Buying your first home is a milestone in life. It’s part of the stereotypical American dream that many people are trying to achieve. Getting to the point of being in a position to buy a home can take years, and the current housing market can make it tricky to find a suitable home. Much of the market is a buyer’s market, meaning more people are buying than selling, creating a backlog of eager people desperate to have a home to call their own.
Once secured, that’s still not the end of the road. Most mortgage and lenders will ask you to get the correct form of home insurance as part of the loan agreement. The home is as much their investment as it is yours – to begin with, anyway. If you haven’t had to think about homeowners insurance before and aren’t quite sure how it works, below is a one-stop guide to the things you should consider.
Your Own Needs
Identifying your own needs as a homeowner when you haven’t owned your own home before can be tricky. Typically, your life as a homeowner will be plain sailing. Although some scenarios can arise, they’re typically uncommon, and you’ll rarely have to use your homeowner’s insurance. Insurance will cover you for all sorts, from theft to fire, but there’s only one that you’re likely to ever have to use.
Thanks to modern technology and fire safety awareness, house fires aren’t as common as they used to be. Most people have to call on their homeowner’s insurance for theft, water damage, or broken appliances.
Over one million burglaries happen every year, so although the chance is still slim – but it’s more of a possibility than a fire. Water damage is pretty common – especially in homes that are slightly older with weathered pipes.
The one you’ll really get your money’s worth with is if your appliances break and you have coverage for them. Appliances seem to break at the most inconvenient time, and modern home appliances cost a fortune to replace.
Really, when analyzing your needs, you’ll realize you want coverage for as many things as possible, which is why it’s handy to understand the various types of coverage and how they will benefit you.
The Various Types of Coverage
In the interest of pleasing mortgage lenders, you’re going to want to most comprehensive form of home insurance. There’s a variety of homeowners insurance coverage, but you’ll notice that the cheaper, simple options won’t please mortgage lenders. They want to know that as many scenarios are covered as possible; so their investment is protected.
Look out for an HO-5 form if you want extensive cover. An HO-5 form covers any dwelling repairs, theft, fire and water damage, and repairs and replaces everything to the exact value or even higher. Beware, some insurance providers will catch you out by offering an extensive coverage package, but to an actual cash value. What that means is insurance providers will reimburse you for the value of the item minus the depreciation.
The cover you should be most interested in will cover the total replacement cost of the items. Or you’ll see something called guaranteed replacement cost/value, which means you’ll have the value of the item replaced and even have it replaced with a higher value item. Have a shop around, and you’ll notice the variation in insurance packages and which one should best suit your needs.
The Requirements of Your Mortgage Lenders
The requirements of most lenders are simple. They want to know that you’re getting the best cover for your home because they’ve invested their money into it as well as you. Some mortgage lenders won’t be happy with an HO-1 form because it only covers ten basic risks. Although it is the cheaper option, it isn’t the best option in the long run.
Lenders should be satisfied with an HO-3 or HO-5 form as they’re the most comprehensive, covering all sorts of scenarios and with a better payout. The one lenders are most interested in is the cover of the dwelling — the structure of your home — rather than whether you can have your TV covered if it breaks.
Things Home Insurance Doesn’t Tend To Cover
Sadly, there are some things that won’t be covered. For example, if you have a dwellings cover and your nightmare toddler colors with crayons on the wall, that’s not covered. Home insurance also won’t be covered for the new carpet that you’ve just spilled a flaming hot chili over. You’ll understand better what is covered by your policy by speaking to your insurer or reading the small print.
Home insurance is almost a necessity if you want peace of mind – and is a necessity for most home loan and mortgage lenders. There are hundreds of insurers offering various types of coverage, so it’s worth doing further research before you buy into any policy. If you want to protect possibly the biggest investment in your life, homeowners insurance is the way to do it.