You probably don’t need to be reminded that buying a home is one of the biggest investments you’re going to make — no pressure. And just like you’re required to insure your car to get it on the road, you’re also going to be choosing homeowner’s insurance before a mortgage company will bring your loan to completion.
Your realtor may have given you a stack of pamphlets or a list of insurance websites by now, but take a deep breath before the panic sets in. Choosing homeowner’s insurance, just like choosing any major insurance policy, can look intimidating at face value.
But armed with the right questions to ask, some might even call it easy.
Bill Redfern, president, founder, and CEO of A Buyer’s Choice Home Inspections, says asking the right questions early on is key. During the house-hunting phase and before making an offer, Redfern tells buyers to take time to collect their thoughts. “Create a list of important questions to ask. Questions such as — are smoke detectors in the right locations? Has this home had a radon test recently? When was the last time this home had a mold inspection? Has the home had any recent termite infestations?” Many of these questions highlight issues a seller will need to address before closing. Crossing potential problems off the list could also slash the price on your homeowner’s insurance policy.
When choosing homeowner’s insurance, ask your agent this
You’ve already compared and have likely decided on a mortgage lender, which is why you’re in the market for homeowner’s insurance. This same comparison-shopping can be used to get quotes from and assess different insurers based on the types of coverage they offer.
If you haven’t found a trustworthy lender yet, that part’s easy. Get in touch with us and get prequalified online.
Asking a few important questions from the get-go can tell you what you’re looking for right away so you don’t waste time with the wrong agent:
- How much coverage do you provide for my personal items?
- Do you offer a discount for protective devices?
- Can you offer a discount for non-smokers?
- Do you offer a discount for new homes or renovations?
- How much will I save each year with a higher deductible?
- Is your claims department local?
- Will my coverage grow with the value of my home?
- If I choose you to insure my home, will you provide a discount on my auto insurance?
- In the event of a total loss, will there be enough coverage to replace my belongings and rebuild?
- Do I need to add on flood insurance?
Question number 10 is a biggie, according to the National Association of Insurance Commissioners.
A standard homeowner’s insurance policy won’t cover floods or earthquakes, though optional insurance policies are available for both disasters. If you’re in a high-risk area for floods or earthquakes, these policy add-ons are worth the extra money.
Disaster assessment before buying could help you select a better insurance policy. Michael Gottsacker, landlord and Senior Manager of Communications at Russell Herder, learned this recently while selling his house. From his experience, Gottsacker recommends that buyers have the sewer line inspected prior to making an offer and getting insurance. “That is the sewer line from where it exits the house all the way to the street,” Gottsacker says. “My buyer made the sale contingent on a satisfactory sewer line inspection (something as a buyer, I’d never have thought of). He agreed to pay the $150.00 inspection fee. It turns out the line had a sag in it in, which when debris accumulates could cause backups, etc. So, I’m out $5,000 for the work, and the buyer gets a new sewer line!”
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Choosing homeowner’s insurance: How much is your new home worth to you?
Here’s where it comes full-circle — the whole purpose of choosing homeowner’s insurance and picking the best policy for the price is to protect the total cost of your investment. Most lenders will require at least one years’ worth of homeowner’s insurance before closing, but we’re going to let you in on our best-kept secret: Don’t just insure your home for the purchase price. Insure it for the amount it will take to rebuild and replace it, as we mentioned in question number nine.
What does a good lender look like? We serve our customers and do what it takes to meet the agreed-upon closing date.
When thinking of your home’s true value, Timothy Wiedman, certified financial planner and retired Personal Finance instructor, tells buyers to look beyond curb appeal. “’Curb Appeal’ is just that: the initial impression that gets potential buyers interested in a property. Smart sellers and their realtors often go to great lengths to make a house as appealing as possible, inside and out. But whether a house has been ‘lived in’ for five years, 10 years, 40 years, or 90 years, normal wear and tear will have occurred.” Further, building codes and the specific types of materials and methods used in construction may have changed dramatically since a given home was built, Wiedman explains.
Getting a good home inspection prior to closing can uncover what might be hidden from view.
(“Think pipes, wiring, roofing, insulation, foundation cracks, and termite damage,” Wiedman says.) A standard home inspection may cost about $325 in some areas, providing a prospective homeowner with a detailed report filled with useful information. Before buying, an inspection might steer a buyer away from a property that could later require costly repairs. Wiedman says it can also serve as a negotiating tool and result in a price reduction. Even for a home that gets a reasonably clean bill of health, an inspection report can give a clearer picture of the actual value of a home — and how much it’ll cost to rebuild. A number of insurance companies also require an inspection report to process a homeowner’s insurance application.
Researching insurance companies and home inspectors takes time — with the ultimate goal being to find an insurer and an inspector that are the right fit. Redfern advises buyers to do their research. “Ask your friends, co-workers, realtor, lender, and the Internet for referrals and professionals in the area. Hire the professionals who will help you determine a more accurate price,” he says.
When choosing homeowner’s insurance, remember this:
- Shop early. Don’t wait until a week before closing to finalize your policy as this could delay your loan closing or cause you to rush into a policy that’s not right for you.
- Count the cost. The cost to rebuild may be more than your mortgage loan amount, and this is the number you want your homeowner’s insurance to reflect.
If the numbers get confusing, we’re always here to help. Contact your lender to make homebuying easy.
For educational purposes only. Please contact your qualified professional for specific guidance.
Sources are deemed reliable but not guaranteed.