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When you buy a home, you’re likely paying more than just the down payment and closing costs. You’ll probably also need to purchase homeowners insurance. While this coverage is not mandated by law, many mortgage lenders require it before they agree to finance the purchase of your home.
Here’s what first-time homebuyers need to know before shopping for homeowners insurance.
Key Points
• Homeowners insurance is essential for protecting both the home and the lender’s investment.
• Homeowners insurance is not legally required but is mandated by most mortgage lenders.
• Homeowners insurance covers the home and its contents against various perils and includes personal liability coverage.
• It is advised to start the insurance shopping process a few weeks before closing on a home.
• Additional coverage for specific risks, such as floods or earthquakes, should be considered when purchasing homeowners insurance.
What Does Homeowners Insurance Cover?
Homeowners insurance coverage usually provides protection for a home and its contents against damage, theft, and up to 16 named perils, including fire, hail, windstorms, smoke, vandalism, and theft. It also typically includes personal liability coverage for accidents that may happen on the property (think of people slipping and falling down your stairs or your dog biting a neighbor on the property).
On the flip side, basic homeowners insurance likely won’t cover damage from disasters such as floods and earthquakes and even war (seriously). Homebuyers who live in an area prone to certain events or natural disasters may want to consider supplemental coverage. In some cases, their lender may even require it.
It’s a good idea to learn what’s generally covered by each homeowners insurance policy type — and what isn’t — to ensure you have the right protection in place.
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When You Need to Buy Homeowners Insurance
If buyers plan to get a mortgage to purchase their home, their lender will likely require they obtain homeowners insurance coverage before signing off at closing.
In reality, this is a sound business tactic, as the lender will want to protect its investment, which is the property, not the person it’s lending to. Say the home is damaged in a windstorm or burns to the ground. Insurance will cover the cost, after a deductible, without burdening the homeowner. The homeowner can then continue to pay their mortgage on time, much to the delight of the lender.
Again, if you live in an area prone to certain disasters, such as floods or earthquakes, your lender may require additional coverage. Check with your lender on what’s necessary before signing.
If a person’s first home happens to be a condo or co-op, the board may also require specific coverage, thanks to a shared responsibility for the entire complex.
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Can You Forgo Homeowners Insurance?
Technically, there are no laws requiring a person to obtain homeowners insurance, but it’s a rule put in place by many lenders.
If you’re paying cash for a new home, you can forgo purchasing homeowners insurance, though that may be a risky proposition.
Think you can somehow snake the system? Think again. If a lender doesn’t feel that the homebuyer is working hard or fast enough to find homeowners insurance before closing, the lender may go ahead and purchase insurance in that person’s name with what’s called “lender-placed insurance.”
This isn’t as cool as it sounds. Not only will it increase the mortgage payment, lender-placed insurance is typically more expensive than traditional homeowners insurance. And it may not even provide all the protection a homeowner needs or wants.
To give yourself enough time to find the right policy for you, aim to start shopping around a few weeks before closing.
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How Much Coverage a Person Needs
How much homeowners insurance a new homeowner needs will depend on the value of their home and the possessions in it. As a first step, would-be homeowners can ask their agent for a recommended amount of coverage.
After determining that number, it’s also a good idea to take stock of your belongings and see if any items may require additional coverage (think expensive antiques, paintings, or other irreplaceable items). It could also be smart to photograph and digitally catalog major items in a home for proof needed on any claims.
Replacement Cost vs Actual Cash Value
When shopping for homeowners insurance, there’s replacement cost coverage and actual cash value coverage.
Replacement cost coverage pays the amount needed to replace items with the same or similar item, while actual cash value coverage only covers the current, depreciated value of a home or possessions.
This means that if you have actual cash value coverage and disaster hits, you’ll only be able to get enough cash for the depreciated value of the home and items, not the cost of what it may take to replace them.
Most standard homeowners insurance policies cover the replacement cost of a physical home and the actual cash value of the insured’s personal property, but some policies and endorsements also cover the replacement cost of personal property.
The upshot: It’s best to go for replacement cost coverage whenever possible.
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The Takeaway
Is homeowners insurance required to buy a home? If you’re taking out a mortgage, it’s almost always a yes. It’s worth looking at your options and understanding what will and will not be covered so you can feel at ease in your new home for years to come. And keep in mind that shopping for homeowners insurance often requires considering several options, from the amount of coverage to the kind of policy to the cost of the premium.
If you’re a new homebuyer, SoFi Protect can help you look into your insurance options. SoFi and Lemonade offer homeowners insurance that requires no brokers and no paperwork. Secure the coverage that works best for you and your home.
Find affordable homeowners insurance options with SoFi Protect.
FAQ
Can I own a home without homeowners insurance?
Homeowners insurance is not legally required, so it is possible to own a home without it, but it is required by most mortgage lenders. If you don’t have homeowners insurance, you may be violating your mortgage agreement, and lenders may purchase insurance, known as lender-placed insurance, in your stead. This coverage may significantly increase your mortgage payment, and it may not even include the protection you need.
What is a normal amount to pay for homeowners insurance?
The average cost of homeowners insurance in the U.S. is $2,490 a year, according to a NerdWallet analysis. This translates to $208 a month. However, homeowners insurance rates vary overall, influenced by factors such as your location, the type and amount of coverage you have, and your property’s risk of loss.
How much coverage should I have for homeowners insurance?
The amount of homeowners insurance coverage you should have depends on the value of your home and possessions. If you have a mortgage, your lender may specify a minimum amount of coverage you should carry. You may need additional coverage for specialty items, such as antiques, and damage from natural disasters.
This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.
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