When should I buy home insurance?

Start shopping 30 days before your closing date. You need to have the policy active on the day of closing to satisfy your lender.

Is home insurance mandatory?

If you have a mortgage, yes. Lenders require it.

Escrow is a savings account managed by your lender. You pay part of your insurance premium with your monthly mortgage payment, and the lender pays the insurer for you.

Home Insurance Guide for First-Time Buyers

Congratulations! You are buying a house. Between the inspections, the loan documents, and the packing boxes, you have a million things on your mind.

But there is one thing you cannot close without: Homeowners Insurance. Here is your crash course on what to buy, when to buy it, and how to make your lender happy.

Why Your Lender Cares (A Lot)

Until you pay off your mortgage 30 years from now, the bank technically owns most of your house. If the house burns down, they want to make sure their "collateral" is protected.

This is why lenders demand proof of insurance (a "Binder") before they will let you sign the closing papers.

The First-Time Buyer Checklist

1. Start Shopping Early (30 Days Out)

Don't wait until the week before closing. Insurance underwriting takes time, especially for older homes that might need a "4-point inspection" (roof, plumbing, electrical, HVAC).

2. Check the CLUE Report

Ask the seller for a CLUE report (Comprehensive Loss Underwriting Exchange). This report shows any insurance claims filed on the property in the last 5-7 years.

Red Flag: If the previous owner filed two water damage claims in three years, you might struggle to find affordable coverageâ€”or any coverage at all.

3. Determine Replacement Cost vs. Purchase Price

As we mentioned in other articles, insure the house, not the land. In hot markets, the purchase price might be $500,000, but the cost to rebuild the house is only $300,000. Insuring for the higher amount is a waste of money.

4. Understand "Escrow"

Most first-time buyers use an escrow account.

How it works: Your monthly mortgage payment includes an extra chunk for taxes and insurance.
Who pays: The lender collects this money in a savings account and pays your insurance bill for you once a year.
Your job: You still have to find the policy and set it up. Just tell the insurance agent: "Please bill the mortgagee clause (your lender)."

Recommended Coverages for New Buyers

Water Backup

Standard policies don't cover sewer backups or sump pump failures. Add this endorsement immediately.

Service Line Coverage

You are now responsible for the water and sewer lines running from the street to your house. If they break, this covers the $5,000+ repair.

Conclusion

Buying a home is stressful, but insurance doesn't have to be. Shop early, ask for the CLUE report, and set your policy effective date for your closing date. Then, breathe easy and enjoy your new home.

Frequently Asked Questions

Can I change insurance companies after closing? expand_more

Yes, anytime. If you switch mid-year, your old carrier will send you a prorated refund check. You can deposit that back into your escrow account or keep it (if your escrow has enough buffer).