Did you know that 97% of homebuyers in 2020 used the internet to search for listings?
Whether you’ve found your dream home or are still on the hunt, the homebuying process can be tricky.
It becomes even more complicated when you factor in insurance. If you’re counting pennies, you might be wondering, “Is homeowners insurance required?”
We’re here to fill you in. Keep reading below to learn everything you need to know about homeowners insurance.
Why Is Homeowners Insurance Required by Mortgage Lenders?
While homeowners insurance isn’t technically required by law, you’ll find that it’s difficult to buy a home without it. Unless you intend to pay for your home with cash, homeowners insurance is practically a necessity.
That’s because most mortgage companies and banks require proof of homeowners insurance in exchange for a loan. So, why is homeowners insurance required by mortgage companies?
The mortgage lenders and banks want to protect their investments. If something were to happen to your uninsured home, both you and the lender would be losing money.
It’s important to note that homeowners insurance and mortgage insurance are two different things. Homeowners insurance protects your home, while mortgage insurance insures protects the lender should you stop making mortgage payments.
Understanding What Homeowners Insurance Covers
To fully answer the question “Why is homeowners insurance required?”, it’s important to understand what exactly home insurance covers. While all insurance plans will differ, you can expect them all to cover several important things.
If you’re a new homeowner, it can be tricky to decide which plan is most appropriate for your needs. It’s best to consult with an insurance company for more information if you’re unsure which is best for you.
However, if your mortgage lender requires basic coverage, it will likely offer dwelling protection. Dwelling protection insures the home if something were to happen to the home’s foundation.
Anything built into the home—from the plumbing system to the walls—will be covered with dwelling protection. Any repairs required at the expense of disasters in your policy, such as hurricanes or fires, will be covered with dwelling protection.
More comprehensive homeowners insurance includes personal property protection as well. This will protect not only the actual home but your belongings inside it. That means if your possessions were stolen, for example, your insurer would cover the loss.
Even more complex plans may offer additional coverage options, such as coverage for other structures (garages, barns, etc.) on your property, liability protection, and loss of use coverage.
Lowering the Requirement Cost
If you don’t purchase homeowners insurance, your mortgage lender has the option to purchase it on your behalf and charge you for it. This can be even more costly than buying it on your own, so it’s best to choose a plan on your own.
Chances are you can bundle it with pre-existing insurance, such as your health insurance or car insurance. Many insurance companies offer discounts if you bundle multiple insurance plans.
Finding the Right Fit for You
So, is homeowners insurance required? Well, not technically, but your moneylender will almost definitely require it to qualify for a loan. So, it’s important to understand why it’s important and what exactly you’ll be paying for under a plan.
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