This is part of an ongoing series where we address common questions among home buyers in Washington. Today’s question deals with property insurance: Is homeowners insurance required when using a mortgage loan in Washington State?
There is no law that requires you to have home insurance when buying a house. But if you’re planning to use a mortgage loan to finance the purchase, your lender will likely require you to have a basic home insurance policy in place before closing.
Home Insurance Usually Required for Mortgages in Washington
When a mortgage loan is used for the purchase of a home, both the buyer and the lender have something at stake. So it’s in everyone’s interest to protect the valuable asset. That is why homeowners insurance is typically required for Washington home buyers who use mortgage loans to finance their purchases.
Once you’ve paid off your mortgage loan, you can choose whether or not you want to keep your property insurance policy in place. In most cases, it makes sense to do so. When you consider the relatively low cost of homeowners insurance compared to the value of the property itself, you can see that it’s a smart investment.
If you buy a condominium in Washington, the condo board might require you to purchase condo insurance before you can finalize the sale. The rules and requirements can vary for condominium projects, compared to a regular detached home. So be sure to look into the condo insurance requirements if you plan to buy into a condominium in Washington State.
How Much Do These Policies Cost?
When you take out a homeowners insurance policy in Washington, you’ll be able to choose the amount of coverage you want and also the deductible. The deductible is the amount you must pay toward a claim before the insurance company will cover the rest. This, along with the extent of the coverage, will determine how much you pay each year in insurance premiums.
There are other factors that can determine your insurance costs as well. These include the home’s features and characteristics, the location, and protective devices such as smoke detectors and burglar alarms.
According to several sources, the average cost of homeowners insurance in Washington State is less than $1,000 per year — below the national average. But it can vary.
Are the Premiums Included in the Mortgage Payment?
Homeowners insurance premiums in Washington State are usually escrowed for future payment. And these payments are typically included within the borrower’s monthly mortgage payments. So when you make your mortgage payment each month, you are also paying money toward your homeowners insurance policy. This is usually how it works.
In fact, there are several things that go into your monthly mortgage payment. They are represented by the acronym PITI. Here’s what those letters represent:
- P: Principal amount that was borrowed for the mortgage loan
- I: Interest rate applied to the loan
- T: Taxes incurred by the homeowner (i.e., property taxes)
- I: Insurance premiums for the homeowners policy
To recap: There is no state law that requires you to have home insurance when buying a house in Washington. But chances are you will be required to have a homeowners policy in order to use a mortgage loan. The cost of this policy can vary due to a number of factors, including the deductible amount and the extent of the coverage. In Washington, homeowners insurance premiums are typically rolled into the monthly mortgage payments.