First-Time Homebuyer Insurance Policy

Save Money With These Tips

Image shows a silhouette of a woman entering a home. There is a "sold" sign with a cat sitting atop, and a rainbow Pride flag flying near the door. Text reads: "Tips for saving on your first home insurance policy: don't wait to the last minute, use an insurance agent (not a mortgage lender), get a home inspection, have an established insurance history, get a discount through your renters insurance company"

Image by Miguel Co © The Balance

Deciding to buy a first home is exciting. Often the decision comes connected to other major life decisions like getting married or having children. People realize that investing money by owning property, instead of spending it on rent, makes long term sense.

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 cost-effective insurance that adequately protects your investment and personal belongings.

How Much First Home Insurance Costs

According to the National Association of Insurance Commissioners (NAIC), home insurance rates averaged $1,211 a year in 2017. Some more expensive insurance states can stretch up to $2,000 a year in premiums. Keep in mind that these rates reflect the average home insurance rates—which normally include discounts like age reductions, claim-free discounts, bundling discounts, and loyalty discounts. For a first time homebuyer, 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 premiums could go into your mortgage or 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 insurance company ratings in various areas.

What Can 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 claim-free discount, which could cause you to pay significantly more on your annual insurance premium. Also, if you don't take advantage of bundling your home and auto insurance, you will pay more than someone who puts all their various coverage under one company.

Before you bundle, you should evaluate the total cost of both policies under 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. However, the discount you 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 shop around.

You may also pay more if you never had previous insurance on a residence or had a gap in your insurance history. Higher premiums may also come if an insurance company has previously canceled you for non-payment—even your car insurance might count.

If your home has special features or requirements you can expect to pay more. These include if your home has special materials used in its construction, it is in an area with lots of claims or has higher risks—like being in a flood zone—or is at higher risks of wind damage and tornadoes.

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.

Don't Leave 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 may feel pressured to make a choice about your homeowner's policy quickly, limiting the time you have to consider the coverages you get with your home policy. Do not put yourself in this position.

When you move to your new home, your car insurance cost 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 in your auto insurance premiums related to a move.

Making poor insurance choices can cost you hundreds of dollars in the short term—which is bad enough—but it may 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 protect your new home or lifestyle. You want to find one that offers you complete coverage for the things you need.

Do Not Assume the Cost of Your Insurance Will Be the Same as It Is for the Current Owner

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 to establish a cost. A person's age, credit rating, loss history, lifestyle choices, and other personal preferences related to the kind of insurance they choose will not represent your situation. Get an insurance price quote before you close the deal.

Using an Insurance Agent Rather Than a Mortgage Lender

Your mortgage lender or bank may offer you life insurance to cover the cost of your mortgage in the event you die. They do this because they want to make sure that if something happens to you, they get their money back. Lender coverage rates may be generalized to match their average clients. This generalization may cost you more money, even if you have advantages over the average person. For example, you're under 35, and in good health, then your rate could be substantially less. Speak to your financial advisor or your life insurance agent before you make the deal.

Don't Skip the Home Inspection

The home inspection is your biggest clue to potential problems with your future 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.

Establish Your Insurance History in Advance

Having an established insurance history can make you eligible for claim-free discounts and loyalty discounts. These reductions can add up to savings of over 20%. There are two ways you can take advantage of establishing an insurance history before you buy your first home or condo.

If you lived with someone who had insurance—like your parents—before buying your coverage, contact their insurance company to see if they will recognize the insurance history you already established. Let your new insurance company know that you were previously insured under your parent's home policy. It may work since you were, in theory, "an insured" as a family member living in that residence—if there were no claims. But there is no guarantee. Also, try to 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 in life. It protects you from unexpected financial burdens if there is a sudden theft or fire, and 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 claim history. If you wait until you buy your first home to buy insurance, you could be paying up to 25% more for your coverage, than someone who previously had renters insurance for a few years.

According to the NAIC, the average cost of renters insurance in 2017 was about $180 a year. This amount 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 save 25% or more on the cost of your new home insurance by having a claim-free history established by your renter's history, you'll easily see the return in your homeowner's insurance premiums both short and long-term.

Coming up with less than a dollar a day for tenant insurance will protect you from financial losses while you rent. It becomes a financial investment into lower homeownership costs in the long term.