Homeowners Insurance for First Time Homebuyers

Before you can enjoy the excitement of buying your first home, you’ll need to obtain homeowners insurance. Although homeowners insurance isn’t legally required, you’ll be hard-fought to find a mortgage lender that would close a loan without it. And you’ll be thankful you have insurance if your home ever suffers an accident.

If you’re buying homeowners insurance for the first this, this first-time homebuyer insurance guide will simplify deductibles, premiums and coverages. That way, you can focus on what’s important — like choosing between an eggshell or satin finish for your new wall color.

Key Takeaways Mortgage lenders will require you to buy homeowners insurance before closing on the loan. The average annual cost of homeowners insurance is $1,213.89. Shopping around, bundling home and auto and choosing a higher deductible may help homeowners save on insurance. Homeownership assistance programs in your state may offer loans with competitive rates and lenient underwriting requirements.

What Is the Average Cost of Insurance for First-Time Home Buyers?

On average, homeowners can expect to pay $1,213.89 per year on homeowners insurance. Actual costs can vary significantly by state due to differences in housing prices, cost of living, construction and labor expenses and more.

Cost Rank	State	Average Annual Cost
1	Oklahoma	$2,891.62
2	Nebraska	$2,485.97
3	Kansas	$2,327.09
4	Mississippi	$2,259.53
5	New Mexico	$2,234.38
6	Arkansas	$2,048.25
7	South Dakota	$1,925.38
8	Tennessee	$1,836.46
9	Missouri	$1,794.98
10	North Dakota	$1,700.08
11	Minnesota	$1,614.15
12	North Carolina	$1,513.98
13	Colorado	$1,513.23
14	Kentucky	$1,492.77
15	Montana	$1,437.87
16	Rhode Island	$1,393.49
17	Iowa	$1,319.62
18	Louisiana	$1,318.73
19	Wyoming	$1,248.64
20	Alabama	$1,185.24
21	West Virginia	$1,183.45
22	South Carolina	$1,165.42
23	Georgia	$1,115.09
24	Illinois	$1,062.53
25	Texas	$1,050.06
26	Alaska	$1,046.22
27	Connecticut	$1,012.41
28	Maryland	$1,003.01
29	New York	$961.52
30	Florida	$919.79
31	Indiana	$883.78
32	Nevada	$883.73
33	Massachusetts	$867.79
34	Arizona	$844.20
35	Delaware	$836.89
36	Virginia	$835.87
37	California	$799.71
38	New Hampshire	$788.56
39	Vermont	$772.45
40	Ohio	$759.38
41	Wisconsin	$755.97
42	Michigan	$743.16
43	Pennsylvania	$716.88
44	Idaho	$684.22
45	Washington	$662.85
46	Maine	$654.20
47	New Jersey	$619.83
48	Utah	$555.61
49	Oregon	$532.10
50	Hawaii	$436.24

Besides your location, other factors can affect your rate:

• Location: Homeowners insurance rates can vary by state, county, and neighborhood.
• Rebuilding cost: It costs less to insure a home that costs $300,000 to rebuild than one that costs $900,000.
• Deductible: If you raise your deductible — the amount you pay out-of-pocket on approved claims — you will typically see a lower monthly premium. Conversely, a lower deductible typically pairs with a higher premium.
• Claims history: A history of multiple claims can raise your monthly premium.
• Coverages: More coverage options results in higher premiums (though it can be worth plugging those holes in your protections).
• Personal information: Your credit score, age, marital status, and more can affect your monthly premium.

Is Home Insurance More Expensive as a First-Time Buyer?

When it comes to calculating your premium, insurers will likely weigh other rating factors, such as your property’s rebuild cost, age, roof condition and location, more heavily than your status as a first-time homeowner. Still, first-time homebuyers may enjoy some unique perks. First, you may not have a claims history that could contribute to higher rates. Also, you may also not need to buy higher personal property coverage limits, especially if you don’t have the funds to invest in high-quality, expensive furniture.

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How Much Home Insurance Does a First-Time Buyer Need?

Generally, homeowners insurance should cover the costs of rebuilding your home — this is called dwelling coverage. The average construction cost of a single-family home is $114 per square foot according to a 2019 survey by the National Association of Home Builders.^[1] Keep in mind that the rebuild cost is different from your home’s purchase price or its current market value. You would consider the cost of labor and materials, but not the value of the underlying land.

Your insurance company will determine the minimum coverage required based on the factors mentioned earlier.

Your mortgage lender may require you to add peril-specific coverages. Shoreline properties, for example, may need coverage against floods, and properties along a fault line may need earthquake insurance.

Below, we explain how homeowners insurance works and the different ways a homeowner is protected.

Coverage	Details
Dwelling	Covers damages to the structure you live in
Other Structures	Covers damages to structures that are not your dwelling (e.g., fences, driveway, tool shed)
Personal Property	Covers damages to and theft of your belongings
Loss of Use	Pays for living expenses, including hotel bills, if you are displaced from your home during a covered claim (e.g., home burned down)
Personal Liability	Pays for bodily injury or property damage to other people (usually guests) inside your home or on your property
Medical Payments (for others)	Pays for medical bills if a guest is injured while on your property

When Should I Buy Homeowners Insurance For My First Home?

Start shopping for homeowners insurance at least four weeks before your closing date — the sooner the better.^[2] When you close on your loan, your lender may create an escrow account from which your home insurance premiums will be paid. Failure to secure homeowners insurance on time can delay your closing.

Your house may be one of the biggest expenses during your lifetime and you’ll want an insurance company that has the right balance of monthly premiums, coverage, deductible and customer service.

How To Save Money on Insurance as a First-Time Homebuyer

Shopping around, snagging discounts and increasing your deductible are common ways for the first-time homebuyer to save on home insurance.

Shop Around and Do Your Research

Try obtaining at least three to five quotes before choosing an insurance policy. Keep in mind that insurance carriers may request your personal information and property details, including:

• Square footage
• Number of household members
• Your personal information (e.g., credit score, marital status)
• Year the house was built
• Roof type and age
• Garage
• Your insurance claims history
• Property safety features (e.g., fire alarms, home security, sprinklers)
• Personal property you want to insure (e.g., jewelry, family heirlooms, antiques)

Beyond pricing and coverages, read reviews about the insurance company. Independent ratings by review agencies, like J.D. Power, can help you get an idea of their service quality.

Bundle Home and Auto

Bundling home and auto insurance (or another type of policy) can generally save you up to 30% depending on the insurance company.^[3] Homeowners that bundle benefit from additional coverages, savings and the convenience of multiple insurance policies housed under a single company.

Insurance companies that offer bundle discounts include Allstate (up to 25%); Amica (up to 30%); and Nationwide (Up to 20%).^[3][4][5]

Increase Your Deductible

Deductibles and monthly premiums typically have an inverse relationship — increasing your deductible will decrease your monthly premium (and vice versa). A homeowners policy with a $1,500 deductible, for example, should have a lower monthly premium than the same policy with a $500 deductible.

Your monthly premiums may be more affordable with a higher deductible — just know the trade-off is a higher upfront cost when you encounter a covered incident.

Leverage Your Renters Insurance Claims History

If you’ve rented for several years, your renters insurance history may score you a better deal on homeowners insurance. A claims history that is clear or minimal shows insurance companies that you’re a low-risk homeowner. Individuals that have filed numerous claims, on the other hand, may face higher rates to offset their increased risk profile.

Don’t Let Your Policy Lapse

When you let your policy lapse, you face increased risk and higher premiums when you buy a new homeowners insurance policy or reactivate your old one. Also, if a natural disaster completely wrecks your home, you take on the full financial burden of rebuilding and replacing your damaged possessions.

Be sure to keep up with your insurance policy’s monthly payments. If you ever have trouble, reach out to your insurer — you may be able to work out a payment schedule that works better for you.

First-Time Homebuyer Programs

Several programs are available to first-time homebuyers that can help with financing the home purchase or even funding renovation projects. This can be particularly useful for first-time homebuyers who may not have the cash on hand to make major home improvements or upgrades.

FHA Loans

Unlike traditional mortgages, FHA loans are backed by the Federal Housing Administration and require a lower down payment, typically around 3.5% of the purchase price.^[6] This can make it easier for first-time homebuyers to get into the housing market and start building equity. Additionally, FHA loans often have more flexible credit requirements, allowing borrowers with lower credit scores or less credit history to qualify for a mortgage.

Fannie Mae and Freddie Mac

Both Fannie Mae and Freddie Mac operate under a congressional charter that aims to provide liquidity and stability to the U.S. housing market. They do this by purchasing mortgages from lenders and packaging them into securities that are then sold to investors. Because of their size and influence, Fannie Mae and Freddie Mac can offer favorable terms to borrowers, including lower interest rates and more flexible underwriting guidelines.

HCV Homeownership Program

Administered by the U.S. Department of Housing and Urban Development (HUD), the Housing Choice Voucher (HCV) provides eligible low-income families with vouchers that can be used to offset the costs of homeownership, including the purchase of the home itself and closing costs. To be eligible for the program, applicants must meet certain income requirements.

HUD Section 203(k)

HUD Section 203(k) is a loan program especially helpful for those interested in purchasing a fixer-upper. This particular loan allows the borrower to finance the cost of repairs or renovations, including reconstructing the building, replacing utilities, replacing floors and major landscape work. There are certain requirements that applicants must meet to qualify for this program, including (but not limited to):^[7]

• Property must be a least one year old
• Rehabilitation costs must cost $5,000 minimum
• Total property value must fall within the FHA’s mortgage limit

Energy-Efficient Mortgage

An energy-efficient mortgage (EEM) is a type of mortgage that allows borrowers to finance energy-efficient upgrades, such as installing solar panels, upgrading windows and insulation, or replacing an outdated HVAC system, on top of their home purchase. By making these improvements, homeowners can reduce their energy usage and save money on their utility bills and potentially increase their property value.

Veterans

Veterans may be eligible for different mortgage programs, with the VA purchase loan program being among the most well-known. Backed by the U.S. Department of Veterans Affairs, this loan offers several benefits to eligible veterans, including no down payment requirements, lower interest rates, and more flexible credit requirements. Additionally, VA loans typically do not require private mortgage insurance, which can save veterans thousands of dollars over the life of the loan.

USDA

USDA loans are a type of mortgage that can be especially helpful for first-time homebuyers looking to purchase a home in a rural area. The loan program, which is backed by the U.S. Department of Agriculture, offers competitive interest rates and low down payment requirements, making it more accessible for borrowers with limited savings. To be eligible for a USDA loan, borrowers must meet certain income and location requirements, including purchasing a home in an eligible rural area.

Homebuyer Programs by State

Click on your state in the table below to access homeownership assistance programs in your state.

HUD Homeownership Assistance Programs by State
Alabama	Montana
Alaska	Nebraska
Arizona	Nevada
Arkansas	New Hampshire
California	New Jersey
Colorado	New Mexico
Connecticut	New York
Delaware	North Carolina
Florida	North Dakota
Georgia	Ohio
Hawaii	Oklahoma
Idaho	Oregon
Illinois	Pennsylvania
Indiana	Rhode Island
Iowa	South Carolina
Kansas	South Dakota
Kentucky	Tennessee
Louisiana	Texas
Maine	Utah
Maryland	Vermont
Massachusetts	Virginia
Michigan	Washington
Minnesota	West Virginia
Mississippi	Wisconsin
Missouri	Wyoming

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