Homeowners Insurance for First Time Homebuyers

Before you can officially enjoy the excitement of buying your first home, you'll need to obtain homeowners insurance. While 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 new to home insurance, you may have tons of questions. Our first-time homebuyer insurance guide will simplify deductibles, premiums, coverages, and more so you can focus on what's important — like choosing between an eggshell or satin finish for your new wall color.

The Cost of Home Buyers Insurance

Premiums — the average price for a homeowners insurance policy — on average cost $1,251 annually ($104.25 per month), according to a 2018 report by the National Association of Insurance Commissioners. Several factors can affect your rate, including:

  • Location: Homeowners insurance rates can vary by state, county, and neighborhood.

  • Home value: 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 lower monthly premiums. Conversely, a lower deductible typically means higher premiums.

  • 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.

How To Determine the Amount of Home Insurance Coverage You Need

Generally, home insurance should cover the costs of rebuilding your home — this is called dwelling coverage. The average construction cost of a single-family home was $114 per square foot in 2017, according to the National Association of Home Builders. 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.

Generally, home insurance should cover the costs of rebuilding your home — this is called dwelling coverage.

Your insurance company will determine the minimum coverage required based on the factors mentioned earlier. Your mortgage lender may also 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.

We've summarized the most common types of home insurance coverage below:

Common Coverages in a Homeowners Policy

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 loss 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 To Buy Homeowners Insurance

Start shopping for homeowners insurance at least two to four weeks before your closing date — the sooner the better. Failure to secure homeowners insurance on time can delay your closing or cause your lender to buy an overpriced policy on your behalf. 

Failure to secure homeowners insurance on time can delay your closing or cause your lender to buy an overpriced policy on your behalf.

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.

Compare Rates From the Top-Rated Carriers

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

  • Shop Around and Do Your Research

  • Bundle Home and Auto Insurance

  • Increase Your Deductible

  • Leverage Your Renters Insurance Claims History

  • Don't Let Your Policy Lapse

  • Pay attention to your home inspection

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

  • How many people will be living at the house

  • 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 AM Best and Moody's, 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. 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%); Nationwide (Up to 20%); Wawanesa (20%); and Progressive (4% to 20%, on average).

Increase Your Deductible

Deductibles and monthly premiums typically have an inverse relationship — higher deductibles=lower monthly premiums (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. If a natural disaster completely wrecks your home, you take on the full financial burden of rebuilding and replacing your damaged possessions. Also, when you reactivate your policy, your insurance company may charge a higher premium due to the insurance coverage gap.

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 Mortgage Insurance FAQs

What insurance do I need for first-time buyers?

Standard homeowners insurance covers the structure of your home, personal belongings and liability protections (e.g., somebody becomes injured while on your property). Depending on your insurer and home, you may need additional coverage against specific perils, like flood or earthquake damage.

Do I need homeowners insurance before closing?

Yes, your mortgage lender will require proof of homeowners insurance before closing the loan.

How long before closing should I get homeowners insurance?

Give yourself at least two to four weeks before your closing date to shop around and compare home insurance rates.

Is homeowners insurance required by law?

Unlike auto insurance, there is no law requiring home coverage. Mortgage lenders, however, will almost always require you to obtain homeowners insurance to close the loan and protect their investment.

What happens if I don't have home insurance?

If everything in your home is destroyed after an earthquake and you're not covered by insurance, there is no financial "safety net" to cover the cost of your damages and losses. You risk facing the full cost of rebuilding your home and replacing your damaged possessions on your own.

How much is home insurance a month?

Insurance costs, on average, $1,251 annually according to a 2018 report by the National Association of Insurance Commissioners. To secure a favorable first-time homeowners insurance rate, consider bundling home and auto. Refraining from filing unnecessary claims and avoiding coverage lapses can help keep your premiums low.

Does homeowners insurance cover business use?

No, homeowners insurance typically won't cover business-related damages and losses, such as a fire caused by business equipment. Remote workers or home-based business owners should consider business personal property insurance to stay protected.

A Smarter Way to Shop For Home Insurance

Insurance companies offer so many different rates, coverages, and incentives — where do you start? With your closing date approaching, you could take the old-school route of shopping for insurance one website and one phone call at a time. Or, you could shop smarter the first time around with SmartFinancial's side-by-side comparisons of 200+ insurance company partners. Enter your zip code below to instantly receive your free home insurance quote today.

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