Being a first-time homebuyer has never been simple or straightforward; however, many people feel it's more challenging than ever. Aside from skyrocketing prices and a lack of selection, today's first-time homebuyers need to deal with a laundry list of tasks before they can think about moving into a brand new living space.
As a first-time homebuyer, one of the most critical tasks you need to take care of is finding the right home insurance policy. Doing this will give you peace of mind and help protect your home (and bank account) from unforeseeable events.
There are several different questions you should ask yourself before committing to a home insurance policy, such as, "when to get home insurance when buying a home?" and "how much time do I have to choose a plan before closing?".
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You can find the answers to these questions and many more in the following paragraphs.
What is home insurance?
Before diving into the topic of when to get home insurance on new home purchases, we should go over the basics.
In layman's terms, home insurance is an agreement between a homeowner and an insurance company. In short, this agreement states that if the homeowner makes monthly (or annual) payments, the insurance company will cover damage caused by risks and perils (an insurance term for unavoidable damage).
Most home insurance policies cover a wide range of risks and perils, some of which include:
First-time home buyers should also know that they can add other types of coverage to their policy. Some typical risks and perils that are not included in most policies, but can be added afterwards, are earthquakes and overland water damage.
Before you commit to a plan, you should ask your prospective insurance provider to extensively list all of the risks and perils that their home insurance policies cover. Taking the time to learn this information will be invaluable throughout the decision-making process.
Is home insurance required for first-time homebuyers in Canada?
Yes, home insurance is generally necessary for first-time homebuyers (or individuals purchasing the umpteenth home). This is because most mortgage lenders require homebuyers to purchase home insurance.
Why exactly do mortgage lenders do this? Simply put, the mortgage lender is technically a partial owner of the home. Because of this, they want to take every step to ensure that it maintains its value — this, in turn, protects the mortgage lender's initial investment.
But, homeowners should remember that they can avoid this step by purchasing the property outright.
Additionally, once a homeowner has paid off their mortgage, they have the choice to keep their home insurance or go without it.
Although cancelling your home insurance may save you money in the short term, we recommend that you keep it for the entirety of your stay.
For instance, if a fire sweeps through your neighbourhood and damages your home, you'll have to pay for the repairs with your hard-earned money instead of receiving financial coverage from their provider.
When to get home insurance in Canada
As mentioned above, mortgage lenders require homebuyers to purchase insurance. But, how much time do you have to choose a plan before closing?
When to get home insurance before closing on a property in Canada
It's never too early to start comparing home insurance plans. As a rule of thumb, prospective homebuyers should begin looking for and comparing insurance plans a minimum of three weeks before closing.
However, it's not uncommon for eager homebuyers to pick a plan months ahead of time. Why do certain homeowners do this?
For starters, they need to provide their mortgage lender with what's known as an insurance binder (insurance jargon for temporary proof of insurance). It can take anywhere from 10 to 30 days for your insurance company to provide you with your insurance binder.
You cannot officially close the sale until you've received your insurance binder. Failing to submit your insurance binder swiftly can hold up the sale, thus, adding days or weeks to the home buying process.
Whatsmore, excited homebuyers can take advantage of early-bird discounts.
Some insurance companies offer proactive homebuyers a generous discount on their home insurance rates if they commit to a plan months in advance. This means that being ahead of schedule can help you save thousands of dollars throughout your time on the property.
Are there other home insurance-related requirements first-time homebuyers should be aware of?
Yes, there are several additional requirements that first-time homebuyers need to address before signing on the dotted line.
Some examples include the following:
Deductible
It's not uncommon for mortgage lenders to have deductible requirements. A deductible is an initial payment made before receiving financial aid or coverage (in this case, a loan).
In most cases, the deductible requirements are related to certain risks and perils. As an example, your mortgage lender may request that your prospective home insurance policy’s overland water damage deductible is no higher than 10%. If a particular policy doesn't meet that requirement, your mortgage lender won't approve it.
Scope of coverage
Many mortgage lenders will require homebuyers to have certain types of coverage, such as fire, wind and hail damage.
Thankfully, as mentioned above, most home insurance providers consider these standard risks and perils; thus, they are covered by most home insurance policies. If you're looking for more specific insurance information relating to cottage insurance, we've got you covered.
Amount of coverage
As mentioned earlier, most mortgage lenders will take every necessary step when it comes to protecting their investment. Because of this, many mortgage lenders require homebuyers to obtain a home insurance policy that covers 100% of the home's rebuild value.
It's important to note that this number will differ from the initial market value and may even fluctuate over time. You can get an idea of this number by contacting your prospective insurance provider or reaching out to a construction specialist in your area.
Find the right home insurance policy for that must-have property
We know how complicated and confusing it can be to find the right home insurance policy, especially for first-time buyers. We hope that after reading our article, you feel confident about finding the perfect home insurance plan. Check also this article about home insurance appraisals.
