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Whether you’re buying a home or shopping for new insurance coverage, it helps to understand basic homeowners insurance terms before you choose a policy.

The jargon used by real estate agents, lenders, and insurance professionals can be mystifying. It doesn’t help that terms for various types of homeowners insurance coverage often sound interchangeable but aren’t. Or that different lenders may have different requirements for the kinds of insurance coverage a borrower must have. Or that homeowners may require various types of coverage, and limits, based on their individual circumstances.

Need some clarity? Consider this homeowners insurance glossary a go-to resource.

Blanket Insurance

Blanket insurance enables a property owner to cover multiple pieces of property with one policy. For example, a landlord who has many rental units might take out a blanket policy to insure them all.

A homeowners insurance policy also may be referred to as blanket insurance coverage because it offers more than one type of protection. (A standard policy may combine dwelling, personal property, and liability coverage, for example.)

Recommended: Homeowners Insurance Coverage Options to Know

Flood Insurance

A standard homeowners policy typically offers some coverage for unexpected water damage due to a plumbing malfunction or broken water pipe. But most standard homeowners policies do not cover damage caused by an overflowing body of water, like a creek, bay, or river. That kind of protection usually requires a separate flood insurance policy.

Some property owners may be required to carry flood insurance, especially if they live in a high-risk area.

Hazard Insurance

When you hear the term “hazard insurance,” it’s typically referring to the portion of a homeowners policy that kicks in when someone suffers a loss caused by certain hazards or “perils,” such as fire, hail, theft, a falling tree, or a broken pipe.

Not every hazard is covered by a standard policy, however. Homeowners usually need separate insurance to cover damage caused by a flood, earthquake, or sinkhole.

Recommended: Hazard Insurance vs. Homeowners Insurance

Homeowners Insurance

A typical homeowners policy covers the physical structure of an insured home and other structures on the property, personal belongings in the home, and additional living expenses if the owner can’t stay in the home after damage. (However, it is usually necessary to purchase separate insurance to cover costs related to an earthquake, flood, or sinkhole.)

A policy also provides liability coverage, which can protect you, as the homeowner, if you’re legally responsible for another person’s injury or property damage when it occurs on your property or from your activities. For example, if someone is injured because you neglected to fix your front porch step, liability insurance may help pay for that person’s medical bills. The liability portion of your policy also may provide protection if your pet bites a person or another animal, whether the bite occurs in your own yard or somewhere else.

There are no federal or state laws that require the purchase of a homeowners policy, but if you have a mortgage, you can expect your lender to require proof that you carry this type of insurance.

Homeowners insurance is not the same thing as mortgage insurance. Homeowners insurance mainly protects the homeowner when something unexpected occurs; mortgage insurance is designed to protect the lender if a borrower can’t make mortgage payments.

Homeowners insurance is also quite different from the protection offered by a home warranty. A home warranty is a service contract that generally covers the cost of repairing or replacing some appliances and major home systems when they malfunction, but home warranties are not required by lenders.

Mortgage Insurance

Mortgage insurance protects lenders against the possibility that a borrower might fail to make the payments on a home loan.

When a homebuyer appears to have a higher risk of defaulting, mortgage insurance can serve as a backup to reassure the lender that if the borrower fails to make the mortgage payments, the loan still will be paid. The lender doesn’t pay for this insurance — the borrower does.

Not everyone has to get mortgage insurance. But if you have a conventional loan and your down payment is less than 20% of the purchase price, you’ll probably be required to get private mortgage insurance, commonly called PMI — at least until you have 20% of the principal balance paid off.

The rules are a bit different for those who have a loan backed by the Federal Housing Administration (FHA) or Department of Agriculture (USDA). With an FHA loan, borrowers are required to pay a qualified mortgage insurance premium each month no matter how much they put down. USDA loans have a similar requirement, but the cost is referred to as a “guarantee fee.”

Renovation Insurance

Homeowners who are planning to make major renovations or repairs to a property may want to check with their insurance company to see what their homeowners policy covers.

Depending on the size of the project, they may decide it makes sense to add “dwelling under renovation,” “dwelling under construction,” or “builder’s risk” insurance to fill any coverage gaps. It can help with costs if the homeowner or someone else is hurt during a renovation, for example, or if the home or a nearby property is damaged.

If professionals will be doing the renovation, it’s also a good idea to ask for proof of their insurance coverage and to make a copy just in case there are problems. Contractors and subcontractors should have liability, property, and worker’s compensation insurance.

If the home will be unoccupied for an extended period while the work is being done, owners may want to consider adding vacant dwelling insurance during that time. (Vacant dwelling coverage also might offer protection for those who have moved into a new home but haven’t yet sold their old home.)

Recommended: Guide to Buying, Selling, and Updating Your Home

Rental Property and Home-Sharing Insurance

Owners who are renting a home to someone else may want to look at the pros and cons of purchasing rental property insurance vs. a standard homeowners insurance policy. Besides covering repairs if the home or other structures on the property are damaged, rental property insurance may cover the owner if a tenant is injured and makes a claim. An owner also might be able to receive reimbursement for lost income if the property is deemed uninhabitable due to a covered loss.

What about insurance for short-term rentals like Airbnb? Business use of a house is usually not included in homeowners insurance coverage. Home-sharing insurance may provide liability coverage but not damage to the home or coverage of personal belongings. You may need an add-on to your homeowner’s insurance.

Renters Insurance

If you’re a renter, renters insurance will cover your possessions if something is stolen or damaged. And it may help with certain costs if someone is injured in the rental home, or help pay for accommodations if the home is damaged and you have to move out temporarily.

Though renters insurance is mostly meant to protect a tenant who is leasing a property, it also can have benefits for the landlord. This is why some landlords require tenants to have renters insurance when they sign a lease. For the landlord, renters insurance can help take care of some of the things a homeowners policy or landlord policy doesn’t, including damage from a renter’s pet.

Title Insurance

When you buy title insurance, the title company searches for any ownership issues that might cause legal problems after you close on the property. It will look for any liens that might remain on the property, for example, or clerical problems that weren’t caught and fixed in the past.

If there aren’t any problems (or the problems are remedied), the title company will insure your claim to the property’s title. And if something does come up later — let’s say there’s a lawsuit because the title search missed something — the policy should cover the costs of resolving the problem.

There are two types of title insurance: Lenders title insurance protects the mortgage company from incurring any costs in a title dispute. Owner’s title insurance protects the homeowner. The mortgage company likely will require that you purchase lenders’ title insurance. Owner’s title insurance is optional, but once you buy it, the coverage lasts as long as you own your home.

Title insurance is not included in a homeowners insurance policy.

Umbrella Insurance

A separate liability insurance policy, umbrella insurance goes beyond the liability coverage provided by a standard homeowners or auto insurance policy.

It’s designed to expand your protection if a claim or lawsuit is filed against you, and it only kicks in if you exceed the liability coverage limit you have with your homeowner’s insurance policy.

If you own rental property, employ a housekeeper or gardener, have a trampoline or pool — or if you have substantial assets you wish to protect — you may want to talk to your insurance company about the added risk and whether umbrella insurance is right for you.

The Takeaway

When you’re buying a home or shopping for a new homeowners insurance policy, there’s a lot to manage. Understanding homeowners insurance terms is key in protecting this major investment.

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. To help simplify the process, SoFi has partnered with Experian to bring customizable and affordable homeowners insurance to our members.

With Experian, you can see personalized quotes from up to 40 top insurance carriers. Match your current coverage to new policy offers with little to no data entry. And easily bundle your home and auto insurance to save money. No fees, no paperwork.

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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There are a number of factors that affect house prices, from the age, condition, location and size of your home, to broader factors like the economy and current interest rates. If you’re thinking about putting your house on the market, it’s important to know what determines property value so you can ensure you get the most out of what’s likely your largest asset.

Read on to learn more about the main factors that make property value increase and how you can figure out how much your home is worth.

Recommended: Does Net Worth Include Home Equity?

Factors that Affect Home and Real Estate Value

Factor #1: Location

There’s a reason everyone will tell you that real estate is about location, location, location — it’s true. When it comes to factors that affect property value, location is one of the biggest determinants.

Keep in mind that while your home’s location works for you, others will have their own criteria. For example, how good are the schools in the area? Is shopping and entertainment accessible? What are property taxes like in the neighborhood? Is it a long commute to downtown or wherever many jobs may be?

Factor #2: Size

Size often isn’t the be-all-and-end-all, but it’s nearly so when it comes to what determines property value. Square footage plays a big role when it comes to house prices. For example, if the median price per square foot in the U.S. is $123, you’ll be getting more for a house that’s 4,000 square feet than one that’s 2,000 square feet.

It also matters how much of the space in your house is actually usable. Spaces like unfinished garages and basements as well as attics typically won’t boost your home’s value even if they do tack a lot onto the total square footage. What will matter in terms of square footage are areas like bedrooms and bathrooms.

Recommended: Should I Sell My House Now or Wait?

Factor #3: Real Estate Comparables

You’re supposed to love thy neighbor, but you might give them the side-eye if their home is not well-maintained and becomes a drag on the desirability of your street as well as on home prices. When it comes to home values, your neighbors are critical. If their homes are being highly sought by buyers, you’ll likely benefit from the popularity of the area.

The word to know here is comps, or comparable homes in your area that have sold in the last 12 months. These are part of what realtors and home appraisers rely on when estimating how much your home is worth.

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Factor #4: Age

While it may be frowned upon to ask someone their age, it’s an essential detail when it comes to home buying. If you’re dealing with a home that has a few decades in the rear-view mirror, you’ll have to do some math. How soon might the roof and other major systems need to be replaced or upgraded? That can affect the price someone is willing to pay, as they might want to pay less if they’re anticipating needing to shell out money for those repairs.

A house that is less than 10 years old — and even better if it’s less than five — can command more money because the buyer has a certain amount of confidence that repair bills shouldn’t be on the immediate horizon. They expect they’ll have time to save money for when that day eventually arrives.

Factor #5: Condition

If your home isn’t in tiptop shape, don’t expect to bring in the big bucks. In fact, if you have the luxury of time, it might behoove you to make any necessary repairs and do any upgrades and updates before you put your house on the market so you can maximize the chances it will get set at a higher price. Consider the cost of home improvements an investment.

At the same time, you don’t want to get too carried away here, as it is possible that you won’t be able to recoup all that you spent. Do just enough so that you might be able to squeak out some profit when you sell. While it varies by region of the country and other factors, Remodeling Magazine found that projects that can pay off include a garage door replacement, manufactured stone veneer and a minor kitchen remodel. Some of the less profitable projects included an upscale bathroom addition and an upscale master suite addition.

Factor #6: The Economy

You could have crossed all your t’s and dotted all your i’s — your home is attractive inside and out and you’re in a great location. Trouble is, if the economy is less than stellar, you could be stuck until it swings back into positive territory. If people are uncertain and feeling insecure due to the economy, they may decide to delay major life changes, such as buying a home. Or, if they do move forward, they may be looking for bargains, which is a downer for you.

Your local economy and market also figure into the equation. It’s about supply and demand. If there is a shortage of available housing in your area and tons of potential buyers on the hunt, you could capitalize big time on a hot market — think bidding wars and selling your home faster than you could have imagined.

Factor #7: Interest Rates

When interest rates are at the historic lows, it’s an incentive to buy. This is because doing so can be dramatically less expensive. On the flipside, when interest rates tick upward, fewer people may be able to home shop because it’s more costly. If demand slows, the price you can command may dip as well.

How to Check What Your Home Is Worth

Get an appraiser: One way to check how much your home is worth is to get an appraiser, someone who is licensed or certified by the state, to conduct a home appraisal. The appraiser will review your home from top to bottom and compare it to other homes in the area and beyond to determine its fair market value.

Make a list of comparables: You could also go dig up property comparables on your own. For example, you can call real estate agents with homes in escrow to learn the sales prices. There are also several websites that could give you valuable insight on your home’s value, including Zillow, Trulia, Redfin, Realtor.com and Eppraisal, among others.

Use an HPI calculator: Another option is to use a house price index (HPI) calculator , which uses data from mortgage transactions over time to estimate a home’s value. The calculator makes projections based on the purchase price of the home and the changing value of other homes nearby. This tool is ideal for seeing how much a house has appreciated over time and any estimated future changes in mortgage rates.

The Takeaway

Knowing what factors impact your home’s value is like knowing how much money you have in the bank. Determine where you may have weaknesses so you can make the necessary adjustments to get the maximum value for your home when you go to sell.

If you need to save up to make some necessary repairs and upgrades before you put your home on the market, a money tracker tool like SoFi’s can help you finesse your budget accordingly.

Photo credit: iStock/terng99

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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If you’re like many Americans, you’ll need to take out a home mortgage to buy a house. A home of your own will likely be one of the biggest purchases you’ll ever make, and the terms and interest rates you end up paying can have big financial consequences.

That’s why it’s important to do what you can to find the best mortgage rates, from having a healthy credit score to comparing lenders to hitting the negotiating table to find the best deal.

Putting Your Financial House in Order

Before you start shopping for a mortgage, take a look at your credit score. A low credit score may be a signal to lenders that lending to you is risky. Those with a lower credit score may find it difficult to get a mortgage — running into limited options — or may be offered loans with higher interest rates.

Generally speaking, the higher your credit score, the easier it will be to get a mortgage. You may be offered better rates, and you may have an easier time negotiating with different types of mortgage lenders. In general, you’ll need a credit score of 580 to qualify for a Federal Housing Administration (FHA) loan with a low down payment. A conventional loan will typically require a credit score of at least 620, but requirements may vary by lender.

Thankfully, an individual’s credit score isn’t set in stone. Those interested in maintaining a good credit score have a few options. First up is requesting your credit report from the three major credit reporting bureaus: TransUnion®, Experian®, and Equifax®. Review each report for errors and contact the appropriate credit bureau if you spot anything that’s incorrect. Credit reports can be ordered from each of the three credit bureaus annually, for free.

Other strategies for building a credit score include paying down credit cards to lower your credit utilization ratio, and making on-time payments for bills and other loans.

Considering a Bigger Down Payment

As a general rule of thumb, lenders may require borrowers to make a 20% down payment when they buy a home. However, many lenders require much smaller down payments, some as low as 3%. And if you qualify for a VA loan, you may not need a down payment at all.

If a borrower makes a down payment smaller than 20%, their lender may require them to purchase private mortgage insurance that will protect the lender in case the borrower fails to make mortgage payments. A larger down payment could potentially help borrowers avoid paying PMI.

As you’re shopping for mortgages, carefully consider how much money you can afford to put down, as a larger down payment can also have an impact on your interest rate.

Typically, a larger down payment translates into a lower interest rate, because taking on a larger stake in a property signals to lenders that you are less risky to loan money to.

Understanding Fixed-Rate vs. Adjustable Rate Mortgages

When shopping for a mortgage, you will typically be offered one of two main financing options: fixed-rate and adjustable-rate mortgages. The difference between the two lies in how you are charged interest, and depending on your situation, each has its own benefits.

Fixed-Rate Mortgage

A fixed-rate mortgage has an interest rate that stays the same throughout the life of the loan, even if there are big shifts in the overall economy. Borrowers might choose these loans for their stability, predictability, and to potentially lock in a low interest rate. Fixed-rate mortgages shield borrowers from rising interest rates that can make borrowing more expensive.

That said, fixed-rate mortgages may carry slightly higher interest rates than the introductory rates offered by adjustable-rate mortgages. Also, if interest rates drop during the lifetime of the loan, borrowers are not able to take advantage of lower rates that would potentially make borrowing cheaper for them.

Adjustable-Rate Mortgage

Interest rates for adjustable-rate mortgages (ARM) can change over time. Typically ARMs have a low initial interest rate. (One popular ARM is the 5/1 adjustable-rate mortgage, which is fixed for the first five years.

However, as the Federal Reserve raises and lowers interest rates, interest rates may fluctuate. That said, there may be caps on how high the interest rate on a given loan can go.

ARMs don’t provide the same stability that their fixed-rate cousins do, but lower introductory interest rates may translate to savings for borrowers.

Once you have a sense of whether a fixed- versus adjustable-rate mortgage is for you, you can narrow your field and start looking at lenders.

Comparing Lenders

When choosing a lender, start your search online, taking a look at a variety of lenders, including brick-and-mortar banks, credit unions, and online banks. The rates you see on lenders’ websites are typically estimates, but this step can help you get the lay of the land and familiarize yourself with what’s out there.

As you shop for mortgage lenders, consider contacting them directly to get a quote. At this point, the lender will generally have you fill out a loan application and will pull your credit information. Many lenders will do a soft credit pull, which won’t impact a potential borrower’s credit score, to provide an initial quote.

Borrowers can also work with a mortgage broker who can help identify lenders and walk them through any transactions. Be aware that mortgage brokers charge a fee for their services.

Recommended: The Mortgage Loan Process in 11 Steps

Taking Additional Costs into Account

When choosing a home mortgage loan, interest rates aren’t the only cost to factor in. Be sure to ask about points and other fees.

Points are fees that you pay to a lender or a broker that are frequently linked to a loan’s interest rate. For the most part, the lower the interest rate, the more points you’ll pay.

The idea of points may feel a little bit abstract, so when talking to a lender, ask them to quote the points as a dollar amount so you’ll know exactly how much you’ll have to pay.

If you plan to live in a house for the long term, say 10 years or more, you may consider paying more points upfront to keep the cost of interest down over the life of the loan.

Home loans may come with a slew of other fees, including loan origination fees, broker fees, and closing costs. You’ll pay some fees at the beginning of the loan process, such as application and appraisal fees, while closing costs come at the end. Lenders and brokers may be able to give you a fee estimate.

When talking with a lender, ask what each fee includes, since there may be more than one item lumped into one fee. And be sure to ask your lender or broker to explain any fee that you don’t understand.

💡 Recommended: How Much House Can I Afford?

Negotiating

Once you’ve gathered a number of loan options, you can choose the best deal among them. There may also be room to negotiate further. When you send in an application, lenders will send you a loan estimate with details about the cost of the mortgage.

At this point, the loan estimate is not an offer, and borrowers have time to negotiate for better terms. Negotiating points may include asking if interest rates can be reduced and if there are other fees that can be lowered or waived.

A strong credit score or the ability to make a bigger down payment could be leverage. It may also help to let the lender know if you do other business with them.

For example, a bank may waive certain fees if you are already a customer of theirs. Also let lenders know if you have other options that offer better rates. Lenders may try to match or beat competitors’ rates to attract you as a customer.

If you negotiate terms that you are happy with, request that they are set down in writing. Lenders may charge a fee for locking in rates, but it may be worth it to eliminate uncertainty as you settle on the right deal.

As you prepare to buy a home, it’s critical to shop around for lenders that offer the best deals, examine the fine print, and then put matters into your own hands, negotiating the details to settle on the deal that’s right for you.

Visit SoFi Home Loans to learn about home loans with competitive rates and as little as 3% down for qualified buyers. SoFi Mortgage Loan officers can guide you through the mortgage process and specialists are standing by to answer your questions.

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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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If you’re a soon-to-be homeowner, your lender might mention that you’re required to purchase hazard insurance. You may wonder, Is hazard insurance the same as homeowners insurance? In fact, hazard insurance is a part of your standard homeowner’s insurance policy.

Let’s look at the ins and outs of hazard insurance, including what it covers and what it doesn’t, and how much you can expect to pay for it.

Is Hazard Insurance the Same as Homeowners Insurance?

A common misconception is that hazard insurance is the same as homeowners insurance when, in fact, the former is a part of the latter. That’s because people sometimes refer to homeowners insurance as hazard insurance. You can think of it as a piece of fruit in a fruit and cheese basket — not the entire kit and caboodle.

Hazard insurance typically refers to the protection of the structure of your home and additional structures on the property (like a shed, deck or detached garage), whereas homeowners insurance as a whole also includes coverage for liability, additional living expenses, and personal belongings.

Recommended: What Does Flood Insurance Cover?

What Is Hazard Insurance?

Hazard insurance is part of homeowners insurance, and it typically covers the structure or dwelling, but not liability, personal belongings, or additional living expenses. Because it’s a part of a standard homeowners insurance policy, it cannot be purchased as a standalone policy. Rather, it’s folded into your homeowners insurance.

Hazard is oftentimes confused with catastrophic insurance, which is a standalone policy that covers against perils that aren’t included in a standard homeowners insurance policy, such as floods, earthquakes, and terrorist attacks.

What Does Hazard Insurance Cover?

Should there be damage to the actual structure of your home, the hazard insurance portion of your homeowners insurance policy will offer a payout. This usually includes damage to or destruction of the actual building of your home from natural events, such as extreme weather or a natural disaster.

However, the specifics of hazard insurance coverage will depend on whether it’s a “named perils” or an “open perils” policy. Read on for more details on what those entail.

Named Perils

Named perils essentially means events, incidences, or risks that are “named” or “listed” under your plan as covered. In other words, if it’s not listed, then it’s not covered.

A named perils policy typically protects against 16 specific types of perils, including:

•   Windstorms or hail

•   Fire or lightning

•   Explosions

•   Riots or civil disruption

•   Smoke

•   Theft

•   Falling objects

•   Vandalism or malicious mischief

•   Damage caused by vehicles

•   Damage caused by aircraft

•   Damage from ice, snow or sleet

•   Volcanic eruption

•   Accidental discharge or overflow of water or steam from HVAC, a plumbing issue, a household appliance or a sprinkler system

•   Accidental cracking, tearing apart, burning or bulging of HVAC or a fire-protective system

•   Freezing of HVAC or a household appliance

•   Accidental damage from electrical current that is artificially generated

A homeowners insurance policy that is a named perils insurance policy is usually less expensive than an open perils policy.

Open Perils

While a named perils policy will only cover what’s listed in your policy, an open perils policy will provide coverage unless something is specifically excluded and noted as such in your policy.

Typical exclusions under an open perils policy include:

•   War

•   Nuclear hazard

•   Water damage from a sewer backup

•   Damage from pets

•   Power failure

•   Mold or fungus

•   Damage due to an infestation of animals or insects

•   Negligence and general wear and tear

•   Smog, rust or corrosion

An open perils policy tends to be for newer homes or homes in low-risk areas. Additionally, because an open perils homeowners insurance policy tends to be more comprehensive, they typically cost more compared to a named perils policy.

Recommended: Loss of Use Insurance: What Is It and What Does It Cover?

What Isn’t Covered by Hazard Insurance?

Now that we’ve looked at what hazard insurance may cover, here’s what typically isn’t covered.

Flood Coverage

Flood coverage isn’t part of a standard homeowners insurance policy, so you’ll need to take out a separate policy if you want it. In fact, if you live in an area that’s a designated high-risk flood zone, you may be required to take out flood insurance.

The cost of the policy generally hinges on how much of a risk your home is, which factors in your location, and the age of your home.

Earthquake Coverage

Earthquake coverage is another item that hazard insurance doesn’t offer, so if you live in an area that’s subject to earthquakes, you may want to get an earthquake insurance policy. This can either be tacked on to an existing policy as a rider or purchased separately.

When you purchase earthquake coverage, your home is usually protected against cracking and shaking that can damage or destroy buildings and personal possessions. But if there’s water or fire damage because of an earthquake, then that generally would be taken care of by a standard homeowners insurance policy.

How Much Does Hazard Insurance Cost?

As hazard insurance is part of a standard homeowners insurance policy, you won’t need to pay anything extra. According to the most recent data from the Insurance Information Institute (III), the average cost of a homeowners policy in the U.S. is $1,272.

Keep in mind that the cost can vary depending on a host of factors: the location of the home, the cost to rebuild, the size and structure of your home, your age, your credit score, your deductible and the type of policy and amount of coverage you desire.

Do You Need Hazard Insurance?

In short, yes. As you will need homeowners insurance if you are taking out a mortgage on your home, and hazard insurance is folded into homeowners insurance, then you’ll need hazard insurance.

When shopping around for hazard insurance, think about what is required by your mortgage lender, and what coverage amount would be suitable for your home and situation. Play around with different deductibles and coverage amounts to see how they would impact your premium, and don’t forget that discounts can also lower the cost of your insurance.

The Takeaway

Hazard insurance and homeowners insurance aren’t the same thing. Rather, hazard insurance refers specifically to coverage for the structure of your home and is an element of homeowners insurance. What your hazard insurance policy will cover depends on whether you have a named or open perils policy, though it generally won’t extend to damage from earthquakes or floods.

If you’re taking out a mortgage on your home, you’re generally required to get homeowners insurance — and, by extension, hazard insurance. SoFi has teamed up with Experian to make it easy to get homeowners insurance. Experian allows you to get quotes from up to 40 top insurance carriers. You can match your current coverage to new policy offers with little to no data entry. Then bundle your home and auto insurance to save money. All with no fees and no paperwork.

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When you buy a home, you’re likely paying more than just the down payment and closing costs. You’ill probably also need to purchase homeowner’s 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.

What Does Homeowners Insurance Cover?

Homeowners insurance coverage provides protection for both 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.

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 (harsh, we know). Let’s 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 like 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.

Recommended: House or Condo: Which Is Right For You? Take the Quiz

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 good 30 days before closing.

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 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.

Recommended: How Much Is Homeowners Insurance?

The Takeaway

Is homeowners insurance required to buy a home? If you’re taking out a mortgage, that’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.

Of course, 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. To help simplify the process, SoFi has partnered with Experian to bring customizable and affordable homeowners insurance to our members.

Experian allows you to match your current coverage to new policy offers with little to no data entry. And you can easily bundle your home and auto insurance to save money. All with no fees and no paperwork.

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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