Don't Forget Home Owners Insurance When Buying a House

Shopping for a new house can be intimidating. When you're buying a new home, it can help to keep a few things in mind so that you don't make any major mistakes. Remember, this is a decision you'll be living with (and in) for years.

Start your financial planning several months in advance. Pay down your credit cards and be sure to check your credit score. If there are discrepancies or mistakes, make sure these are fixed.

Make a commitment that you can stay in the house for at least 3-4 years, otherwise you may end up losing money. If this is the case, renting may be better.

Be sure you look for houses you can really afford. Generally, about three times your annual salary is reasonable, but you also have to take into account your other expenses. An online mortgage calculator can give you a more accurate estimate of what will work for you.

Educate yourself about mortgage rates. Do you understand the difference between fixed rates and adjustable rates? Will you save more by paying additional points at closing to get a lower rate? If you don't know what this all means, learn. There are lots of mortgage sites that can educate you.

Don't forget to figure in the additional costs of home ownership. Remember, you'll also need to pay property taxes, closing costs and purchase homeowners insurance.

In fact, homeowners insurance is often an area where first time homebuyers skimp on costs to their detriment. In most states, you'll be required by law to have homeowners insurance if you're taking out a mortgage to buy a home. This is how the bank protects its investment in case something happens to the house, but how much coverage is needed varies. Generally, the bank requires only enough coverage to cover the mortgage amount.

That may sound like plenty to the new homeowner, but if you move in, fill the house with furniture and a year later the house burns down, you may be in for a shock. The insurance will pay the bank back and there won't be anything left to cover your missing furniture or belongings or give you a place to stay while your home is rebuilt. What then?

That's why homeowners insurance should always cover the full value of the home plus all contents. Homeowners insurance also covers your liability if you, your family or your pets injure others on your property. Consider generous coverage for this, as medical coverage can mount quickly if your dog attacks the neighbor.

You should also be sure to talk to homeowner's insurance providers about the many different types of policies. For instance, a cash value policy will provide the replacement value of your home and its contents, so if your home is fifteen years old and the furnishings are ten years old, you will only get the equivalent value, and you will only get the cash equivalent of this; they will depreciate the value of everything. A replacement value policy will give you the cash necessary to replace the house and all of the furnishings at today's prices. If you can afford the higher premiums, a replacement policy is better coverage.

Your mortgage company may also require additional insurance coverage for flood or earthquake (which aren't included in traditional homeowner's policies) depending upon where you live. The mortgage lender will generally tell you if this is the case, but if you live in an earthquake area, especially California, or in a flood plain, be sure to ask.

There are many issues to consider when buying a home, but to protect your investment; having the proper homeowners insurance is one of the most crucial.

Seed Newsvine

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