Buying a new home is a multi-step process that involves many moving parts. To help, we’ve put together this guide that seeks to answer some of the most common questions we get about homebuying, who needs homeowners insurance, and what types of policies are available.
Buying a new home
Before we dive into homeowners insurance information, let’s talk about buying a house to insure first! Buying a new home is an exciting chapter in anyone’s life, whether you’re recently married and buying your first home together or a seasoned homeowner. But, it can also be a challenging experience, from understanding all the steps that come with it to the competition you might face when making offers on houses. So, to get you off on the right foot, we have a few tips we think will be useful insights for first time homebuyers (and maybe a handy refresher for the pros).
Start saving early
This should come as no surprise, but purchasing a home is usually the single largest purchase you’ll make in your lifetime. But don’t let that intimidate you–all it means is the sooner you can start saving up, the better!
Understand the full scope of the costs of buying a house
While some people are wealthy enough to do an all-cash offer, most can’t afford to buy a house in one singular purchase. It’s much more common (and usually more financially savvy) to finance a home purchase and take out a mortgage loan, which is usually comprised of several parts. The most common aspects to understand are:
- Your down payment
- Private mortgage insurance (PMI) if you’re doing a down payment of less than 20%
- Closing costs
- Your monthly mortgage payment
- Property taxes in your area
- Move-in expenses
- And, of course, your homeowners insurance costs.
NerdWallet has a great mortgage calculator that factors in all these costs (minus move-in expenses) to calculate what you can expect your average monthly payment to be for everything.
Understand home inspections
Getting a home inspection is a crucial part of buying a house. It’s usually conducted after your offer has been accepted on a house, but it’s not unheard of for buyers to pay an inspector to come with them to a showing to gain early insight on the condition of the home they’re considering. While it’s easy to say that an inspector will look at “everything”, it’s not a bad idea to understand just what “everything” means, and what questions might be good to have ready for them.
Hoping for more tips on buying a new home?
Lucky for you, we’ve put together a list of tips for first time homebuyers. With these pointers in your back pocket, we promise you’ll have a leg up on the competition out there. Then, once you’ve sealed the deal on your new home, it’s time to look at buying a homeowners insurance policy.
What is homeowners insurance?
Homeowners insurance provides financial relief in the event of damage to your home, property, or personal belongings. Home insurance provides coverage in events like fire, smoke, theft, vandalism, or other damage. Most standard policies also cover personal belongings like furniture, electronics, and other possessions. Finally, home insurance also exists to pay out homeowners if they’re held responsible for any accidents or injuries on their property. Without homeowners insurance, homeowners are responsible for costly out-of-pocket expenses or repairs.
When do you need to purchase homeowners insurance?
Homeowners insurance isn’t required by law. But if you have a mortgage, many lenders require insurance before they agree to finance your purchase. Plus, many homeowners agree that their home is the most valuable possession and personal asset, so why wouldn’t you choose to insure your largest investment?
Generally, homeowners need to prove they’ve paid one full year of premiums on their homeowners insurance at closing. And because you have a month or more between signing a contract and closing on your home, it’s wise to start shopping around as soon as you sign a contract to buy your home. That way, you can compare quotes and ensure your policy is in place before you close on your home.
What types of coverage can you purchase?
There are technically eight types of homeowners insurance. However, because some types of insurance are highly specialized—or even obsolete—it’s important to know which type meets your needs. Rather than review all eight, let’s take a look at the most popular option.
HO-3 insurance policies are considered the most standard and almost every insurance company offers them. These policies cover the physical structure of your home on an open-perils basis, meaning that any loss that’s covered is not explicitly excluded from your policy. Rather than name every peril covered, HO-3 includes all exclusions, including earthquakes, war, nuclear accidents, landslides, and mudslides. Generally, HO-3 is a viable option for most types of homebuyers. In fact, of the approximate 85% of homeowners who have home insurance, 78% of those are HO-3 policies.
How much coverage do you need?
The amount of insurance you need depends on several factors, including the current market price for your home. While insurers generally provide recommended coverage limits, know local construction costs and the square footage of the structure come into play. Other details — including type of exterior, style of house, number of bedrooms/bathrooms, roof materials, and more — also influence your coverage. Additionally, it’s important to consider if your home is up to code and the age of your home.
Homeowners insurance through Elephant is based on Replacement Cost Coverage—or, the amount required to repair or rebuild your home with similar materials. This coverage pays up to 100% of your home’s coverage limit. Plus, you can also purchase different amounts of coverage based on how much it would cost to rebuild your home.
How to save on homeowners insurance
Of course, there are steps you can take to lower your home insurance premiums. For example, installing security features can help lower costs. Similarly, you can disaster-proof your home by strengthening your windows, roof, and other features of your home. Ultimately, these are win-win situations. In addition to safeguarding your home, you may end up saving money
With Elephant Insurance, you can get homeowners insurance quotes that fit your unique needs. You can also bundle and save on your premium. This means that you can combine auto insurance—and perhaps even term life insurance—as one package. By bundling these payments together, homeowners generally save a significant amount of money.
How to protect your home
Once you’re an insured homeowner, protecting your home and preventing damage will likely be a top priority for you. And as the saying goes, you should always expect the unexpected as a homeowner. Damage to your home and possessions can come in all kinds of forms, from fire damage from a dinner gone wrong to being the victim of a breaking and entering incident. We know that sounds sort of alarmist, and the truth is most likely you’ll never experience these situations! But just to be extra cautious, we put together a homeowners safety guide last holiday season that has all kinds of tips on how to avoid some common concerns.
How to get started
Getting a quote online is fast and secure, and it only takes a few minutes. To start, simply take an inventory of what you own. Once you get a general idea of how much coverage makes you comfortable, you can get a quote that fits your needs. Let’s get started today!
Article last updated on June 25th, 2023 at 8:19 pm
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