Before you buy a new home, you need to calculate a new budget including your moving and closings costs, but your new home budget won’t be accurate until you’ve considered these potential insurance costs. Find out what insurance options are out there and why you might need them to avoid any unexpected outlays.
1. Homeowners’ Insurance
This one is obvious. Single-family home policies vary widely, so it pays to shop around. Commit to the research process early, and skip the online quotes for a face-to-face sit-down with a local agent. It’ll help you in the future if you have to file a claim down the line to have an existing relationship with an agent.
2. Condo Insurance
Condo associations usually have building insurance to cover the outside walls and common areas of the structure, however, you’ll need insurance for in-unit coverage. Make sure you get a copy of the association’s master policy to make sure supplemental HO6 insurance isn’t required. Your mortgage lender is a good resource for deciding exactly what insurance coverage you’ll need.
3. Private Mortgage Insurance
While 20% down is still the gold standard, it can be difficult to attain a five-figure savings account. So, you can have a lower down payment combined with private mortgage insurance, or PMI. This basically covers banks if you default on the loan. Payments vary according to the size of the loan, but they can easily add more than $100 to your monthly costs.
4. Flood Insurance
This is the one you don’t know you need. Flood damage is surprisingly not covered by most homeowner policies, but anyone who has ever had a waterlogged basement knows how costly even minor water damage can be. If you plan to buy in a flood plain, your homeowners’ insurance will require that you also have flood insurance.
5. Umbrella Insurance
This is an additional, catchall safety net. Umbrella insurance protects your assets by covering costs above and beyond what falls under your other policies. Ironically though, umbrella insurance does NOT cover you from flood damage.
6. Title Insurance
Title insurance is considered a crucial purchase for any new homeowner. It protects you from an unlawful transfer of ownership from a previous owner as well as protects you against outstanding liens from contractors or even the IRS.