Step 8: Getting Insurance

Ten Steps to the Successful Completion of the Home Buying Process

Before you can close on the home purchase and complete the home buying process, you will need to obtain several types of insurance on the property. Just like you cannot drive a car without insurance, you cannot own a home without insuring that home against certain types of losses.

As with all other forms of insurance, the essential idea behind the various forms of insurance that are required for homes is to protect owners and the mortgage lender from catastrophic loss. If something goes wrong with the physical condition of the property or there is a problem with the legal title to the property, then obtaining the right kind of insurance will protect you from future calamity.

Although there are many forms of insurance associated with home ownership, the types of insurance described below are the major items you will need to familiarize yourself with during the home buying process. As always, your REALTOR® can serve as a valuable resource in providing you with more information on what types of insurance are necessary to complete the home buying process.

Title Insurance: Insurance that is purchased with a one-time fee that is paid at the closing of the home buying process. This insurance protects the property owner in the event that the title to the property is found to be invalid. Coverage includes a “lenders’ policy” that protects buyers up to the mortgage value of the property and an “owners’ policy” that protects owners up to the purchase price of the property. All mortgage lenders require title insurance to be purchased at closing.

Homeowners' Insurance: Insurance that provides fire, theft and liability coverage to the homeowner. Homeowners’ policies are required by lenders and often cover a surprising number of items, including in some cases such property as wedding rings, furniture and office equipment.

Flood Insurance: Insurance that is generally required in special high-risk areas designated by the federal government to be prone to flooding. This insurance is issued by the National Flood Insurance Program and provides coverage for any damage from flooding to the property. If your home is located in a high-risk area, the mortgage lender will require you to purchase flood insurance prior to closing.

Home Warranties: This is a type of insurance that will cover repairs to certain items that become defective following your purchase of the home. Bought from a third party insurance company, these policies provide several forms of protection, including the repair of many problems that may develop in the physical condition of the property.

Unfortunately, many of these insurance policies and warranties have limitations and individual policies may have different levels of coverage, deductibles and costs. For more information, you should ask your REALTOR® to provide you with more information and you should contact an independent insurance broker who has specialized knowledge of the insurance marketplace.

Many of these policies must be purchased prior to closing, so you need to speak with your REALTOR® about your insurance options at the time your offer to purchase the property is accepted by the seller. Be sure to speak with an independent insurance broker about any limitations, costs, deductibles and “endorsements” (additional forms of coverage that may be available) of the insurance policies.