The stars are finally aligning to woo Millennials into the housing market. Rental costs are on the rise making equity-building mortgages more appealing, lending standards are loosening up, builders are ramping up construction which will make entry-level pricing more affordable, and interest rates remain low but will have to move higher sooner or later. This may finally be the long-anticipated Year of the Return of the First-Time Homebuyer. If you’re among that sought-after group, you’ve got a big learning curve ahead. Along with scouting neighborhoods, viewing floorplans and choosing options, you’ll be facing a ton of decision that are time-consuming, snore-inducing and decidedly unsexy -- one of dullest is homeowners insurance. But it’s also incredibly important and unless you’re paying cash, absolutely mandatory. Here’s what you need to know.
Know the Lingo
Insurance has a specialized jargon and you need to learn the basic terms before you sign on the bottom line. For example, understanding the difference between actual cash value and replacement cost can save you a lot of disappointment if you ever file a claim. This website has an easily searched glossary of common terms for all types of insurance including homeowners as well as an easy-to-understand explanation of various homeowners coverage.
Your mortgage lender will require that you have homeowners insurance before you close escrow. They’ll also let you know if additional coverage such as earthquake, flood or hurricane insurance is required. They may even suggest a provider, but you are free to choose any company as long as the policy meets your lender’s requirement. Get at least three apples-to-apples quotes. You can do that online.
Don’t Overspend, But Don’t Skimp, Either
Your lender only cares about insuring what they’ve invested in: the actual structure. You need to make sure your policy covers other things like your personal possession and liability if someone is injured on your property.
Pay Your Premiums with Your Mortgage
You can tack your first-year premium payments onto your mortgage. It’s one less thing for you and your lender to worry about.
Bundle Up and Save
Buy your homeowners policy and auto policy from the same company. You may even be able to bundle in a boat or RV policy. It all adds up to extra savings.
Don’t Discount Discounts
Every major carrier has a variety of available discounts that can add up to big savings. These can include discounts for non-smokers, security systems, even affiliations.
Run a CLUE Report
If you’re buying anything but a brand new home, your insurer will want to know what kinds of claims and losses your old house has racked up in the past seven years and use that info to determine your premium. You should ask the seller for a Comprehensive Loan Underwriting Exchange (CLUE), a kind of CARFAX for homes.
Weigh the Alternatives
A higher deductible can mean lower premiums. But it also means you’ll have to come up with a big chunk of change should you need to file a claim.
Clean Up Your Credit
Mortgage lenders consider your credit rating but so do insurers. They want to know that you’re a good risk and, statistically people with good credit are less likely to file claims.