Home Insurance for First-Time Buyers

In this guide

If you're buying your first home with a mortgage, you'll generally need to show proof of homeowners insurance before closing, because your lender wants the property protected. Start shopping as soon as you have a signed contract, compare coverage and not just price, and make sure you understand what a standard policy leaves out, such as flood. This guide walks through the timeline and the choices first-time buyers commonly face.

Why you need it, and when

The Consumer Financial Protection Bureau (CFPB) explains that a lender wants the home protected while it secures the loan, which is why lenders generally require proof of homeowners insurance. Even without a mortgage, insurance protects what is likely your largest purchase, and covers your liability if someone is hurt on your property.

Timing matters. The policy usually needs to be in place on or before the closing date, and the lender or closing agent will ask for proof, often called a binder or evidence of insurance. A common timeline is:

1. Offer accepted. Begin gathering quotes, ideally while the home inspection is in progress.
2. During underwriting. Choose a policy and share the details with your lender.
3. Before closing. Pay the first year's premium (often at closing), or have it collected into escrow. Get proof of coverage to your lender.
4. After closing. Keep a copy of the full policy and review it.

Rushing leaves you less time to compare options or fix problems, such as an inspection finding that affects eligibility. Read about the mortgage side in homeowners insurance and escrow accounts.

What a first policy typically includes

Most buyers of a single-family home get an HO-3 policy, which Triple-I describes as the most popular form. Core pieces include coverage for the house, other structures, belongings, loss of use (extra living costs after a covered loss), and personal liability. If you're buying a condo, you'll likely need an HO-6 instead. See homeowners insurance explained and condo insurance (HO-6).

It helps to compare the two forms most buyers see. Our guide to HO-3 vs. HO-5 explains the differences.

Choosing coverage amounts

Dwelling coverage

The NAIC says the limit should reflect the cost to rebuild the home, not the price you paid or the market value, which includes land. Lenders require at least enough coverage to protect their loan, but their minimum may not match your rebuild cost. See how much homeowners insurance you need.

Replacement cost or actual cash value

Ask how the policy pays for the house and for your belongings. Replacement cost doesn't deduct for depreciation, while actual cash value does. This may matter a lot for an older roof. See replacement cost vs. actual cash value.

Liability and belongings

New owners often have more to protect than they realize, such as a new savings cushion and furniture they've just bought. Compare liability limits and the sublimits for items such as jewelry and electronics.

Deductible

A higher deductible usually lowers the premium but raises what you pay on a claim. Think about what you could pay from savings. Some policies also use a separate percentage deductible for wind or hail. Read home insurance deductibles explained.

Flood, earthquake and other gaps

A standard homeowners policy generally excludes flood and earthquake. FEMA says most homeowners insurance doesn't cover flood damage, and flood insurance is a separate policy.

For loans from federally regulated or insured lenders, flood insurance is required when the home is in a high-risk flood area (generally defined by FEMA as having at least a 1 percent chance of flooding each year). Lenders must notify you before closing if that applies. Lenders can also require it in lower-risk areas. The NAIC notes that roughly a fifth of flood claims come from outside high-risk zones.

• Check the FEMA flood map for the address, and ask the lender for its flood determination early.
• Ask your agent about earthquake, sewer backup and water backup coverage.
• Look for hazards specific to your region, such as wildfire or hurricane deductibles.

More on this: flood insurance explained, hurricane and windstorm deductibles, and wildfire risk and home insurance.

What affects your premium

Insurers consider many factors, and they vary by company and state. Common ones include:

• Location, including local weather risk and claims history in the area
• Age and construction of the home, the roof's age and condition, and the heating, wiring and plumbing systems
• The cost to rebuild
• Your chosen limits and deductibles
• Claims history of the property and of you
• Credit-based insurance scores, in states where they're allowed
• Safety features and discounts, such as a monitored alarm

Your inspection report is useful information for insurers and for you. Old wiring, a worn roof or a missing safety feature can affect eligibility or price, so share what you learn with your agent. We cover the cost side in how to lower your home insurance premium and why home insurance is going up. You may also ask about bundling home and auto insurance, which some insurers reward with a discount.

Shopping tips for first-time buyers

• Compare quotes from several insurers using identical coverage limits, deductibles and valuation terms, so you're comparing like with like.
• Ask about exclusions and sublimits, not only the headline price.
• Tell the truth in the application. Mistakes about the home can lead to denied claims later.
• Don't assume a price quoted before the inspection is final.
• Check your state insurance department for a consumer guide and for the insurers licensed there.
• Start a home inventory in your first weeks. See how to create a home inventory.

Common first-time buyer mistakes

1. Waiting until the final days before closing to shop.
2. Insuring for the purchase price instead of the cost to rebuild.
3. Missing a flood gap because the seller never had a claim.
4. Not understanding the deductible, particularly wind or hail percentages.
5. Skipping the review of the full policy after closing.
6. Letting coverage lapse, which can lead the lender to buy expensive "force-placed" insurance. The CFPB notes it's typically more expensive than a policy you buy yourself.

Frequently asked questions

Can I close on a house without homeowners insurance?

With a mortgage, lenders generally require proof of insurance before or at closing. Cash buyers aren't required to by a lender, but insurance is still strongly advisable.

Should I get quotes before I make an offer?

You can get estimates early to understand typical costs for the area, but a final quote usually requires an address, and sometimes inspection details. Many buyers shop right after the offer is accepted.

Is the first year's premium paid at closing?

Often, yes, and the lender may also set up an escrow account for future premiums. Check your closing disclosure.

Does the seller's policy transfer to me?

Generally not. You need your own policy effective at closing.

Where can I get unbiased help?

Your state insurance department offers consumer guides, and a licensed agent can answer questions about your situation. CoverMoose doesn't sell insurance or give personal advice.

Sources

• CFPB – What is homeowner's insurance? Why is homeowner's insurance required?
• CFPB – What is an escrow or impound account?
• FEMA – Flood insurance
• NAIC – Understanding Flood Insurance and What to Do During a Flood
• NAIC – A Consumer's Guide to Home Insurance
• Insurance Information Institute – Are there different types of policies?