For first time buyers, purchasing a new home can be both exciting and overwhelming. Due to the costs and procedures involved in closing your first home, the homeowner’s insurance process gets overshadowed and the buyer usually gives minimal thought to it. Although your homeowners’ insurance policy should not be a reason to reject a certain house, it does play a crucial role in determining whether or not to purchase the house. Below are some tips to guide you when purchasing a new home.
Compare Coverage with at Least Three Companies
When buying a new home, your mortgage lender will need homeowners insurance. In some areas, you might be required to purchase additional insurance. Before coming to an agreement with any insurance company, ensure that it offers great customer service. Compare at least three insurance companies and select the one which suits your needs best, or you can let us do the work for you. Coastal Insurance Solutions will get you 10 free quotes from top rated insurance companies.
Escrow Mortgage Payments with Insurance Payments
Like most homeowners, you will probably combine your monthly insurance payments and taxes into your mortgage payment. Your lender will pay your yearly insurance premiums from your escrow account. This option is preferred by the lenders as they know that their property is well protected and that your insurance premiums are being paid. When purchasing your first home, bring with you the insurance binder and the money to pay for the first year premium. Many lenders will require a paid in full binder, also known as proof of insurance before they will clear the loan to close.
Get Adequate Coverage for Your Home
Most new homeowners end up paying for more coverage than they need. To avoid this, you need to know which level of coverage suits you best. Below are the levels of coverage that exist;
• HO-2-This is a broad policy which protects against the 16 perils named in the policy.
• HO-3-This policy is broader compared to HO-2, it protects against all perils apart from those excluded by the policy.
• HO-5-This is a premium policy that protects against all perils apart from those excluded by the policy. It targets new and well-maintained homes.
• HO-6-This insurance policy targets condominiums/co-ops, it includes liability coverage, personal property coverage, and improvements coverage.
• HO-7-This policy is similar to HO-3 policy but applies to mobile homes.
• HO-8-This policy targets older homes and has similar coverage to that of HO-2.
While evaluating potential homes, evaluate the risk involved with each. If the house is in a high-risk flood area, you might be required to have an insurance policy that will cover flooding. If the home you are considering to buy has a trampoline on the property, the amount of home insurance you pay might increase.
Understand Your Insurance Policy
Before settling on any policy level, make sure you fully understand the insurance terms and conditions. Some of the commonly misunderstood words in an insurance policy include;
Premium – A premium can be defined as the price paid for insurance. Premiums can be paid either annually or monthly.
Deductible – Deductible refers to the amount of money you pay upfront before insurance begins; the lower the deductible, the higher the premiums and vice versa.
Liability Coverage – This is the coverage that pays medical and/or legal fees in case someone gets hurt in your property due to negligence.
Replacement cost – This is the cost of replacing your personal property/dwelling. While most standard policies offer replacement cost, you need to ensure that the maximum amount they offer is high enough.
Personal Property – Also known as the contents of your home; personal property is the tangible property such as furniture that you have in your home.
Actual Cash Value – This is a type of policy which gives you the current cash value inclusive of depreciation for your home. Many lenders will require that you eliminate depreciation by adding an endorsement called the “replacement cost” endorsement. The replacement cost endorsement eliminates depreciation and gives you the amount it would cost to rebuild or repair your home with no deductions for depreciation.
Riders – Riders are policies which to cover specific items, they are added to the overall insurance policy. If you own expensive antiques, artwork or jewelry, you should cover them under a rider because they are internally limited under the personal property coverage section.
Home buying process can be quite intensive and even veteran buyers might miss some important factors. It is therefore imperative to take your time, ask a lot of questions and be on the look-out for potential problems.
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Home Insurance Tips for the First Time Home Buyer