When it comes to buying a home, future homeowners tend to plan for upfront costs, but there are ongoing costs they need to be aware of.
One of those ongoing costs is home insurance. Our Mortgage Lenders are frequently asked about home insurance and why it is needed to purchase a home. As a future homebuyer, it’s important to better understand this topic and why it plays such an important role in purchasing a home.
What is Homeowners Insurance?
Homeowners insurance works similarly to regular insurance. If something happens to your home or if an accident occurs on your property, depending upon your policy, insurance may cover the cost to repair the damages (minus the deductible).
The cost of homeowners insurance will vary by insurer and the type of coverage you choose. Lenders typically ask that you pay the first year’s premium in advance or at closing. For the second year’s premium, some people will pay out of pocket, however, if a buyer’s not in a position to do that, they can set up an escrow account. This type of account is set up by the lender the homebuyer is working with to pay the insurance annually.
Additionally, buyers can choose to reduce the premium amount by opting for a plan that has a higher deductible. However, it is best to work with your lender to see what your options are within your loan program.
What Does Homeowners Insurance Typically Cover?
Homeowners insurance is designed to protect and cover anything that might happen on or to your property, such as:
- Theft and vandalism
- Medical expenses if someone is injured
- Structural damage
- Expenses should your home become uninhabitable
- Smoke damage
- Falling objects (i.e. tree branches)
However, coverage will vary by insurer, so make sure to consider all your options and find the coverage that works best for you and your family.
If you are purchasing a condo, coverage may look a little different. The condo association may cover the building exterior, so you only need coverage for the inside of your condo, which is referred to as “wall in” or “HO6” insurance.
Why Do I Need Homeowners Insurance to Purchase a Home?
Lenders may require that you prove insurance coverage before closing. Lenders want to know their investment is well-protected, and this type of insurance is designed to protect both you and the property in the case of an accident or damage to the home.
Your Future Home is Our Top Priority
We know how challenging it can be to navigate the homebuying process. Our experienced Mortgage Lenders are readily available to walk you through the process and provide advice and insights so you can make the best decision for yourself and your family. Are you ready to take the next step on your homeownership journey? Reach out to your local First Mid Mortgage Lender today!
Insurance products offered through First Mid Insurance Group. First Mid Insurance Group, Inc. is a wholly-owned subsidiary of First Mid Bancshares, Inc. and an affiliate of First Mid Bank & Trust, N.A. Insurance services are not deposits or obligations of the bank, are not insured by the FDIC or any governmental agency, and are not guaranteed.
