Getting Home Insurance Before Closing [Pre-Close Prep]
Picture this: you've found your dream home, secured a mortgage, and are ready to make it yours. But then your lender throws a curveball—you need homeowners insurance before closing. Suddenly, you're left scrambling, wondering when to start shopping for coverage and how much you need.
Don't let this scenario become your reality. Getting home insurance before closing is a key step in the home-buying process—but it doesn't have to be a stressful one.
By starting your search early and understanding what to look for, you can find the right policy that satisfies your lender's requirements and protects your investment. But how early should you start? And what exactly should you be looking for in a policy? We’ll go through all of this below.
Key takeaways
- Buying homeowners insurance before closing is required by mortgage lenders.
- You’ll need to buy enough home insurance to cover 100% of its replacement cost (which may be different from your purchase price).
- You typically pay your first year of home insurance premiums upfront as part of your closing costs.
- Start shopping for home insurance at least two weeks before closing to find the right policy.
- An HO-3 policy is the most popular type of home insurance to get before closing. But if you're buying an older home, condo, or mobile home, you may need a different type of policy.
Am I required to have homeowners insurance before closing?
Mortgage lenders will absolutely require you to buy home insurance before closing.
When you take out a mortgage, your lender is putting themselves on the line by giving you money to buy a home. One way to protect themselves is by requiring you to have home insurance. If your property is destroyed and you can’t make payments, your lender can recoup its losses through homeowners insurance.
If you’re paying cash for your home, you’re not legally required to insure your property. But it’s still a smart idea to pay for home insurance before closing.
The median home cost $427,400 in May 2024, according to data from the United States Census Bureau. The average home price was $520,000. This is a lot of money for most families. If you couldn’t afford to replace your home if a major disaster happened, you need insurance in place to protect you.
Plus, insurance provides more than just coverage for your physical home. It covers the personal items you own, your temporary living costs after a disaster, and your personal liability if someone gets hurt, among other things.
When do lenders require you to purchase homeowners insurance?
You might be wondering, “Do I need to get homeowners insurance before closing? How soon before closing should I get homeowners insurance?” Your lender may require you to buy homeowners insurance anywhere from a few days to a few weeks before closing. You’ll typically show “proof of insurance” by submitting an insurance binder or declaration page, which outlines your coverage amounts and effective dates.
Similar to how it took time to find the right mortgage lender, it may take time to find the best insurer. Give yourself at least two weeks before closing to get home insurance quotes from at least three providers.
Once you've found the right policy, apply and submit proof to your lender, and you'll be one step closer to closing on your new home.
How much homeowners insurance do mortgage lenders require?
Mortgage lenders require you to have enough home insurance to cover the full cost of rebuilding your home (known as replacement cost).
The replacement cost of your home is not the same as the purchase price. The replacement cost only considers how much it would cost to rebuild your physical home using current building materials and labor costs. It doesn’t include the value of the land your home sits on.
For example, if you bought a home for $500,000, but it would cost $400,000 to rebuild it based on current material and labor costs, you would insure it for at least $400,000.
⚡ Quick tip:
Your mortgage loan contract should clearly list the minimum amount of home insurance you’re required to have. If you fail to purchase the minimum, your lender may take out force-placed insurance on your behalf, which can be more expensive than getting a policy on your own and will likely only protect your insurer’s interest in the home itself. Meaning, you may not have personal property or liability coverage.
Homeowners insurance - what type is right for you?
There are eight common types of home insurance you can purchase before closing: HO-1, HO-2, HO-3, HO-4, HO-5, HO-6, HO-7, and HO-8. Each policy is designed for a different type of property (like a single-family home, condo, mobile home, and so on). Since single-family homes are the most popular type of property, there are several policy options available specifically for this type of dwelling.
This table summarizes the different types of home insurance and which might be right for you:
Policy type | Property type | Coverage |
|---|---|---|
HO-1 | Single-family homes | Limited coverage for home structure only |
HO-2 | Single-family homes | Moderate coverage for home structure and belongings, plus liability |
HO-3 | Single-family homes | Broad coverage for home structure, moderate coverage for belongings, plus liability |
HO-4 | Renters | Moderate coverage for personal belongings, plus liability |
HO-5 | Single-family homes | Comprehensive coverage for home structure and belongings, plus liability |
HO-6 | Condominiums | Moderate coverage for personal belongings and certain building areas, plus liability |
HO-7 | Mobile homes | Broad coverage for mobile home structure, moderate coverage for belongings, plus liability |
HO-8 | Older or historic homes | Limited coverage for home structure and belongings (based on actual cash value), plus liability |
An HO-3 policy is the most common type of home insurance if you’re buying a single-family home. It offers a balanced mix of dwelling, personal property, and liability coverage. However, if you have unique needs or a specific property type, one of the other policy types may be better.
⚠️ Warning:
Home insurance doesn’t cover all natural disasters and catastrophes. You may need to purchase separate flood insurance or earthquake insurance before closing, depending on where you live.
Paying for homeowners insurance at closing
You’ll pay for an entire year’s worth of home insurance upfront at closing. Many lenders roll this payment into your closing costs, along with your mortgage origination fees, property taxes, and title insurance.
After closing, your lender will continue to collect home insurance premiums from you as part of your monthly mortgage payment. Your lender will hold these premiums in an escrow account and pay your home insurance for you the next time it’s due.
You may have the option to pay for homeowners insurance yourself if your lender allows it.
Remember, home insurance doesn't have to be complicated. With Hippo, you can get a quote in just 60 seconds and find the right policy for your needs. Don't wait until the last minute — start exploring your options today to ensure a smooth closing process.
Still have questions?
Still have questions about getting homeowners insurance before closing? These frequently asked questions may help.
Why do you prepay for homeowners insurance before closing?
Home insurance is paid in advance to ensure you (and your lender) are protected from the moment you get the keys to your home. You usually prepay for homeowners insurance at closing. After that, your lender will hold money in an escrow account to pay future premiums.
What is the first step when buying home insurance?
The first thing you’ll want to do when buying homeowners insurance is determine how much coverage you need. This involves calculating the replacement cost of your home, which is the amount it would take to rebuild your house from the ground up. Once you have this figure, you can start shopping around and comparing quotes from different insurance providers. You’ll also need to decide if you want replacement cost coverage or actual cash value coverage for your belongings. One pays out more than the other when you file a claim.
Should I use the insurance referral provided by my mortgage lender or realtor?
It’s perfectly okay to use the insurance referral from your mortgage lender or realtor, but don’t stop there. Aim to get quotes from a few different providers so you can compare options and make sure you’re getting the best deal. Skipping this step can increase your closing costs and leave you paying more for home insurance than you should.
How long does it take to get homeowners insurance?
It can take anywhere from a few days to a week to get home insurance once you’ve found the right provider. Start shopping for insurance at least two weeks before your closing date so you have enough time to compare options.
