Purchasing homeowners insurance before closing on your home
Because of all the excitement that accompanies the purchase of new home, you can easily find yourself forgetting crucial details such as homeowners insurance. But most likely you will not be able to finalize your mortgage until you insure your new house. Read on to learn why.
Must I buy home insurance before I close on my new home?
In theory no, especially if you are buying your house in cash.
However, if you are like most people and you are being financed, your lender will most likely need you to buy some insurance before the mortgage is settled. Usually you will be required to show evidence that you have bought coverage for one year before the lender thinks about closing.
Just like what happens when you lease or finance a car, the lender has a lien on your home until you finish paying your mortgage. In order to protect their property, lenders frequently require you to buy financial protection through a home insurance policy in case an unfortunate incident occurs.
What level of coverage do I require?
The amount will depend on the lender’s requirements, but they will normally want you take out sufficient coverage to cater for the rebuilding costs of your home (at the minimum from the ground up) in case a disaster happens. There are also a number of additional factors to take into account.
A typical homeowners insurance policy commonly protects you from risks such as:
- lightening and fire
- damage caused by windstorms and hail
- vandalism and burglary
- damage caused by smoke
- falling objects such as tree branches
- destruction arising from the weight of snow, ice or sleet
- frozen heating, plumbing, air conditioning and other systems in the home
- vehicles and aircraft
- riots or civil unrest
Benefits of paying homeowners insurance in advance during closing
Because the majority of lenders have a tendency of asking borrowers to prepay home insurance for one year before the borrowers are allowed to close the mortgage, it is useful to find out how this sometimes huge upfront cost helps you as a borrower.
When you pay your homeowners insurance premium in one go-prior to closing-this enables you to minus the premium from the closing costs which normally include lender plus other fees that you are required to pay on top of the down payment. Usually, closing costs are paid in a single lump sum.
Moreover, you can opt (or be required) to open an escrow account, subject to your mortgage agreement. This helps to prevent spending huge amounts of money to pay for home ownership costs in one go. Basically an escrow is a type of savings account that is intended to assist you to pay your mortgage homeowners insurance and property taxes using smaller, regular installments. The lender normally handles payments from the escrow account, and this reduces the stress of financial management for you.
Purchase dependable homeowners insurance through BRC
We can assist to remove some of the stress involved in the house-buying process by helping you to obtain coverage for your home well before the time of closing.