You just went under contract for a home and your lender is telling you that you must obtain homeowners insurance. You immediately start asking yourself questions. “What is homeowners insurance?”  “Is homeowners insurance mandatory?”  We as the lender will require proof at closing that you’ve provided insurance protection for the property. Let’s take a closer look at what exactly homeowners insurance is and why we recommend having it.

What is Homeowners Insurance and What Does it Insure Against?

Homeowners insurance insures the house in case of an unexpected event happens such as a fire, windstorm, or burglary. If a catastrophic event occurs to your home homeowners insurance will cover the cost to repair or replace your home. It’s important to note that homeowners insurance covers the structure of the home NOT the value of the land the house sits on. For example if we are purchasing a property for $400,000 with the house being worth $300,000 and the land worth $100,000, you may need homeowners insurance to insure the structure ($300,000) of the home. The reason for thisis if an event were to destroy your home, the value of the land remains.

When getting an estimate our insurance provider will estimate the construction value of your home based on age, type of home, location, size and other factors. The outcome of this report will determine your homeowner’s insurance premium. Homeowners insurance is included in our monthly payment. If our homeowner’s insurance premium is $900 a year then 75 dollars a month ($900/12 months) will be built into our monthly payment. Homeowners insurance also covers accidents of visitors in your home through liability insurance.

What Isn’t Covered by Homeowners Insurance?

We already know homeowners insurance covers us against such calamities like, windstorms, hail, lightning and other natural events. But what isn’t covered with homeowners insurance?  Flooding is NOT covered with homeowners insurance. If our house is washed away from a 1,000 year storm the onus is on us to repair the damage. Because of this the federal government issues “Flood Zone” areas. If we live in a designated flood zone, flood insurance is mandatory. The common homeowner’s insurance policy also doesn’t cover loss from termites, (that’s why it’s recommended you get a termite inspection), earthquakes and intentional damage done to the home.

Homeowners Insurance for Condos and Co-Ops

If you are buying a condo or co-op we will need a different type of insurance policy. The key difference between a standard homeowner’s insurance policy and a condo insurance policy is what you have to insure. Condo Insurance policies have master policies which is covered by the Homeowners Association Policy. These master policies typically cover the buildings exteriors, hallways, pool areas and other common areas. The owners of the condo unit are responsible for insuring everything within their own individual unit. Condo insurance policies are often referred to as HO-6 Policies.

The Verdict

Homeowner’s insurance policies protect your house from unexpected events. The premium of your insurance depends on a multitude of different factors. If you have questions about homeowners insurance, why you need it, or a recommendation for homeowners insurance please reach out to me by email or give me a call at 443-786-9887. If you are interested in purchasing a home, prequalify here.