When you obtain a mortgage to purchase a home, you have to buy homeowner’s insurance for it. Don’t leave that to the last minute, or it can delay your home purchase.
Homeowner’s insurance may help to repair or replace your home and belongings if they are damaged by certain perils covered by your policy.
You’ll need to reach out to a homeowner’s insurance agent and choose a policy that, at minimum, covers the amount you’re financing. It will need to include replacement cost coverage. The maximum deductible (the amount you have to pay before the insurance company will start paying) is 5% of the policy face value.
Do this early, because insurance agents have a procedure they need to follow, and it can take up to two weeks. If you wait too long, it can delay your home purchase.
In addition, your home financing provider will need to know how much your insurance premium will cost. That’s because this premium is included in the debt-to-income calculation that your home financing provider is using to qualify you for home financing. If your policy is too expensive, it can mean you won’t qualify for home financing. So contact an insurance agent and get a policy as soon as possible, and give it to your home financing processor to avoid last-minute problems.
Also consider buying flood insurance. If you’re in a flood zone, flood insurance is required. Even if you’re not in a flood zone, it’s a good idea to buy at least a small amount of flood insurance, because many homeowners insurance policies don’t cover any water damage. Homeowners often find this out the hard way after a tornado or hurricane.
If you’re buying a condo, reach out to homeowners association and get a copy of the master insurance policy. If it doesn’t cover the interior of your unit, you will need to obtain what’s known as a HO6 insurance policy that covers the inside of your condo. This only has to cover 20% of the appraised value of your condo. The faster you get the master insurance policy, the sooner you will know if you need an HO6 policy, and you can prevent delays.