When purchasing a new home, there are usually so many moving parts to the final closing process that you may not pay sufficient attention to all the individual tasks in the process. Between the home inspection and supplying documentation to close your loan, you might forget about the home insurance policy that is usually required by mortgage lenders before funding your loan. Instead of making a rash decision at the last minute when purchasing your home insurance policy, take some time during the home buying process to give serious consideration to insurance. In doing so, you can also avoid some of the pitfalls of other home buyers who made poor decisions or listened to bad advice.
Any mortgage lender will require you to insure your home against damage or destruction, as it represents the collateral to secure your loan. When buying a home, it’s not uncommon to receive referrals and advice about various ancillary services from the parties involved in the overall process. For example, your realtor may recommend a home inspector or escrow company. Those service providers may also recommend other service providers to you. In many cases, they make referrals because they have prior experience and trust those parties. On the other hand, there may be other reasons for referrals that do not have your best interest in mind, such as a side agreement for fees or commissions.
Before you accept any referral for home insurance, you should do your own research. Many insurance companies can now provide quotes directly online without the need to talk to an agent in person. You can choose to use the Internet as your sole source for home insurance, or you can use it to validate any competing proposals you receive. One thing that is important to keep in mind is the timing of your insurance purchase. While many companies are able to quote and bind coverage for you almost immediately, others may take some time to underwrite the risk. Some also require an inspection of the property prior to insuring it. You need to allow time for these activities to secure the best possible terms.
Many home buyers end up forgetting about or putting off their home insurance purchase until it’s time to close on the loan. If you procrastinate, it puts you in less of a position to shop around and find the best possible coverage. You can end up paying too much and potentially accepting less favorable coverage. In addition, some mortgage lenders require you to impound your home insurance premiums along with property taxes. If you end up with a very pricey policy, you will be forced to pay a much higher amount each month along with your mortgage. According to MSN’s advice for first-time home buyers, understanding the cost of home insurance is critical, as it can significantly increase the total cost of home ownership.
Once you start investigating the cost of home insurance, you may even find that your home is in a particularly high-risk area and that premiums will be higher than you expected. This is important to know early in the process versus the day before you close on your loan because it could prevent you from qualifying or closing on the loan.
By doing your due diligence on insurance during the home buying process, you can secure the best policy at the best price and avoid surprises regardless of where you are buying – Kansas City, Washington, DC, Boston, Louisville, Memphis, for example.