First-Time Homebuyer's Guide to Homeowners Insurance: What You Need Before Closing

Buying your first home brings a long list of decisions, and homeowners insurance is one you cannot skip if you have a mortgage. Lenders require proof of coverage before you close. Starting early gives you time to compare options and avoid a last-minute scramble. This guide explains the process for first-time buyers. Requirements vary by lender and state.

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Why Your Lender Requires It

A mortgage lender has a financial stake in your home. To protect that stake, lenders require homeowners insurance that covers the property for at least the loan amount or the rebuild cost, naming the lender on the policy. Without proof of coverage, you generally cannot close.

When to Start Shopping

A reasonable timeline is to begin shopping once your offer is accepted, and to have a policy chosen before your closing date. Some buyers ask for quotes even before making an offer, since a home's age, roof condition, and location can affect how much coverage costs, or whether some insurers will offer it.

What You Will Need to Provide

• The property address
• The year the home was built, and updates to the roof, electrical, plumbing, and heating
• The size of the home and its construction type
• Your purchase price and your estimated closing date
• Your lender's name and mortgage information
• Information about the protection systems in the home, such as alarms or sprinklers

How Much Dwelling Coverage Do You Need?

Insure the home for the cost to rebuild it, not the price you paid. Land value is not part of rebuild cost, and market prices do not track construction costs. Ask the insurer how they estimated rebuild cost. Our guide to what homeowners insurance covers explains the other parts of a policy.

Check Flood Risk

Standard policies do not cover flood. If the home is in a high-risk flood zone and your mortgage is federally backed or regulated, your lender may require flood insurance. Even outside those zones, flooding can occur. You can look up a property's flood risk through FEMA and ask the lender or insurer about flood coverage.

Choosing a Deductible

A higher deductible usually lowers the premium but increases what you pay after a claim. Pick an amount you could afford to pay on short notice. Ask whether wind, hail, or named storms carry a separate or percentage deductible in your area.

Mortgage Escrow

Many lenders collect part of your insurance premium with each mortgage payment and pay the insurer for you from an escrow account. Ask how this will work so you know what to expect in your monthly payment.

Documents to Gather for Closing

• The policy declarations page or binder showing coverage and the effective date
• The insurer's contact details
• Proof that the first premium has been paid or will be paid at closing

Mistakes First-Time Buyers Make

• Waiting until days before closing to shop
• Insuring for the purchase price instead of the rebuild cost
• Overlooking flood and other exclusions
• Choosing a deductible they cannot afford
• Skipping a review of the home inventory and valuables

After You Move In

Make a home inventory, review your coverage once a year, and update your insurer if you renovate. Our guide on filing a claim explains what to do if you need to use your policy.

Sources and Further Reading

• Consumer Financial Protection Bureau: Owning a home
• FEMA: Flood insurance