14 Things to consider before you sign on the dotted line
Shopping for your dream house? There are many considerations when looking at real estate, like property taxes, school district, the appeal of the neighborhood—and, of course, the bottom line. Don't overlook the financial implications of homeowners insurance as part of your overall investment. Use this guide to help think through all the costs associated with buying a home.
Before house hunting
Set yourself up to be a financially desirable buyer.
1. Check your credit rating A good credit history makes it easier to get a mortgage at a competitive interest rate, and may also qualify you for a good credit discount on your insurance. Obtain a copy of one or all of your credit reports. Make sure they are accurate and report any mistakes immediately. If your credit is not as good as it could be, take steps now to improve it.
2. Protect yourself with a renters insurance policy If you are currently renting a house or apartment, protect yourself financially with a renters insurance policy. In the event of a disaster, renters insurance can help protect the down payment you’re building to buy your new home, as well as provide a useful insurance history to your prospective homeowners insurer when you go to buy your first home.
While house hunting
As you search for your new home, remember that the physical characteristics of the house—its size, location, construction and overall condition—can affect the cost, choice and availability of home insurance. In some cases, desirable features—like ornate plasterwork or proximity to the coastline—can make insuring a home costlier or more difficult. Some factors to consider when shopping for a home are:
3. Quality and location of the fire department Houses that are located near highly rated, permanently staffed fire departments usually cost less to insure. This also holds true for homes that have a hydrant nearby.
4. Proximity to the coastline Houses located on or near the coast will generally cost more to insure than those further inland. They will also likely require a separate hurricane or windstorm deductible. In some coastal communities, private homeowners insurance coverage may not be readily available. Instead, you may need to purchase insurance through a state-run insurance program.
5. Age of the home A stately, older home can be quite beautiful but ornate features like plaster walls, ceiling molding and wooden floors may be costly to replace and can raise the cost of insurance. And plumbing and electrical systems can become unsafe with age and lack of maintenance. If you are considering buying an older home find out how much it will cost to update these features and factor that into the cost of ownership.
6. Condition of the roof A new roof matters to insurers and keeps you and your family safer. Make sure to check the roof's condition. Depending on the type of roof and whether or not it's made with fire and/or hail resistant materials, you may even qualify for an insurance discount.
7. Quality of construction Find out whether the house has been updated to comply with current building codes. Homes well built by careful craftsmen and those constructed to meet modern engineering-based building codes are likely to better withstand natural disasters.
8. Risk of flooding Damage from flooding is NOT covered by standard home insurance policies. If you are buying a home in an area at risk from flooding, you will need to purchase separate flood insurance, which is available from the federal government’s National Flood Insurance Program (NFIP) and from a few specialty insurers.
9. History of earthquakes While earthquakes are most frequently associated with California, they occur in the majority of states and are not covered under standard home insurance policies. Earthquake insurance is available from private insurers as an endorsement to a homeowners policy, and in California from the California Earthquake Authority.
10. Swimming pool or other special feature If the house has a swimming pool, hot tub or other special feature, you will likely need more liability insurance. You may also want to consider purchasing an umbrella liability policy to provide added protection in the event someone gets injured on your property and decides to sue you.
Before you place a bid on the home
Take precautions and understand the house's history, current condition, potential trouble spots—and costs.
11. Check the loss history report Ask the current homeowner to obtain a copy of the loss history report on the home. Homeowners can obtain either a Comprehensive Loss Underwriting Exchange (C.L.U.E.) report, which is available from LexisNexis, or an A-PLUSTM property report from ISO®. These reports provide a record of the type of loss on the home and can provide extremely valuable information. For instance, if there was a claim for water damage on the home, it is important to find out the source of the damage (such as a burst pipe) and whether it has been properly repaired. On the other hand, a claim for wind or hail that resulted in a new roof makes the home stronger and is very attractive from an insurance perspective.
12. Get the house inspected You’ll need to have the house inspected by a credentialed home inspector in order to get your mortgage approved. Accompany the inspector to make sure he or she is thorough and makes sure to:
Check the general condition of the home
Look for water damage, termites and other types of infestation
Review the electrical system, plumbing, septic tank and water heater
Show you where potential problems might develop
Double-check that past problems have been repaired
Suggest important upgrades or replacements
If the inspector raises questions, your insurance company will as well. Be sure to find out if there is an underground oil storage tank, as many insurers will not provide policies for homes that have one.
13. Estimate maintenance costs Routine maintenance is your responsibility as a homeowner so be sure to factor these costs into the overall price of owning the home. Losses caused by failing to properly care for your home are not covered by standard homeowners insurance policies.
14. Call your insurance professional Don’t wait until the last minute to think about homeowners insurance and don’t be shy about asking for estimates on more than one house. Ask if the house will qualify, and get an estimate of the premium. The sooner you speak with your insurance professional, the smoother the process will be. If you're uncomfortable with the cost of insuring a particular house, look for one that better fits your financial situation.
For more information, visit www.iii.org