Homeowners insurance for the first-time homebuyer

Buying your first home is a major life milestone, and it requires having many irons in the fire. From hiring a real estate agent, searching for homes, making an offer, reviewing inspection reports, getting a mortgage and making your down payment, you'll have lots of firsts in a relatively short span.

Between the excitement of the home search and the sizable financial commitment, you may forget about another important part of becoming a homeowner. And that's insurance.

While you're probably familiar with car insurance and even renters insurance, you also need to consider just how important it is to insure your future home. In fact, for most buyers home insurance is not optional. In other words, it's a requirement before you get your keys.

It's smart to learn about homeowners insurance and start exploring your options, even before you decide on the right house to be better prepared for your future home purchase. Otherwise, you may be scrambling to get a policy before closing. Here's a tip: Last-minute insurance shopping usually isn't the way to find the best rate.

With that in mind, here's a quick overview of what you need to know about homeowners insurance as a first-time homebuyer.

Do mortgage companies require home insurance?

In short, yes. Because mortgage companies are lending you money to purchase your home, they have a financial interest in the property until you own it outright. For that reason, most mortgage companies will require you to have a certain amount of homeowners insurance to ensure that you can pay off your home loan, even if the property is destroyed.

To close on your home, most mortgage companies will require proof of homeowners insurance, which effectively means you need to purchase a policy before you purchase the home itself. If you don't have insurance before your planned closing date, your closing may be delayed. That can become an expensive problem, especially if you're paying to keep belongings in storage, staying in temporary housing or have movers scheduled.

Working with VA lenders

You can get certain perks, such as no down payment and easier credit qualifications if you qualify for a VA-guaranteed loan. But even if you decide to take advantage of these special military benefits, you'll still need a home insurance policy to close on your home.

VA lenders may have additional requirements, such as putting 15 months of insurance premiums in escrow to ensure they're paid on time or purchasing additional hazard insurance.

How much home insurance do I need?

Your lender may have a minimum requirement for home insurance. But typically, mortgage companies only care about dwelling coverage. That's the part of homeowners insurance that covers the actual structure of your home: walls, floors, doors, windows, roof and more.

Depending on your needs and circumstances, you may want to add other coverages to your policy. For example, you likely want insurance coverage for the personal belongings inside your home like furniture and clothing, plus special coverage for particularly valuable items like jewelry or guns.

Only you can determine how much insurance you need and how much risk you're willing to accept.

Understand what is and isn't covered.

Every homeowners policy is different, depending on the insurance provider and the coverage you choose. But most home insurance policies will cover specific things inside or outside your home, and specific situations (what insurers call covered events).

The parts of a home that are typically covered by a homeowners policy include:

• Interior structures of the home, such as floors, walls and cabinets.
• Exterior structures of the home, such as the roof, windows and garage doors.
• Detached structures, such as garages and fences.
• Personal belongings within the home, such as furniture, clothing and electronics.

With homeowners insurance, you can get help paying to repair or replace these items if they're damaged or destroyed in a covered event, such as fire, theft, most weather related events and vandalism.

Depending on how you build your policy, you may also have coverage for:

• Loss of use.
• Medical payments to others.
• Identity theft.
• Personal liability.

But while there are many things your insurance will cover, there are some potential claims that exceed the limits of your policy or some situations that may be excluded from coverage.

Water damage

One notoriously tricky area for homeowners insurance is water damage. Generally, insurance companies will only cover water damage that's considered sudden and accidental. But if the damage is caused by slow leaks that go unnoticed for months or a backed-up drain, those will probably not be covered. Always check the actual policy for details regarding what is and isn't covered.

To avoid costly water damage in your home, make sure to proactively prevent water leaks.

Weather-related events

Although homeowners policies usually cover most weather-related damage to your property, that doesn't mean all types of weather are covered.

In fact, certain areas of the country, especially those in high-risk areas like the coast, require special coverage for major weather events like earthquakes, hurricanes and tornadoes. Many policies also exclude wind and hail damage from coverage.

Another major event to consider that's not covered by most homeowners policies is flooding. Believe it or not, floods are the nation's most common natural disaster.^{See note1} That's because you don't have to live near a river or coastline to be at risk. Flooding can happen anywhere it rains. Always check the actual policy for details regarding what is and isn't covered.

Liability claims

Most homeowners policies offer liability protection, which helps cover expenses if you're found legally responsible for accidental injury or property damage. But other types of liability claims, such as libel, slander and invasion of privacy, will probably not be covered.

In a similar vein, your policy's limits may not offer sufficient coverage for your home or lifestyle. Things like pools, fountains, trampolines and even pets can make it more likely that visitors may get seriously injured on your property. The same is true if you're renovating your home and you frequently have contractors on your property.

Depending on your liability exposure, you may need a separate umbrella policy. This offers greater protection above and beyond the limits of your home or auto policy.

Deployment and military gear

If you're a military service member, it's important to look out for certain clauses in homeowners policies that may impact your coverage if you're deployed. The first is an occupancy clause, which requires that a person must be living in the home for it to be covered. If your home will be vacant for a prolonged period — typically 30 to 60 days — because you're deployed, you may not have coverage with all insurance providers.

The second clause is a war zone exemption. It's common for homeowners policies to cover your personal belongings, whether you're at home or halfway around the world. But many insurance providers make an exception for war zones. For service members, that means damage to your belongings may not be covered if you're in a designated war zone.

One final thing to consider is your military uniforms and gear. While damage to these items may fall under your personal belongings coverage, you typically must pay a deductible before your insurance will pay on a claim. There's no deductible^{See note2} for military uniforms or equipment after loss due to a covered peril with USAA.

When should I get homeowners insurance when buying?

Your insurance rate will be determined in part by the specific features of the property. Things like your square footage, the home's age and construction details, the condition of the roof, your ZIP code, even your proximity to a fire station. As a result, you may want to wait to start shopping for insurance until you go under contract for a specific property.

Once you're under contract, it's time to get down to business and get quotes from several insurers. Make sure you choose an insurer before closing and instruct the company to start coverage on the day you close.

If you haven't quite found the right home, you can still prepare by talking with family, friends, neighbors or co-workers about their experiences with various insurance companies. They may provide valuable insight about the level of service or special benefits through their insurer.

When it comes time to purchase your policy, make sure you get the right coverage and a great rate. One way to save on insurance is to bundle your home and auto policies. You may be able to qualify for different discounts for some security and other safety measures in your home. Over time, you may qualify for additional discounts if you avoid making small claims on your policy. Talk to your provider to see what options are available for you.