by Stacy Francis, CFP®, CDFA
I am aware that we are in a real estate crisis and many homeowners are suffering, but everywhere around me, people are buying, buying, buying. And truly, for those who have been patiently awaiting a decline (or weakness, or at least standstill depending on where you live) in real estate prices, this is a time to celebrate. With so many of my friends closing deals on condos and houses, the topic on everyone’s mind seems to be homeowner’s insurance. Here’s what you should know.
Homeowner’s insurance is usually mandatory, at least if you are taking out a mortgage. Even when you pay cash, I still strongly recommend it.
You know how when you rent, your personal property (the things inside your house or apartment) must be insured separately? Homeowner’s insurance is different, because it covers both the building and structure of your home (along with any other buildings on the property) and your personal property. In some instances, it even covers lawsuits. It is, however, important to note that homeowner’s insurance does not cover you in the event of flooding or a major earthquake. If you live in an area affected by these, you can purchase earthquake/flooding insurance separately.
In most cases, loan providers require proof of insurance prior to closing. They then can add the insurance policy to your mortgage payments, and may sell the right to service your loan to a third party. It is important that you keep track of who your insurance agent and servicer are, and that you check in with them a couple of weeks before payments are due to make sure everything is proceeding according to plan.