What’s up with Home Insurance?
When purchasing a property, one of mandatory closing costs is hazard insurance. Mortgage lenders require insurance as a protection in case of damage or destruction of property and/or personal possessions. Hazard insurance is also liability insurance in case of accidents that can occur within the property. This is typically the reason that sellers do not allow buyers to move into the house before close of escrow. Sellers do not want to take on the liability.
Typical question I get from homeowner is how much they should insure their home. I defer to the lender. Because the lender is also on title, they have a mandatory requirement of what homeowners should insure for since they want to protect their asset. However lenders cannot force homeowner to over-insure the property.
Depending on location of property, i.e., earthquake, fire, flood zone, homeowners may want to consider these additional coverage. My advice is to speak to a insurance consultant regarding costs. You probably want to speak to several. It might be worth bundling auto insurance with home insurance for cost savings. You may also see who your friends insure with. Realtor can also provide you with referrals.
After you decide on the insurance carrier, inform the insurance broker with escrow number, escrow office, and contact number, as well as, inform the escrow officer with the insurance broker’s information. Because you do not technically own the property, hazard insurance is paid through escrow as part of your closing costs (which includes property tax, county transfer tax, escrow fees, title insurance for you and the lender, loan fees).
Enjoy your house. Maintain the property on regular basis. Check in once in a while and make sure you have adequate insurance, especially if you remodeled or modified the house.
One last word. Make sure you pay your insurance on time, otherwise you will get letter from your lender, “gently” informing you that they purchased a temporary insurance protection.
