When to get homeowners insurance before closing

Q: Can I choose my own homeowners insurance company?

Yes, you can choose your homeowners insurance company as long as the policy meets your lender's requirements.

How to shop for a homeowners insurance policy before closing

The best time to shop for homeowners insurance is during the escrow period, after the seller accepts your offer. Get quotes from several companies, compare the same coverage limits and deductibles, and confirm that each insurer can meet your lender's requirements. Starting early helps prevent an insurance issue from delaying your closing.

A good place to begin is checking with your car insurance company. Don’t stop there, though. It’s also wise to shop around. You’ll want to get home insurance quotes from multiple insurance companies.

Home insurance rates vary by company, so get multiple quotes for the same coverage level.

Insurance companies often let you bundle home and auto insurance policies -- and you get a discount. The average bundled policy discount is 18%, which is one of the largest home insurance discounts. Home insurance companies’ discounts differ, so make sure that they include them when getting you a quote.

It’s also wise to ask each insurance company about other discounts. Home insurance companies usually cap discounts at a level, such as 30%.

Other types of home insurance policy discounts include:

New construction
Electrical, plumbing and heating upgrades
Fire resistive
Roof upgrade
Loyalty
Paid in full
Fire protection
Burglar protection

You’ll also have to choose a deductible. The deductible is what you pay after you file a home insurance policy claim.

How much homeowners insurance coverage do you need? It depends on the value of your new home and your belongings.

Let’s take a look at the different parts of home insurance:

Dwelling coverage. Dwelling coverage is the part of a homeowners policy covering the house itself. It's based on the calculated replacement cost of the house.
Other structures. This covers any detached structures, like sheds. It is usually 10% of the dwelling coverage.
Personal property. Covers everything in the home, from towels to the TV. It is usually 50% of the dwelling coverage
Liability. This protects you if you're found to be liable for injuries or property damage to others. It starts at $100,000
Additional living expenses (loss of use). Pays for living expenses incurred when you can't live at home due to a covered loss.

When should I get homeowners insurance?

Start shopping for homeowners insurance as soon as your offer is accepted, and aim to have your policy selected at least one to two weeks before closing. This gives your insurer and lender time to review the policy and correct any problems before closing. Your lender will need proof of insurance before it funds the mortgage.

Getting a homeowners insurance policy doesn’t take long. You just need to know what coverage you want and the insurance professional will take it from there and get you a quote.

How soon before closing should I get homeowners insurance?

Generally, mortgage lenders want you to have proof of homeowners insurance at least three business days before the closing date of your new home. Some insurers demand proof of coverage weeks before closing to allow the lender to review the policy.

What home insurance information do you need at closing?

You will need proof of insurance that meets the lender's requirements for replacement cost coverage. You will need to have the mortgage company listed on the policy so that it will be paid in the event of a loss.

You may need to provide:

Insurance binder or proof of insurance
Policy effective date
Dwelling coverage limit
Deductible
Mortgagee information
Insurance company's name and contact information
Flood insurance information, if required

If your new home is in a flood zone, lenders may demand a separate flood insurance policy. Flood insurance covers you for flooding that comes from outside the home. The National Flood Insurance Program (NFIP), administered by the Federal Emergency Management Agency (FEMA), and private insurance companies offer flood insurance.

Is homeowners insurance paid in advance?

Yes, your lender will require you to pay the first year's homeowners insurance premium before or at closing. You can pay the premium directly to the insurer or fund an escrow account that your lender uses to pay the premium.

When you make the insurance policy a part of your escrow account, you will pay it monthly along with your mortgage payment; the bank will pay the insurance company and then bill you.

Ask your lender how much you need to bring to closing to account for the insurance premium and any initial escrow deposit.

Is homeowners insurance included in closing costs?

Yes. The first year's homeowners insurance premium is included in the money you need to pay at closing, but it is only one part of your total closing costs. Your Loan Estimate and Closing Disclosure show the estimated and final amounts you are expected to pay.

Closing costs include:

The first year of homeowners insurance
Loan fees
Title insurance
Property tax
Escrow fee
Attorney fees
Appraisal and survey fees

Closing costs usually range from 3% to 5% of your mortgage. Lenders give a loan estimate after you submit a mortgage application. The estimate shows you the expected closing costs. You’ll also receive a closing disclosure just before closing that will provide the final closing costs.

You usually have to pay closing costs with a cashier’s check.

FAQ: Homeowners insurance before closing

Can I buy homeowners insurance after closing?

No, not if you have a mortgage. Homeowners insurance is required before closing. Your lender will require proof of coverage before it funds the loan. If you buy a home without a mortgage, you are not subject to a lender's insurance requirement, but you still need to decide how and when to insure the property.

Can I choose my own homeowners insurance company?

Yes, you can choose your homeowners insurance company as long as the policy meets your lender's requirements.

Does my homeowners insurance pay off my mortgage after a house fire?

No, homeowners insurance does not pay off your mortgage after a covered loss. Insurance pays to repair or rebuild the insured home, subject to the policy terms and limits. The mortgage remains your responsibility, and the lender's mortgagee interest is protected under the policy.

Can I change homeowners insurance companies after closing?

Yes, you can switch homeowners insurance companies after closing, but you should avoid any gap in coverage. If your mortgage has an escrow account, notify your lender before changing policies so it can update the insurance information and send future payments to the new insurer.