while the violins screech? That was me in the moment I realized I was already fully committed to buying a house that I might not be able to insure.
But back to that secret sauce. Because every company has their own way of calculating rates, I kept calling and getting different numbers—all costly, but different. I kept trying because I had to keep trying. My underwriter gave me a hard deadline to have this figured out or closing would have to be postponed. After a number of phone calls, I finally found a company that gave me a very reasonable quote.
This piqued my curiosity, so I asked my agent how one company could provide a quote so much lower than the rest. Was it a glitch? Did they enter some information wrong? My agent told me that while some companies use whole cities or zipcodes to do their calculations, this company used a neighborhood method. This explanation made sense: The city I was moving into was considered a little iffy as a whole, but the neighborhood itself was great.
In the end, with only hours to spare, I was able to come up with the insurance I needed to close on my new home. So what did I learn?
Consult the experts early and often
If you’re serious about a house, you can actually get a quote on it before you put in an offer. Independent insurance agents are nice because they can check the information you give them against a number of insurers. In my case, the independent agent couldn’t help me because none of the insurance providers he worked with had reasonable quotes. But it was worth trying and did save me some phone calls.
A good insurance agent will encourage you to give them any house you’re serious about, even before an offer is made. It’s one of the marks of service to look for in a good insurance agent. They’ll be patient, work with you through multiple houses if you need them to, and get you a good quote.
A few extra tips
- You can put your preferred insurance agent in direct contact with your mortgage banker or closing specialist, saving you from being the middleman.
- You can make improvements to the home that lower your insurance rates, and get your escrow payments adjusted immediately.
- Consider bundling your car insurance with your home insurance. It can end up being a deep discount!
Take this as a cautionary tale: Don’t do what I did and wait until underwriting to find insurance. Make sure you have the facts up front so you can make the best decisions with the fewest surprises and zero panic.