Home Owner Insurance
When looking at home owner insurance, from a home buyer standpoint, it is one of 4 factors in your payment you have control over. It is indeed one in which you have the most control over that can have a HUGE affect on all the others. How so?
Lets look at your proposed new monthly mortgage payment.
Principle – This is the monthly payment applied towards the balance of “what you borrowed” and is based upon the amount you finance and the “repayment terms” you select.
Interest – This is the interest you will pay based upon the amount you finance and the interest rate YOU negotiate factored over the “repayment terms”.
Tax – This is the annual property tax bill that comes due with every home purchase. Typically it is escrowed and averaged out into 12 monthly payments. You have no control over this outside of knowing the estimated amount before contracting. It can range between 5 to 15% of your monthly payment.
Insurance – This is you home owner policy and includes Hazard and Flood insurance where applicable. This payment can equal up to 35% or more of your monthly payment!!!!
This is your PITI or proposed Monthly payment. So how does this affect you as it relates to your home owner insurance?
Well, the amount of home loan you will qualify for is directly dependent, as a percentage of you income, directly to this proposed PITI payment. So, the higher your actual home owner insurance rate, the lower your actual purchase power will be in the form of Principle – or real dollars borrowed.
This should be tremendous motivation for every home buyer to shop insurance until you drop. Literally, saving 40 dollar a month on a 6% interest rate loan can give you $4000.00 or more in additional purchase power towards what you can finance. The higher the monthly savings in insurance, the more it will translate into purchase power. You need to remember, that this can cost you just as quickly in purchase power!
The same rule applies to your interest rate and your tax liability. Higher is less, lower is more and in this instance you want more house in the form of less monthly associated cost. (interest, taxes, insurance)
So how do you maximize home owner insurance. First, you only need to insure the value of the dwelling itself. The structure. Always insure to full replacement value. This protects your long term interests as the property appreciates.
Second, you can increase deductibles, however, check with your Loan Originator first before doing this to make sure the higher deductible is in compliance with the terms of the loan offer.
In the end, the best way is to shop by referral. Your best rates will typically come as a result of someone you know telling you about this “Great Agent”. Ask around, get phone numbers and names and tell the agent who referred you.
Given just how important home owner insurance costs are, take your time and get it done right.