Should I Get Homeowners Insurance Before Closing on a House?

Homeowner's Insurance Before Closing Malhotra and Assoc
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Buying a house is one of the biggest investments you can make for you and your family. If you’re in the market for a new house, it’s definitely a stressful experience. In this article, we’ll help you understand when you might need to start considering homeowners insurance during the purchasing process and discuss how to protect one of the most important investments you’ll ever make! Speak with one of our expert insurance agents in Ohio, Maryland, West Virginia, and Indiana today to learn more about the different types of coverage to protect your investment.

Why do I need homeowners insurance?

Homeowners insurance helps to protect your house against named perils and natural disasters. It helps to protect your asset against liability and also provides coverage in case someone steals property from your home. As part of your new home closing process, you’ll need to provide proof of a homeowners insurance policy covering your home. Why is this necessary? Although you will most likely put a down payment on your new home, your lender is putting up most of the money to purchase the home. Homeowners insurance helps to secure that purchase in the event of a loss or a natural disaster. If your home was lost in a fire or natural disaster and you didn’t have homeowners insurance, your lender would lose out just like you would.

Is homeowners insurance mandatory? 

While there’s no law that states that homeowners insurance is mandatory, it allows those with an invested interest to protect their investment. In most cases, these entities include your mortgage holder or home equity loan holder who often require proof of homeowners insurance. Not only does it protect their investment, but it also protects yours. Imagine if your home was robbed and you lost a majority of your personal belongings. Homeowners insurance helps to protect your personal property. Ultimately, homeowners insurance is a good idea to protect your and your lender’s investment. 

Learn about how much homeowner’s insurance you might need.

What does a house closing look like?

When you purchase or refinance a home, the last step in that process is called the closing. Closing is typically the time when you finalize the details of your transaction and is typically held at an attorney’s office, your lender, or other location. Ultimately, it is the last step in the process of home ownership. You can expect to pay different closing fees including: 

  • Origination Fees:  Fees charged by a lender upon entering into a loan agreement to cover the cost of processing the loan.
  • Underwriting Fees: Fees associated with lender’s overhead and administrative costs during the execution of your mortgage loan.
  • Appraisal Fees: An appraisal fee helps to cover the cost to have an appraiser assess a home’s market value. The fee is usually paid by the buyer unless they negotiate for the seller to pay it.
  • Credit Report Fees: The fee associated with running a credit check during your loan origination process.
  • Title Search Fees: This fee allows title search agencies to  help determine if anyone has a legal interest in the property you’re purchasing. 

At maximum, it can take up to 50 days to close on a property, whereas the average is 35-47 days. Closing fees tend to typically trend with the property’s asking price and you can expect to pay 3-5% of the home’s assessed value in closing fees. The median estimate for closing fees in 2020 was $3,312. Delivery costs can be included in the mortgage amount (called a no-delivery cost mortgage) or paid in advance to avoid paying additional interest. 

To ensure a successful closing, it is recommended that nothing changes financially for you during the closing process. In fact, many lenders also recommend against making large undocumented cash deposits or opening new lines of credit during the closing process. 

Do I need my insurance agent present when closing on a house? 

While you don’t need a homeowners insurance agent present during the closing of your house, here’s a list of interested parties that might attend on each side: 

Buyer’s Side: 

  • Your Real Estate Attorney (if you have one or if required by law)
  • Lender’s Representative
  • Buyer’s Agent 
  • Title Company Representatives

Seller’s Side: 

  • Their Real Estate Attorney (if they have one or if required by law) 
  • Seller’s Representative
  • Seller’s Agent 
  • Notary Public 

Although your homeowner’s insurance agent won’t be likely present during this very important moment in homeownership, it’s still a good idea to begin your search prior to the end of the closing process. Typically lenders will require proof of homeowners insurance at least three business days prior to the end of the closing process. Additionally, they’ll typically require a year of homeowner’s insurance to be purchased upfront and will typically include those costs in the closing fees.

A homeowners policy keeps your new home safe

Homeowners insurance helps to ensure that your new investment is protected in the event of a natural disaster. Your homeowner’s policy typically includes coverage for the following: 

  • Your House: Often referred to as ‘dwelling coverage’, this will protect you from damage to the house and its accessories, such as your garage, fireplace, inground pool, and more. 
  • Personal Property: Your personal property is typically anything that is owned by you. In addition to providing protection for your personal items (such as computers, phones etc.), it also includes protection when those items aren’t at your house. For example if your phone is stolen from your car, your personal property coverage will cover it. There are limits to this however for valuable items, such as jewelry and artwork, and it’s important to make sure any higher value items have additional coverage!
  • Other Structures: Which includes fences, sheds or any other structures that exist on your property – don’t forget to protect your she-shed! 
  • Additional Living Expenses: If one of these perils occurs and your house is uninhabitable, you will get ‘loss of use’ coverage for any additional living expenses you might incur. Your insurance company can help pay for temporary housing and basic living expenses, such as food, laundry, hotel costs and more. In these cases, your deductible isn’t applicable. 
  • Personal Liability: This refers to coverage in case someone gets injured on your property, and it’s your fault. Additionally, this also provides protection if you or anyone on your policy causes damage to someone else’s property. In these cases, your policy will have you covered. Keep in mind that these coverages don’t cover injury to yourself or anyone covered under your insurance policy. 
  • Medical Fees: Liability insurance covers damages in the event you’re sued. However, medical fees can cover injuries that others may sustain when they’re at your house. It will help to cover any medical bills they incur and is a quick way to settle injuries

Key takeaways from homeowners insurance and closing on a house

In summary, here are a few key takeaways on why you should get homeowners insurance prior to closing on a house: 

  • It’s required in most cases: In most cases, your lender will almost always require proof of homeowners insurance prior to finalizing your loan details.
  • It protects your and your lender’s investment: Homeowners policies are designed to provide protection for the largest investment most of us make. It also helps to protect your lender’s financial investment in the event of a natural disaster or other catastrophe. 
  • It protects you from other events: Homeowners policies can help provide coverage for liability, structures, and medical fees to name a few. It will help to ensure that your house is covered in most events that are outside of your control. 

Speak with our licensed insurance agents in Ohio, Maryland, West Virginia, and  Indiana today to learn more about the different types of coverage available to protect your investment! 

Disclaimer: This blog post is meant for general informational purposes only and may not reflect your specific policy.

About the Author: Alekha is an expert in the insurance space and has been with the Malhotra & Assoc. Insurance team since its inception. Alekha works to provide expertly written and researched content for the Maholtra & Assoc. Insurance agency.

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