Homeowners Insurance

Homeowners insurance is normally required by all lenders on residences being financed and occupied by the owner(s). This furnishes protection on the property from loss or damage for both the homeowner and the lender. This type of insurance also covers garages, storage sheds, fences, personal possessions, etc. The amount of insurance coverage is usually based on the amount of the loan or set by an insurance evaluation (replacement cost approach) on the house, similar to a real estate appraisal. It is the buyers' responsibility to obtain this insurance before closing.

Homeowners insurance coverage and rate are automatically reviewed by the insurance company annually and upgraded based on the local cost index. If the lender is escrowing for the homeowners insurance, the lender receives an annual statement from the insurance company for the premiums. In most cases, the homeowner receives a copy of the annual insurance renewal policy and premium; with twelve months prepaid (plus two additional months) at closing.

It is important that the information on all insurance policies be shown precisely the way the lender requires it. This information is best obtained by the insurance agent working directly with the lender. Also, with very few exceptions, lenders require an actual insurance policy at closing and will not close on a binder.


Along with the offer to purchase, the prudent buyer can, and should, include a contingency requiring a physical inspection of the property by a certified inspector at the buyer's expense. Should the property have any problems or items in need of repair the buyer has the option of requesting in writing that the seller correct the problems or the contract can be considered null and void. The seller may correct all, some or none of the problems. This can be a negotiation process of the contract.

Depending on the type of property, the following are typical inspections conducted on residential real estate:

  1. Physical Inspection - plumbing, heating, electrical, interior, exterior, etc.
  2. Radon Gas Test