Insurance costs that can bust your home buying budget

You may have thought about buying a home in the past. However, you might also be aware of the shortage in housing inventory as well as the possibility of bidding wars after you submit your offer. The country is experiencing unprecedented levels of inventory and asking prices. Many people choose to live in rural or suburban areas over cities due to the lower cost of land. Some surprising places are being sought after by people. The top three hot housing markets are Utah, Montana, and Nebraska. It is important to do your research before you move. Unexpected increases in insurance costs can occur due to changes in location.

Homebuyers are well aware that there is less time to choose the right home in a competitive market. Buyers must be ready to stretch their budget in order to purchase the home of their dreams. Few people have considered the cost of insurance, both for homeowners and for autos, and how it affects annual expenses.

Although homeowners insurance might seem obvious when purchasing a house, many people don’t give it much thought, even when they move to another state. Premiums can be influenced by many factors, including the possibility of flooding or tornadoes. Homebuyers are unlikely to consider auto insurance when there are so many other factors to consider. However, it can also have a significant impact on your household budget.

Why people move

People move for many reasons. 2020 provided new reasons to move and people chose areas that weren’t as well-known. There are other trends emerging in moving, such as workers being able to work remotely and living anywhere they choose.

  • The low COVID-19 cases cities are experiencing the greatest growth in new home sales in 2021. This is because more people feel at ease viewing homes in person.
  • The historically low interest rate will continue through 2021. They fluctuate in the low 3% range, so buyers want to get advantage of this opportunity and buy sooner than later.
  • People are more willing to settle down in rural and suburban areas than they are near major cities, after the earthquake.

It doesn’t matter if you are moving to a hot market or to the suburbs in order to be near family, it is a smart idea to consider insurance and other costs before finalizing your budget.

How insurance can break your budget

Bidding wars are common in any seller’s market. You will need to spend more money to buy the home if you pay more than the asking price. Low inventory can also have the side effect that you may be tempted to buy in an area with high construction costs or risk-prone areas. These scenarios can result in higher insurance costs, regardless of the reason. Insurance rates are dependent on many factors. The amount you pay for homeowners insurance and auto insurance can be the tipping point of your budget, especially if housing prices are high.

Insurance for homeowners

Although homeowners insurance is not the main focus of your home-buying experience, it is an important aspect of the entire process. It is important to compare and research options so you can control the cost and coverage of your new home. Homebuyers must lock in homeowners insurance policies before closing with mortgage lenders.

A comprehensive homeowners policy provides many critical protections, such as:

  • If your home is damaged by hail, storms, fire or other similar events, you will be able to pay for repairs or reconstruction.
  • This policy covers the cost of your belongings, with the exception of high-value items.
  • Provides medical payment if someone is injured while visiting your property, or if you cause damage on the property of another person.

The average homeowners insurance policy cost $13,312 per year. But what you pay will vary depending on many factors and can be difficult to see when looking at listings in your area. For example, the average home cost in Nebraska was just below $200,000 but the average home insurance cost in Nebraska is more than twice the national average. Keep in mind that there are many factors that can influence the price of homeowners insurance. These include the cost to rebuild your house in the event it is damaged, changes in crime statistics, and several other reasons.

There are many ways to save money on homeowners insurance

There are many ways to save money on homeowners insurance in this sea of bidding battles and rising housing costs.

  • Comparing multiple providers is one of the best ways you can save. This ensures that you pay the lowest rate for your situation and allows you to compare coverage options.
  • Bundle your policies. One of the best ways to save premiums is to purchase your homeowners insurance policy through the same carrier that your auto insurance policy.
  • All discounts are available: From installing security systems to making sure your home is more resilient to disasters, you can save even more on your premiums by consulting an insurance agent.

Additional coverage available for homes located in risky areas

You may need additional coverage if you purchase a home that is not part of the standard policy. These could include:

  • Flood insurance Flood insurance is a coverage that may be necessary in flood-prone regions. You may need it even though it is not mandatory. Flood insurance is usually excluded from homeowners insurance policies. An agent licensed in real estate can help you determine whether it is necessary and how much.
  • Earthquake: If you live in an area that is susceptible to earthquakes, you might want to consider purchasing this insurance.
  • Wildfire: More than 500,000 houses are located in wildfire-prone regions, making wildfire coverage essential for some homeowners.

Vehicle insurance and auto costs

The cost of auto insurance is often overlooked in the excitement and pressure that comes with buying a home. Your ZIPcode is one of many factors that determine your auto insurance rates. Your ZIPcode will affect the rate you pay. Rates can fluctuate depending on where you park your vehicle, theft statistics, and vandalism. For 2021 , the average cost of car insurance in the U.S. is $565 for basic coverage and $1674 for complete coverage. You should expect to pay more if you plan to move to Louisiana. The average cost for full coverage car insurance in Louisiana is $2,724, 63% higher than the national median. The highest average rates in the country are found in Florida, New York and Michigan, as well as Nevada.

Your location and the risk of accidents in it will also affect the cost of vehicle registration and vehicle taxes. This could impact the true cost for your auto insurance.

Consider other costs

Before you make the leap to buy a home, it is important to consider other costs before you sign the final checks. If you don’t plan properly, these costs can also cause havoc in your budget.

  • Property tax: This tax is assessed by local and state governments to your property.
  • HOA fees: Homeownership Association fees are dues for maintaining certain residential properties. Each neighborhood will have its own requirements and frequency.
  • Closing Costs: These are fees charged by the lender at closing. They are usually 2% to 4% of your purchase price.
  • Cost of living: Your new area’s cost of living will affect your daily expenses, such as fuel and food.
  • Private mortgage insurance (PMI ) is an additional monthly fee you pay to your lender if your down payment is less than 20%.
  • Remodeling and redecorating: When you buy a fixer-upper, or need to furnish your new home, set a realistic budget.
  • Landscaping: The average annual price for landscaping can be anywhere from $3,000 up to $20,000 depending on where you live and what your landscape goals are.

Although increased costs in a seller’s market can be expected, it is best to prepare for all costs and research the area you are considering moving to. You can shop around for other options if you are unable to afford to move to a new place and learn about unexpectedly higher costs.