You may be wondering about homeowners insurance while you shop for the house of your dreams. How does homeowners insurance work? Is homeowners insurance necessary? Do I need homeowners insurance before closing? And if so, at what stage in the house buying process do I purchase it? These are all logical questions, and lucky for you we have the answers!
Most mortgage lenders will require homeowners insurance even if you don’t plan on moving in immediately after closing. Find out when you need homeowners insurance by reading these frequently asked questions.
Is Homeowners Insurance Mandatory?
There are no laws requiring homeowners to have insurance. However, your lender will require you to get home insurance coverage prior to approving your mortgage loan. Home insurance covers mortgage lenders in the event that your home experiences a catastrophe such as fire, lightning, a tornado, or another covered event.
Your homeowner’s insurance should be in force at least three days prior to your closing date since the mortgage company will usually require evidence of coverage at this time. Due to this, you should commence the home insurance comparison process no less than a few weeks (2-3) before your closing.
Although homeowners insurance isn’t a requirement for homeowners who own their houses outright, they should still get it. As most new homeowners cannot afford to buy their new home outright, a mortgage loan will be necessary. Once you’re approved for a loan, mortgage lenders require homeowners insurance to protect their investment. Should your home suffer significant damage or be destroyed, the lender is protected for the mortgage amount. Lenders can use it to recover losses.
Homeowner’s Insurance: What Type is Right For Me?
In general, your homeowner’s insurance plan will usually include coverage for:
- The Home: In the event of a covered loss, homeowners insurance coverage can assist in the repair or reconstruction of your house and possibly other structures on your property, such as patios, detached garages, and storage sheds.
- Your Possessions: If you have a covered loss, a homeowners insurance policy can compensate you for replacing your possessions, such as furniture or electronics.
- Temporary Living: If your home needs to be repaired or rebuilt, then your homeowner’s insurance policy may provide coverage for additional living expenses (ALE).
- Liability: Guests can sue you for slipping on your walkway. In this case, your homeowner’s insurance will help cover associated medical bills, legal costs, and any court awards.
It is normal for homeowner’s policies to exclude coverage for earthquakes or flooding. Your lender may require you to purchase separate earthquake or flood insurance depending on where your home is located.
Helping you choose the right insurance and coverage is our mission at Guided Solutions. Request a free home insurance quote today!