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Purchasing a home can bring up a lot of questions, especially if this is your first time home shopping. For instance, many buyers often wonder if they need homeowners insurance when buying a home, and the answer is it depends.
For those who are thinking about buying a house in the near future, they are probably in the process of tabulating up all of their expenses. One of the common expenses is home insurance. Even though home insurance is certainly recommended, is it required? There are many situations where it is required. At the same time, even when it is not needed, it is still a good idea. When it comes to homeowners’ insurance, there are a few important points to keep in mind.
Regardless of how you pay for your new home, there is no getting around the fact that Home Insurance is required to buy a house. If you are financing the purchase, the lender will require a homeowners policy to protect their investment in the house.
Before getting into why a homeowners policy is required, it is important to know the difference between mortgage insurance and homeowners. That said, mortgage insurance is basically assurances for the lender against a possible loan default by the borrower. On the other hand, homeowners insurance protects the homebuyer against hazards, acts of God, and so on.
For home buyers that need to take out a mortgage to purchase a home, most lenders are going to require home insurance. This is because the lender wants to make sure that they are going to get their money back. Remember that the lender is taking a significant amount of risk as well. They want to make sure that they are going to get repaid for their loan. If something happens to the house, and there is no home insurance policy, then they are going to lose a significant amount of money. Therefore, for those who are working with a lender, home insurance is probably going to be required.
In some situations, people could be looking at buying a home without the help of a mortgage lender. Those who are purchasing a home in cash are not going to have anyone telling them that they need to get home insurance. At the same time, it is still a good idea. For most people, the most valuable investment they own is their house. They want to make sure it is protected. After all, people protect their cars with car insurance. Cars usually cost a fraction of the price of a home. Therefore, it doesn’t make sense to go without home insurance.
Ideally, you should seek one or two estimates BEFORE making an offer on the house. In the past, homebuyers typically obtained insurance through an agent before closing. Now, insurance companies want to inspect the home before committing to a policy.
People need to make sure they get the right home insurance policy. The home insurance policy has to cover situations where a home could be completely destroyed. This includes fires, floods, severe storms, and even situations involving burglary. Compare a few options and make sure to get the right home insurance policy.
Despite being customizable, a homeowner’s policy generally covers damage to the home, personal liability, and hotel or home rental costs associated with a repair. One of the most common Homeowners Insurance requirements is that damage to your home has to be caused by fire, acts of nature or God, vandalism, or other covered disasters. In the event that the damage is due to these homeowners insurance requirements, then having a policy means you will be compensated in order to repair or completely rebuilt your home.
However, Destruction due to floods, earthquakes, and poor home maintenance is typically not covered and may require separate riders for that type of protection. Note, freestanding structures on the property (garages, sheds, etc.) will likely need to be covered separately. Nevertheless, you can also get “off-premises” coverage for your valuables. Of course, there is usually a limit on how much you will be reimbursed under your homeowners’ policy.
In regard to personal liability coverage, homeowners even cover your pets. So, if your dog bites your neighbor, regardless of the location the incident took place, your insurer covers their medical expenses. Similarly, if your kid breaks a neighbor’s window, then you can file a claim to reimburse your neighbor. Moreover, thanks to your policy, if someone is injured on your property and sues for pain and suffering or lost wages, then you will be covered for that as well.
Yet another nice thing about homeowners insurance is that, in the event that you find yourself forced out of your home, your hotel costs are covered. Here, while waiting for your home to become habitable again, your insurance will cover rent, hotel room, meals, and other incidental expenses you incur. That said, you should keep in mind that policies impose strict daily and total limits. Nevertheless, you can expand those daily limits if you’re willing to pay more in coverage.
As you are likely aware, all insurance is not created equal. In fact, there are really three different types of homeowners insurance–actual cash value (ACV), replacement cost, and guaranteed/extended replacement cost or value. ACV covers the cost of the house plus the value of your belongings after deducting depreciation. In contrast, replacement value policies cover the actual cash value of your home and possessions without the depreciation deduction. With the latter coverage, you would be able to repair or rebuild your home up to the original value.
Finally, the most comprehensive coverage is the guaranteed (or extended) replacement cost/value policy. Here, this policy pays for the entire cost to repair or rebuild your home, even if it is more than your policy limit. Note, certain insurance companies do offer an extended replacement (more coverage than you purchased). However, you will typically find a ceiling with extended replacement coverage–20 percent to 25 percent above your policy limit.
Are you curious about mortgages, or are you ready to apply for one to buy a home? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington, serving the entire state, as well as Oregon, Idaho, and Colorado. We offer many mortgage programs to buyers all over the Pacific Northwest and have been doing so since 1992. Contact us today with any questions you have about mortgages.