Insurance is usually the last thing buyers think about and increasingly one of the first things that causes a problem.
Premiums have been rising. Carriers have been tightening what they will write. And your lender will not close without a policy in place.
Your lender requires it
The house is the collateral for your loan. Your lender requires coverage sufficient to rebuild it, names itself on the policy, and typically collects the premium through escrow.
Note that the required amount is based on replacement cost, meaning what it would take to rebuild the structure. That is not the same as your purchase price and it is not the same as the land value. On some properties the required coverage is higher than buyers expect.
You need a binder before you close
Not a quote. A binder, meaning actual coverage arranged and effective as of your closing date, with proof provided to your lender.
This is a condition on essentially every loan, and it is one buyers routinely leave until the last week. That is a mistake, for a reason covered below.
The reason to shop early
Your insurance premium is part of your monthly payment, and your monthly payment is part of your debt-to-income ratio.
A premium that comes in far above what was estimated can push your ratio past the limit. On a file with no margin, that is a real problem discovered at the worst time.
Get a quote when you go under contract, not the week of closing. If the number is high, there is time to shop it, adjust coverage, or reconsider the property.
What drives your premium
Some of it is the house. Roof age and material, the age and condition of electrical, plumbing, and heating systems, whether there is a finished basement, and the presence of features carriers treat as elevated risk.
Some of it is location. Distance to a fire hydrant and fire station, and proximity to water.
Some of it is you. Prior claims history follows you and affects what carriers will offer.
Older homes with original systems are getting harder and more expensive to insure. If you are buying a house in North Jersey with a roof at the end of its life, expect that to show up in your quote.
Flood insurance is separate
Standard homeowners policies do not cover flood damage. If the property is in a designated flood zone, your lender will require a separate flood policy.
Flood determination happens during your loan process. Premiums vary considerably based on the property’s flood zone and elevation, and they can be significant enough to change whether a house is affordable.
If you are looking anywhere near water, whether at the shore or along a river inland, ask about flood zone status before you write an offer. Plenty of North Jersey properties sit in flood zones that buyers did not anticipate.
Deductibles
Read this part of your policy rather than skimming it.
Many policies carry separate deductibles for specific perils, and coastal properties often have wind or hurricane deductibles calculated as a percentage of the insured value rather than a flat dollar amount. That can be a substantially larger out-of-pocket exposure than the standard deductible.
Raising your deductible lowers your premium, which is worth considering if you have reserves to cover it.
Shop it every year
Insurance is one of the few parts of your housing payment you can influence after closing. Premiums vary between carriers more than most people expect, and loyalty is rarely rewarded.
If your escrow payment jumped, your insurance renewal is a good place to look first.
Get your quote early in the process, and send it to us so we can build it into your numbers accurately from the start.
Trinity Lending Company | NMLS #2762052 | Equal Housing Opportunity