When to Get Homeowners Insurance When Buying a House Your Complete Timeline.
A common question for homebuyers is, “When to get homeowners’ insurance when buying a house?” The answer is to start shopping for homeowners’ insurance as soon as an offer is accepted. However, the policy must be in place before closing. A mortgage lender requires this.
Here is a timeline to help with the process and meet all closing requirements.
As soon as an offer on a home is accepted, the process to closing begins. This is when to start gathering homeowners’ insurance quotes. Shopping early provides these benefits:
Time to compare: Compare rates and coverage options from different carriers.
A smoother closing: The underwriting process can take time, especially for older homes or properties in higher-risk areas. Starting early avoids delays that could postpone closing.
Informed decisions: Work with an agent to understand what is covered, what isn’t, and if additional endorsements are needed, such as for floods or earthquakes.
The lender will need a “binder” or “declarations page” as proof of insurance coverage before finalizing the loan. Most lenders require this a few days to a few weeks before closing. By this point, the insurer should be selected, and the first year’s premium should be paid.
On closing day, the loan is finalized, and possession of the new home is officially taken. At this point, the homeowners’ insurance policy becomes active. The first year’s premium is typically paid upfront as part of closing costs, which is why the lender needs proof of the policy in advance.
If getting a mortgage, the lender will not provide the funds without proof of insurance. A home is a significant asset, and until it’s fully paid off, the lender has a financial stake in the property.
The home is protected as an investment. If a fire or a major storm were to destroy the house, the homeowner’s insurance policy would cover the cost of rebuilding or repairing the structure. This ensures the lender’s collateral is protected. The lender will be listed on the policy as a “mortgagee,” granting them a legal right to a payout in the event of a covered disaster.
If proof of insurance is not provided by the deadline, the lender can purchase “force-placed” insurance.
Expensive coverage: Force-placed insurance is more expensive than a policy that would be purchased.
Less protection: It also provides less coverage, as it only protects the lender’s interest, not personal property or liability.
Default risk: In the worst-case scenario, it could trigger a default on the mortgage agreement.
