When you buy a home, you have to gear up for different costs beyond just a monthly mortgage payment. You also have to factor in expenses like property taxes and homeowners insurance.
Both of these costs have the potential to rise over time. Your property tax bill could increase if your home gains value, or if you make improvements to your home that raise its value.
Similarly, your homeowners insurance costs could increase if you end up filing a bunch of claims against your policy. And that’s not necessarily a situation you can avoid. If your home is damaged in a storm, for example, then you’ll have to turn to your insurance company to help cover repair costs.
You may even see your homeowners insurance costs rise if a lot of people around you end up filing claims against their policies and you don’t. That may seem unfair, but when claims rise in a certain area, everyone’s costs tend to go up.
But there’s another aspect of homeowners insurance you must research before buying a home. If you don’t, you could end up in way over your head financially.
Make sure you’ll have continued access to homeowners insurance
Getting homeowners insurance is a requirement for anyone taking out a mortgage. So chances are, you’re going to need to research rates and put coverage in place before your home loan can close.
But it may be that you’re using many years of savings or an inheritance to buy a home in cash. In that case, you can close on that home before buying homeowners insurance (though not having that coverage from day one means taking a big risk). But it’s important to do some research to see what premium costs you may need to pay — and to ensure that you can afford them.
There’s another aspect of homeowners coverage you should also look into before buying a place of your own, and it’s whether insurers are increasingly pulling out of the area you’re looking to move to. We’ve seen this happen in storm-prone states like Florida in recent years, and the problem only has the potential to get worse.
When homeowners insurance companies stop providing coverage in specific areas, it leaves those homeowners with fewer choices. This allows the companies that opt to continue serving those areas to jack up their prices to the point where they’re not affordable.
Homeowners with paid-off properties can technically drop their insurance once they’re mortgage free, if their premiums get too expensive. But then they put themselves in a position where they risk catastrophic financial losses in the event of a natural disaster — or even a somewhat low-key disaster specific to their homes.
Do your homework first
You may have your heart set on living in a certain corner of the country. But before you commit to that, see what the situation is with regard to homeowners insurance. You may want to think twice about buying in an area where insurance is hard to come by, or where it’s likely to become harder to secure in the coming years.
Our picks for best homeowners insurance companies
There are many homeowners insurance companies to choose from. We’ve researched dozens of options and short-listed our favorites here. Looking for a green build discount or easy bundle policies? Want an easy-to-use interface? Read our free expert review and get a quote today.
