If you plan on paying off your home in cash, you technically don’t need home insurance before closing; however, if you’re like the rest of us and need to finance your new home, your lender will most likely require some amount of homeowners insurance before settling on your mortgage. You’ll need your insurance document at the closing, so it’s important obtain it well in advance. When purchasing your home insurance policy, you are required to list both the buyers and the lender as the insured. It’s not uncommon for your lender to ask for proof that you have paid one year’s worth of coverage before closing.
Why Do I Have to Pay For a Year’s Worth of Coverage?
As with all financed items, your lender holds a lien on your home until you’ve paid off your mortgage. Holding home insurance allows lenders to protect what is technically theirs in the event that something bad happens.
A year’s worth of home insurance can be a somewhat hefty upfront cost – but here’s the silver lining: paying your premium before closing allows you to exclude that cost from your other closing costs. By spreading out costs, it saves you from having to pay one large lump sum.
How Much Coverage Is Required?
How much coverage you need depends on your lender, so it’s important to have that conversation before purchasing a policy. Generally, you’ll need enough to cover the cost of rebuilding your home (worst case scenario). Depending on your situation, you might also want to look into personal property coverage, liability insurance and housing and living expense coverage during major repairs.
Searching for Home Insurance?
If you’re purchasing a new home and are in the market for home insurance, give the team at Capital Insurance a call. Our expert team will help you find the right level of coverage you need for your new home.
