Yes, home insurance. Your lender's going to require it, and you'll need to factor that cost in when you're deciding how much you can pay each month for housing. How much will it cost? That depends on several factors that are good to keep in mind as you search for the perfect home.
You've no doubt heard your real estate agent say it – location, location, location. He or she generally says it to refer to how close a particular house is to good schools or shopping or other amenities you might seek in a home. But location is important to home insurance, too. Here's how:
- Location: Your location will help determine your risk of certain perils. For example, if you live in Tornado Alley in the Midwest, you'll pay more for coverage than if you live in a part of the country where severe weather isn't as common.
- Location: Are any of the houses you're considering located in higher-risk flood zones? This is a great question to ask your real estate agent. Home insurance doesn't cover flooding, so your lender will require you to purchase a separate flood policy depending on the threat.
- Location: How close are nearest fire hydrants and fire stations? It matters. Home insurance premiums increase by up to 20% if there's no fire station within 5 miles. Depending on how far it is to the station, premiums can double. Premiums also increase if there's no hydrant within 5 miles of the house.
You really should have a CLUE
As you find homes you like, request that the owners turn over CLUE reports on the properties. CLUE stands for Comprehensive Loan Underwriting Exchange – it's a database that tracks insurance claims and losses for the home over the previous seven years. Consider it a CARFAX for homes.
Why does the CLUE report matter? Because insurance providers often consider what's on it when determining premiums for home insurance coverage for the property. They'll also consider your claims history if you've owned a home previously – consumers who file claims are considered more likely to file more claims.
In most states, providers also will consider your credit history when writing a policy. The idea, according to insurance companies, is that policyholders who have been responsible with their credit generally are much less likely to file claims.
Ask the age-old question
When you're looking at houses, be nosy. Find out when the house was built and whether the roof has been replaced since then. Look into when the plumbing, electrical and HVAC systems were modified, too. If you don't, your insurance provider will – and will raise or lower your premium according to what it discovers. Older isn't better in any of those scenarios.
Don't pool your resources
Do you want a swimming pool? How much? A swimming pool will greatly increase your home insurance premium, because of the risk it poses to guests – and for that matter, to trespassers. That's right – you can be held responsible if a trespasser – particularly a child – wanders onto your property and falls into your pool.
What that means for your home insurance is that you'll have to boost the liability coverage on your house. Your insurance provider also likely will require you to build a self-locking fence around the pool as a means to keep trespassers out.
The same goes for trampolines, skateboard ramps, jungle gyms and treehouses.
How you can save
Don't call the whole thing off. Yes, all those things can drive up your home insurance premiums. But there also are some solid ways to save:
- Don't jump on the first quote you get from a provider. Shop your home insurance with a number of providers; carriers vary greatly in how they calculate risk.
- Consider purchasing home and auto insurance from the same provider. It's called bundling, and it can save you up to 20% on your premiums.
- Ask about other discounts for things such as having deadbolt locks on exterior doors or a home security system.
- Raise your deductible – the amount you agree to pay out of pocket on a claim. All other things being equal, raising your deductible can lower your premiums. However, remember that you'll have to come up with that deductible amount if you want help from your policy.
No one's advocating that you only consider insurance factors while you chase down that dream home. But knowing how certain features can affect what you pay for home insurance could help you avoid a big surprise when you prepare to close the sale. The last thing you want is for that dream home to turn into an insurance nightmare.