Purchasing a home is a major achievement for many individuals. However, purchasing a property comes with a lot of responsibilities, including the need to secure homeowners insurance before closing on the house.
Homeowners insurance protects your property from unforeseen events, and it is mandatory in most cases. In this article, we will discuss why home buyers need to get homeowners insurance before closing on a home.
The Importance of Homeowners Insurance
When buying a home, it is crucial to shop around for mortgage loans and find a property that is suitable and priced fairly. Homeowners insurance is mandatory in most cases, and even if it is not required, it is crucial to get coverage.
There are two significant reasons why home buyers need to get homeowners insurance before closing on a home.
Mandatory for Mortgage Holders
Homeowners who use a mortgage to purchase a property must have homeowners insurance coverage in place, as required by lenders.
Lenders require insurance because they have a legal interest in the property, which serves as collateral for the loan. Lenders need to ensure that the property is insured so that they can foreclose and get paid back if homeowners default on the loan.
If the property is destroyed with no insurance coverage in place, the buyer could walk away, leaving the lender with a loan they can’t collect on. Lenders require insurance that would be sufficient to rebuild or repair the property if damaged by a covered peril.
Buyers must provide proof of insurance to get funds from a mortgage to close on a home, and canceling the policy later would allow the insurer to buy coverage on their behalf at an inflated price.
Advisable for Non-Mortgage Holders
Home buyers may not be required to purchase homeowners insurance if they don’t use a mortgage to purchase the property. However, it is not advisable to close on a house without insurance in place, even if it is not mandated.
The average price of a sold home is $535,800, which is a considerable sum of money that most people cannot afford to lose if something happens to the house before insurance is put in place. Homeowners can buy replacement cost insurance to ensure they don’t lose the funds they put down if they paid out of pocket for the property.
If a fire or vandalism happens, insurance would cover the cost (minus any deductibles). Homeowners should start shopping for insurance early on to find the right coverage from an affordable company and be ready to protect their property from day one of ownership.
Find the Right Coverage
Homeowners should shop around for the right coverage from an affordable company. The best time to start shopping for insurance is during the house-hunting phase. Many home buyers make the mistake of waiting until the closing process to find insurance, which may result in them settling for a policy that doesn’t provide adequate coverage or is too expensive.
Homeowners should consider the location of the property, the age and condition of the home, the materials used to build the house, and other factors that could affect the insurance rate. It is also essential to determine the type of coverage needed, as well as any endorsements or riders that could enhance the policy. Homeowners should also compare rates from several insurance companies and get quotes from at least three providers to ensure they are getting the best deal.
So, homeowners insurance is essential for anyone looking to buy a property, even if it is not mandated. Home buyers must secure insurance before closing on a home to protect themselves and their lenders from potential financial losses.
To find the right coverage, homeowners should shop around and compare quotes from different insurance companies, so they can make an informed decision and be ready to protect their property from day one of ownership.
