Contract to Close: Insurance

This step is relatively straightforward and its necessity is obvious once considered (though would not be to many people if not instructed); your lender will require that you have insurance in place for the value of your new home which provides coverage immediately as you obtain legal possession at the closing.

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The bank ensures that your insurance is in place along with all of their other processes to verify that the home has appropriate value because they usually provide the majority of the funds. If you forget to start your policy for a few days after closing or even longer, the lender usually bears more risk than you do. If someone broke into the home and vandalized it or a disaster such as a flood or fire destroyed the property and no policy is in place, the bank would lose whatever money they have provided for the purchase that you as the buyer could not pay back to them (they would of course hold you to your mortgage commitment as much as possible).

So far this has highlighted the bank’s risk because obtaining insurance is a part of clearing up lender contingencies in order to close and finish the deal. However, you as the buyer would obviously want to have insurance for your own sake, too. If you’ve just spent most of your savings to fork over the down payment, that money would be lost if you new uninsured home burned down by some freak accident.

Obtaining coverage can usually be accomplished fairly quickly. You might shop around various providers found through online searches, a recommendation from a friend, or a recommendation from your agent. Once the policy is in place, this can be provided to the lender. Assuming other contingencies with the lender have resolved, your lender will then be able to provide a “clear to close” commitment so that the closing can be scheduled with the title company.