Do You Need Insurance When Buying a Home?

Posted by Matthew Lahti on Tuesday, October 22nd, 2013 at 8:31pm

Homeowner's insurance compensates you if your property is damaged or destroyed. No jurisdiction in Washington State requires it when you're buying or owning a home.

However, if you're not paying cash for the purchase, you'll need to get a mortgage for your purchase. Mortgage lenders do require that you have enough insurance to cover either what you owe or the total cost of the home. They are then protected if their share of the asset is destroyed. For example, if a fire destroys the home and you didn't have insurance, you would not be able to pay to rebuild it. You may default on the loan, leaving the lender holding the bag. Insurance avoids this possibility.

Lenders demand proof of insurance before approving the mortgage. Many require at least a year's worth of coverage and may specify typical coverage that must be in place by the time escrow closes. Some terms requires a waiting period before they become effective. Flood insurance, for instance, may need at least 30 days, so you'll need to buy it at least that far in advance of closing.

Homeowner's insurance can be paid once or twice a year. This lump sum can be a drain on the budget. Many lenders establish an escrow account for your premiums. This allows the total annual premium to be divided into 12 equal installments. You pay each installment into the account every month as part of your mortgage, which makes it easier on your budget.

If you want more information on the requirements for buying a home, or want to get that process started, please contact us.

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