Buying a home is an exciting stage of life. This significant purchase means you should familiarize yourself with everything you need to know for your closing, including homeowners insurance. Although not required by state law in Kentucky or Tennessee, most mortgage lenders require this essential coverage.

When Do I Purchase Coverage?
Most mortgage lenders require proof of homeowners insurance anywhere from a few days to two weeks before your closing. It’s a good idea to begin shopping around about a month before your closing—which may be as soon as you have an accepted offer on a home, as the average home closing process takes 30 to 45 days. Having your insurance in place helps ensure you don’t have to delay your closing date because you don’t have the coverage you need. It also provides enough time to evaluate your insurance options.
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What Homeowners Insurance Information Do I Need for Closing?
Before closing, your lender will require you to get a homeowners insurance policy and keep your home insured until you pay off your loan. Once you have a policy in place, your mortgage lender will require you to provide proof. For this evidence, you’ll need a copy of your home insurance binder, which is a one-page document showing temporary evidence of coverage. If you already have your policy declarations (i.e., a summary of your homeowners insurance policy) by your closing date, however, that can serve as proof of insurance.

Is Homeowners Insurance Included in My Closing Costs?
Every home purchase is unique. Sometimes homeowners insurance is paid at closing, and the cost is included in a “cash to close” statement provided by the lender. If you’re not buying your home with cash, your lender will probably require that you pay one year’s worth of your homeowners insurance before or at closing.

Prepaid costs, such as your homeowners premium, are not the same as closing costs. Your lender may require that these fees be deposited into a specific prepaid escrow account, which differs from the escrow accounts that distribute funds between the buyer and seller.

How Much Coverage Do I Need?
Your homeowners insurance should cover 100% of your home’s replacement value or the cost to rebuild it. This amount is different from your home’s market value or the purchase price.

Your insurer generally calculates replacement costs. You can obtain a more accurate estimate by getting a proper replacement cost appraisal of your home or consulting with a local contractor.

Your homeowners insurance policy may also require a mortgagee clause. This clause ensures your policy won’t be canceled without a minimum 30-day written notice to your lender.

Other Insurance Considerations
Besides homeowners insurance, if your home is in a high-risk flood zone, your lender may also require that you have flood insurance. Augustine Insurance can help you review what insurance you need for your home purchase, and we can work with you to ensure you have everything you need for your closing day.

Do I Buy Homeowners Insurance Before Closing?

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