If you plan on taking out a mortgage on a home, your lender will require homeowners insurance to protect the property against perils like house fires and weather-related damage. If you’re a first-time homebuyer, the process of buying homeowners insurance may seem complicated, but it can be done in a few simple steps. Read our guide below for tips on how to get homeowners insurance as a first-time home buyer.
Key takeaways
If you’re taking out a mortgage on your new home, you’ll need to get homeowners insurance prior to your closing date.
First-time homebuyers should start shopping for coverage at least 30 days prior to closing.
When setting up your insurance policy, make sure the insurance value on your home is reflective of its replacement cost, not its market value.
Consider bundling your home and car insurance policies for lower rates.
5 tips for home insurance for first-time home buyers
Below are some tips for purchasing homeowners insurance as a first time buyer.
Tip 1: Shop for homeowners insurance well in advance of your closing date
It’s best to start shopping at least 30 days prior to closing on a home loan. Most mortgage lenders require proof of homeowners insurance — or a home insurance binder — at least three days out from your closing date, but it’s not uncommon for lenders to request policy documentation as early as 15 days prior to closing.
Giving yourself a few extra weeks to shop around for coverage not only ensures you won’t delay your closing date, but it also gives you more time to evaluate and determine your coverage needs. Setting up your policy ahead of time can also earn you a generous policy discount.
“It’s always a good idea to get ahead of shopping your home insurance,” says Fabio Faschi, former property and casualty team lead at Policygenius. “As an incentive to think ahead, many insurers provide an early quote discount for those who set up their coverage around a week prior to its start date.”
→ Learn more about how to buy homeowners insurance
Tip 2: Insure the home at its replacement cost, not market value
One common misconception shared by many first-time homebuyers is that you only need enough homeowners insurance to cover the value of your mortgage or the home’s market value, but basing your home’s insurance amount on those numbers will often leave your house either over- or underinsured.
What you’re actually looking for is the home’s replacement cost, or the amount it’d cost to rebuild the home at today’s cost of labor and construction. The replacement cost doesn’t include the cost of land, so your home’s replacement cost is often lower than its market value. Your homeowners insurance company will generate an estimate of your home’s replacement cost when you shop for a policy, but you can also calculate it yourself to ensure you’re getting the right amount of coverage.
Tip 3: If you have a car, consider bundling your home and auto insurance
There are a few significant benefits to bundling your home and auto insurance that are worth considering: Bundling makes shopping for insurance easy, it gives you the convenience of only having to pay one bill (and remember one account login), and it often results in generous discounts. Policygenius customers have saved an average of 30% by combining their home and car insurance policies with a single company.
When shopping for home insurance, consider any other lines of property insurance that you already have or that you’re curious about. Are you already paying more than you’d like for car or boat insurance? Do you have additional assets that need protection with a personal umbrella policy? Then consider maximizing your savings by getting all of your coverage through one company.
Our team of licensed agents at Policygenius can help you bundle your policies! Simply click the Start calculator button and enter some information about your new home and cars, and they'll give you quotes from a slew of different companies to help you find the best deal — all for free!
→ Learn more about bundling home and auto insurance
Tip 4: Determine how much you’re willing to pay out of pocket vs using your home insurance
When finalizing the details of your home insurance policy, you’ll need to set a policy deductible, which is the lump sum amount you’re responsible for paying before your insurance company pays for the remainder of a loss. A higher policy deductible can lower your homeowners insurance rates, but it also means you’ll be paying more in the event you need to file a claim.
When setting your deductible, you’ll have to determine how much you’re okay with paying out of pocket. Below is how much several major insurers charge for different deductibles.
Company | $500 deductible | $1,000 deductible | $2,000 deductible |
|---|
State Farm | $2,327 | $2,039 | $1,551 |
Allstate | $1,776 | $1,596 | $1,104 |
USAA | $1,090 | $1,432 | $332 |
Nationwide | $1,951 | $1,955 | $1,781 |
Chubb | $2,190 | $1,922 | N/A |
Tip 5: Consider how much liability coverage you need
Liability coverage is the part of your homeowners insurance that pays for medical or legal fees if you’re responsible for someone else’s injury or damage to their property. For example, if a guest falls down your stairs and needs surgery, you can file a personal liability claim to pay for their medical expenses. It’s important to have enough liability coverage to cover all of your assets — your home, car, retirement savings — in the event of a costly lawsuit.
Unlike dwelling coverage — which covers your home if it’s damaged — how much liability coverage you have doesn’t always increase your home insurance costs. Below is how much a few major insurers charge for different amounts of liability coverage.
Insurance company | $100,000 in liability coverage | $300,000 in liability coverage | $500,000 in liability coverage |
|---|
State Farm | $2,023 | $2,039 | $2,055 |
Allstate | $1,572 | $1,596 | $1,645 |
USAA | $2,023 | $1,432 | $1,437 |
Nationwide | $1,934 | $1,955 | $1,969 |
Chubb | $1,877 | $1,922 | $1,956 |
How to save on home insurance for first-time home buyers
Most major insurers offer plenty of discounts to help you save on home insurance. Below are a few common discounts.
Claims free discount. Insurers often offer a discount if you’ve gone a number of years without filing a claim. Since you’re a first-time buyer, you won’t have any claims on your record and may be eligible for a discount.
New home discount. If your home is new construction or it was built recently, you may receive a discount.
Smart home discount. Some insurers may offer a discount if your home has smart devices, like smart locks or gas leak sensors.
Paid in full discount. If you pay your premiums in full upfront when you purchase your policy, you’ll likely receive discounted rates.
→ Learn more about home insurance discounts
How much does home insurance cost for first-time home buyers?
The average cost of homeowners insurance is $1,899 per year, according to our analysis of 2022 Quadrant Services data. That said, how much your home insurance will cost depends on a variety of factors, such as:
Average cost of home insurance based on the age of your home
Here's the average cost of home insurance in the U.S. in 2022 based on our analysis of home insurance premiums for homes of different ages:
Age of home | Average annual rate |
|---|
New home | $1,162 |
10-year-old home | $1,598 |
20-year-old home | $1,789 |
30-year-old home | $1,836 |
50-year-old home | $1,870 |
100-year-old home | $1,876 |
Methodology: Annual rates are based on our analysis of home insurance premiums provided by Quadrant Information Services in March 2022 for ZIP codes in all 50 states plus Washington, D.C. for policyholders with homes of different ages.
Frequently asked questions
What is the first step when buying homeowners insurance?
A good first step to buying home insurance is learning about how much coverage you need. You can do this by determining your home’s replacement cost with a replacement calculator or by getting an appraisal. You can also get a rough estimate by multiplying your home’s square footage by the average local rebuild cost per square foot.
Who is considered a first-time buyer?
Like the name implies, a first-time buyer is someone who has never owned a home before. However, when it comes to qualifying for loans or government assistance programs, you may be considered a first-time buyer if you haven’t owned a home in a certain amount of years — just keep in mind that this depends on what state you live in.
Do most lenders require that you purchase homeowners insurance?
Yes, most lenders require you to have homeowners insurance on a home until the loan is paid off.
