Lingo & timing
Homeowners’ insurance must be in place before your loan can close. “Homeowner’s”, “hazard” and “fire” insurance are used pretty interchangeably, but all refer to exactly the same thing…the insurance that will put your house back together again if a tree lands on it or it catches fire.
What am I insuring?
Most loans require that you cover 100% of the cost to reconstruct your home or at least the loan balance with no more than a 5% deductible, but different loans can come with different insurance requirements. If you are buying a condo, your homeowner’s association dues likely include insurance for the structure and exterior. You just need to insure the interior of your home with something called an “HO6” policy. If you are buying a rental property, your policy must include six months of “rent loss” coverage… coverage that (you guessed it) pays your lost rent while the property is being repaired for (you guessed it again) up to 6 months.
When to tackle the insurance set-up
Take advantage of the natural lull in the action after your inspections and set up your homeowner’s insurance. You can work with any agent you’d like. Or ask and we’d be delighted to provide a referral. Tip: If you get quotes from more than one agent, have them quote your car too. Discounts always seem to come with the auto policy.
We’ll need the contact info
Set things up and tell us your agent’s contact information, but don’t pay the premium …you’ll pay at closing. A couple of weeks before your closing date, check in to confirm you agent has all the information he or she needs and is ready to issue a “binder” of coverage.
Insuring special hazards
Standard homeowners’ insurance protects against disasters like a fire or a tree falling on your home, but will always specifically exclude special hazards like floods and earthquakes.
Special flood zones
If your home or any outbuildings are in a Special Flood Hazard Area you will be required to carry flood insurance. Most listings include flood zone information, but if in doubt give us the address and we’ll check for you. Your regular insurance agent will write the policy through the National Flood Insurance Program (NFIP). Start talking about flood insurance as soon as you find out you need it. A survey or elevation certificate may be required and can take extra time. FEMA’s NFIP site has lots of information and a handy risk profile lookup/cost estimator.
Earthquake is optional
Earthquake insurance is entirely elective in Oregon and Washington. We live on a subduction zone, so it’s worth considering. Deductibles can be high (often 10%) and coverage can be tricky to secure on older homes. If you are buying in Portland, the City has assembled handy hazard maps (go here, enter the address, go to “maps” then “hazard”). Ask your agent for details on costs and coverage.
What is mortgage insurance?
Your loan will likely require mortgage insurance (MI) if you put less than 20% down. MI covers your lender’s losses if you default on the loan. Feels like a bit of a raw deal: you pay; your lender gets coverage. But remember that without mortgage insurance, all loans would require at least 20% down. If you don’t have (or prefer not to part with) 20% down, MI is your friend (okay, maybe not your friend , but at least a solution).
You have options
MI can come from a government agency or private company. It can be paid in monthly installments, in a lump sum or a combination of the two (and sometimes it can even be financed). Costs can vary based on the loan program, MI provider, down payment, method of payment and your credit score and more. We’ll talk about all of the options and help you find the best MI program for your situation and plans.