A First-Time Homebuyer’s Guide to Home Insurance: What to Know Before You Close
Buying your first home is an exciting milestone—but it also comes with a steep learning curve, especially when it comes to home insurance. Many first-time buyers are surprised to discover how much homeowners insurance matters in the closing process and how complex selecting the right policy can be. This guide breaks down the most important things to consider when shopping for homeowners insurance for the first time.
Why Home Insurance Matters When Buying a Home
Homeowners insurance protects your investment. Not only does it cover the structure of your home, but it can also protect your personal belongings and provide liability coverage in case someone is injured on your property.
If you're using a mortgage to purchase your home, your lender will likely require that you have a homeowners insurance policy in place before closing. They need to ensure their financial interest is protected in case of damage or loss.
When to Start Shopping for Home Insurance
Timing is key. You don’t want to wait until the last minute to buy insurance. Here’s a general timeline:
Start shopping right after your offer is accepted. This gives you time to compare policies, review coverage, and avoid delays that could impact closing.
Secure a policy at least 1–2 weeks before closing. Your mortgage lender will need proof of insurance (a declarations page or binder) before they issue final loan approval.
Coordinate with your escrow company or attorney. Your first premium is often paid at closing through your escrow account, so your closing team needs the information in advance.
What Affects Home Insurance Rates in Michigan?
Several factors go into calculating your premium when buying a home in the state of Michigan. Being aware of these ahead of time can help you anticipate your costs:
| Factor | Impact |
|---|---|
| Location | Homes in areas prone to flooding or wind damage in Michigan can impact your rates |
| Home age and condition | Older homes or homes with outdated systems (plumbing, electrical, roofing) can mean higher premiums. |
| Size and value | Larger or more expensive homes generally cost more to insure due to higher replacement costs. |
| Claims history | Both your personal history and the home’s claim history (known as a CLUE report) can affect your rate. |
| Credit score | In most states, insurers can use your credit score as part of the risk assessment, which influences pricing. |
| Deductible | Choosing a higher deductible can lower your premium—but it also means you’ll pay more out-of-pocket if you file a claim. |
Here’s a breakdown of the standard components of a homeowners policy:
Dwelling Coverage: Covers damage to the home’s structure.
Other Structures: Covers detached garages, fences, sheds, etc.
Personal Property: Covers your belongings, such as furniture and electronics.
Loss of Use: Pays for additional living expenses if you need to live elsewhere while repairs are made.
Personal Liability: Covers you if someone is injured on your property.
Medical Payments: Covers minor medical expenses for guests injured on your property.
It’s crucial to read the fine print. Some policies only cover actual cash value (ACV), which factors in depreciation, while others cover replacement cost, which pays to repair or replace without deducting for age or wear.
Final Tips for First-Time Buyers
- Compare multiple quotes: Get at least 3–5 quotes from different carriers.
- Work with an independent agent: They can shop multiple carriers on your behalf.
- Understand exclusions: Know what your policy doesn’t cover (e.g., floods, earthquakes).
- Update your coverage annually: As your home value changes or you make improvements, make sure your insurance keeps up.
Wrapping It Up
Homeowners insurance isn’t just a formality—it’s a critical piece of your home-buying journey. Starting early, understanding what impacts your rates, and knowing what coverage you need will help you make an informed decision and avoid closing delays.
Take the time to shop around and ask questions. Your first home is a big investment, and the right insurance policy ensures it’s protected from day one.