Making the decision to buy a first home is really exciting; often these decisions come connected to other major life decisions like getting married or having children, but more and more, people are realizing that investing money into your own property, instead of spending it on rent just makes sense long term.
Finding ways to save money when you buy your first home becomes a huge priority for first-time homeowners. Whether you are buying a condo, a mobile home, or a house, you will want to find insurance that will adequately protect your investment as well as your personal belongings while saving money.
How Much Does First Home Insurance Cost?
According to Value Penguin home insurance rates range on average $952 a year, with some of the more expensive states stretching up to $2,000. Keep in mind that these rates reflect average home insurance rates, which normally would include discounts for the general population like age discounts, claims-free discounts, and in some cases, loyalty discounts.
For a first time home buyer, these discounts may not apply. That is why it is important to prepare and investigate your options to come out on top. The money you save on insurance costs could go into your mortgage or into home improvements.
Speaking to a local insurance professional before you buy a home might alert you to potential problems or high costs. Insurance professionals who specialize in home insurance see their share of claims and have access to the insurance company ratings in various areas.
What Could Make Your Home Insurance More Expensive?
- If you made claims under a previous insurance policy like a renters policy, you would not be eligible for the claims free discount which could cause you to pay significantly more on home insurance
- If you don’t take advantage of bundling your home and car insurance, you will pay more for home insurance than someone who puts all their insurance with one company. You will want to evaluate the total cost of both policies with the same insurer. Sometimes if you look at the total cost of insurance, your car insurance cost might be more expensive with your home insurer, but the discount you will get on the home may make the total cost of your insurance less. Always evaluate your insurance as an entire package and not one on one. Be strategic and use all your insurance to negotiate.
- If you never had previous insurance on a residence or if you have had a gap in your insurance history.
- If you have been previously canceled by an insurance company for non-payment (even your car insurance might count)
- If your home has special features or requirements like if it has special materials used in its construction, if it is in an area with lots of claims, or has higher risks like if it is in a flood zone or is at higher risks of wind damage and tornadoes.
5 Tips to Save Money on Your First Home Insurance Costs
There are several ways that you can take action before your first home purchase to save money adding up to hundreds of dollars on your insurance and first home purchase.
1. Do Not Leave Your Home Insurance Purchase to the Last Minute
There is a lot more to home insurance coverage than just signing up for a policy. You might be surprised how many people get so carried away with the selection of their first home, getting pre-approved for a Mortgage, the home inspection, and negotiations, that they leave the insurance on their new home to the very last minute. What happens when you do this is that you will have limited options. You will feel pressured to make a choice quickly, and you will not even care about the coverages you get with your home policy.
Do not put yourself in this position.
Tip: When you get your quote for home insurance it will be based on building or dwelling value, some new homeowners are surprised to find the real estate value of their home is not always the same as the dwelling value. This often causes unnecessary surprises, costs or issues.
Making poor insurance choices can cost you hundreds of dollars in the short term (which is bad enough), but may actually cost you thousands of dollars and a great deal of stress in the long term. When you choose insurance just because it is cheap, you often do not look into how you will be paid in a claim. You forget about the insurance once you have moved into your new home, and then when a claim happens that’s when people end up paying the most.
Do some research about the best home insurance in your area, and remember that insurance companies target their products based on who their target profile of client or risk is. The best car insurance company may not be the one who is best suited to insure your new home or lifestyle. You want to find one that offers you the most complete coverage for the things you need.
Tip: When you move to your new home, the cost of your car insurance might also increase. Car insurance rates are based on use, commutes to work, and areas where the vehicle is garaged at night, in other words where you live. Don’t forget to budget for any potential changes there as well, or use the car insurance as a negotiating factor to get a lower home insurance cost.
2. Do Not Assume the Cost of Your Insurance Will Be the Same as the Current Owner’s
Many people ask the previous homeowner how much the cost of electricity, school taxes, property taxes, and other expenses were when deciding on buying the home. The answer to how much they paid in insurance is not a good indicator of how much you will pay. If the home is in a high flood area or is in a zone where there are many windstorms or tornado claims, this information may be easy to find out; however, the basis of how the cost of their insurance is calculated will be completely unclear.
Insurance policies take into account very personal information in order to establish a cost. A person’s age, credit rating, profession, and other personal choices in what kind of insurance they chose will not represent your situation. Get an insurance price before you close the deal.
3. Mortgage Insurance Can Be Cheaper Through an Insurance Agent Than It Is Through Your Mortgage Lender
Your mortgage lender or bank may offer you mortgage insurance. The reason they do this is because they want to make sure that if something happens to you that they get their money back. Their rates may be generalized to match their average clients. This may end up costing you more money. You may have advantages over the average person. For example, if you are under 35 and in good health, your rate could be substantially less. Speak to your financial advisor or your life insurance agent before you make the deal.
4. Don’t Skip the Home Inspection; Use it to Save Money Long Term
The home inspection is your biggest clue to potential problems with your home. Having a home in disrepair can cost you a great deal of money. Home inspectors can potentially help you identify hidden problems, and alert you to repairs that you will have to make to keep your home safe from damage.
Your home inspection may also give you tips on how to improve your residence in ways that will give you discounts on your insurance costs. Your home insurance representative can help you evaluate these as well.
5. Establish Your Insurance History in Advance
Having an established insurance history can make you eligible for claims free discounts and even loyalty discounts. This can add up to savings over 20%. There are two ways you can take advantage of establishing insurance history before you buy your first home or condo.
- If you lived with someone who had insurance, like your parents, before buying your home, contact their insurance company to see if they will recognize the insurance history you already established there. You can also let your new insurance company know that where you were living before you were previously insured under your parents home policy (if there were no claims), it is not guaranteed, but it may work since you were in theory “an insured” as a family member living in that residence.
- Get a renters policy for wherever you are living before you buy a home
Having Renters Insurance Can Help Lower Costs When You Buy Your First Home
There are a lot of advantages to getting renters insurance early on in life, it not only protects you from unexpected financial burdens if there is a sudden theft or fire but it sets you up to save money on your home or condo insurance when you finally buy your first home.
Insurance companies offer discounts to people who can show a loss-free claims history. If you wait until you buy your first home to buy insurance, you could be paying up to 25% more for your home insurance rate, as compared to someone who previously had renters insurance for a few years.
According to the National Association of Insurance Commissioners (NAIC), the average cost of renters insurance is about $187 a year. This varies from state to state, however even in the most expensive areas, you could get basic coverage for under $20 a month.
So imagine you pay for renters insurance for three years, and have no claims. Let’s say that works out to $600. Then you apply for your insurance on your first home. Using this figure, If you can save 25% or more on the cost of your new home insurance by having a claims-free history already in your pocket, you’ll easily be making your money back, or doubling it, in the cases of the higher insurance rated states. Coming up with less than a dollar a day for tenant insurance, will not only protect you from financial losses while you rent, but it becomes a financial investment into lower homeownership costs in the long term.