Buying a new home is always an exciting process, especially for first-time homebuyers. The housing market continues to flourish — in fact, home sales are up 20.9% from one year ago — and the number of first-time buyers saw an annualized increase of 2 million as of September 2020.
Whether you’re buying your first home or your fifth, there’s a lot to think about, from choosing the right layout for your family to finding the best location to deciding how many bedrooms and bathrooms you need. One of the less exciting parts of homebuying, though, is getting insurance.
Home insurance protects owners financially when damage occurs to the property from a covered disaster, theft or accident. While this is valuable and required by mortgage lenders, it may not be the only insurance policy you need.
Here are eight additional insurance policies first-time buyers should consider to protect their homes.
Private mortgage insurance
Also known as PMI, private mortgage insurance is often required by lenders when buyers pursue a conventional loan or mortgage with less than a 20% down payment. Unlike home insurance, this policy protects the lender in the event that you stop paying the mortgage. The cost varies depending on the lender but can add an extra $100 to $200 to a monthly mortgage payment.
Those who can should consider a 20% down payment or try to pay down their mortgage as quickly as possible to reach 20% equity. Online loan calculators, like this one, can help you play through multiple scenarios, to understand how much more you’ll actually pay a month with and without PMI.
Lender’s title insurance
Lenders require buyers to purchase a lender’s title insurance policy, which protects the lender in the event of property ownership claim and lasts until the mortgage is paid in full.
Lenders don’t always require flood insurance, but they do if you plan to buy a home in a flood zone or an area subject to hurricanes. Flooding is excluded on standard home insurance policies, so a flood policy pays to repair damage caused by flooding. On average, the policy costs $708 annually.
Even if you aren’t required to buy it, flood insurance is valuable and should be purchased as soon as you buy a home, as it can take 30 days for the policy to go into effect.
Earthquake coverage is excluded from most standard insurance policies. If you live in an area subject to earthquakes, it is a good idea to buy a policy to cover the resulting damage. The cost varies depending on the risk and location, but it’s worth the investment considering they cause $6.1 billion in damage annually.
In addition, the deductible on these policies is typically a percentage of the replacement value. For example, if a home costs $100,000 to repair and the deductible is 3%, the homeowner would be responsible for the first $3,000 of damage.
Owner’s title insurance
Like lender’s title insurance, homebuyers can purchase an owner’s title insurance policy, as well, which lasts the entire time you live in the house. Title insurance protects you in the event that somebody challenges your right to the property and files a lawsuit.
Personal property insurance
A standard home insurance policy includes some personal property coverage. However, in some cases, homeowners should consider adding additional coverage to the policy to cover collectibles, jewelry, tools and firearms.
Umbrella insurance is an additional layer of personal liability insurance that kicks in after your home or auto insurance limits are met. It is not required for homeowners, but it can be valuable and it covers all household members for claims resulting from injury to others or damage to another’s property.
A home warranty isn’t an insurance policy, but it offers protection for service repairs and equipment breakdowns in a new home. They typically last one year and cover the costs to repair or replace a failed roof, HVAC system or broken appliances.
Buying a new home is exciting, but don’t forget to do your insurance research and protect yourself financially, too!