Closing on a house: getting homeowners insurance bound before the lender funds

Start the week you go under contract

Start shopping for homeowners insurance as soon as you are under contract, not the week of closing. Your lender will require proof of coverage, usually a binder or declarations page naming the lender, before it funds the loan, and the quote can change once a carrier sees the home's age, roof, claims history and any inspection findings. Starting early gives you time to compare carriers, handle any surprises and send the lender what it needs without a last-minute scramble.

At The Phoenix Insurance, buyers a few weeks from closing are exactly the clients our process is built for, and we work alongside mortgage professionals whose clients need coverage bound on time. The process is not complicated, but the order matters, and most closing-day insurance problems trace back to a step that started too late.

Why the lender cares so much

Texas law does not require you to insure your home, but as the Texas Department of Insurance puts it, if you still owe money on your home, your lender will require you to have it. The house is the lender's collateral. If it burns down the week after closing and there is no coverage, the lender has a loan secured by an empty lot, so no lender funds without proof.

That proof has specific requirements. The lender will want its name and loan number listed correctly as the mortgagee, a coverage amount that meets its guidelines, a deductible within its limits, and an effective date no later than the closing date. If the home is in a designated flood zone, the department notes that your lender will require flood insurance too. Your loan officer or processor can tell you exactly what their underwriting wants; ask early and send that list to your agent.

One point confuses many buyers: the dwelling coverage on your policy is not the purchase price. The purchase price includes the land, the location and the market. Dwelling coverage is meant to reflect what it would cost to rebuild the house itself after a total loss. Those two numbers can be far apart in either direction, and a good agent will explain how the dwelling figure was set rather than simply copying the price from your contract.

What to send your agent, and when

The faster your agent has complete information, the faster you get real quotes rather than estimates. Most of this is in your contract, your listing details or your inspection report. If you are still early in the process, going from unsure to approved to closed explains the mortgage side from a lender's point of view.

If you can, include your auto policy in the same conversation. Buying a house is one of the best moments to reshop home and auto together, because the bundle is priced fresh and the carrier sees the whole household at once. It also means one agent knows your new address, your cars and your new liability exposure from day one, instead of finding out at the next renewal.

• The property address, purchase price and expected closing date
• Year built, square footage, construction type and foundation type
• Roof material and the year it was last replaced, if the seller disclosed it
• Updates to plumbing, electrical and heating and cooling, with years if known
• Your inspection report, especially anything about the roof, water or wiring
• Your lender's name, mortgagee clause and loan number
• Your current auto policy, if you want to bundle home and auto

Things that can stall coverage in the final week

Most closings go smoothly on the insurance side. When they do not, it is usually one of a handful of issues, and nearly all of them can be handled if they come up two or three weeks out rather than two days out.

The house's own history is one many buyers do not expect. The Texas Department of Insurance explains that CLUE reports show the claims history of people and houses, regardless of who owned them, for the last seven years. A home with prior water or roof claims may be priced differently, or some carriers may decline it, even though the claims were the seller's. Ask the seller about past claims during the option period if you can, and share your inspection report with your agent as soon as you have it. An issue caught in the option period can still be negotiated with the seller; the same issue found by an insurer the day before closing leaves you with far fewer choices.

• An older roof that some carriers will not write or will cover only at actual cash value
• Inspection findings like active leaks, outdated wiring or foundation movement
• Prior claims on the property that show up on its claims history report
• A home in a flood zone that needs a separate flood policy
• Lender requirements for the deductible or coverage amount that the first quote did not meet
• A mortgagee clause or loan number that changes late in the process

Flood coverage needs its own timeline

Standard homeowners policies generally do not cover flood damage, and flood insurance is a separate purchase. The Texas Department of Insurance notes that most flood policies have a 30-day waiting period before coverage starts. The timing rules around policies bought for a loan closing are specific, so if there is any chance flood coverage is required, raise it with your lender and your agent the day you go under contract.

Even when the lender does not require flood coverage, I encourage buyers to think about it. Heavy rain causes flooding well outside the mapped zones, and a homeowners policy is not built for it. It is a decision worth making on purpose, not by default.

From quote to binder: what the last steps look like

Our process has three steps, and it is built to move quickly for closings. You share your details using the list above. We review options from more than one carrier and customize the coverage, setting a dwelling amount that reflects the cost to rebuild, a deductible you could actually pay after a storm, and the endorsements that make sense for that house. Then you select your coverage, and we bind it with the closing date as the effective date.

Once the policy is bound, we send proof of coverage to the lender and, if needed, the title company handling the closing. Many buyers pay the first year's premium at closing through the settlement statement, and future premiums are often paid from escrow; your lender will tell you how it handles this. For what the title company is doing in parallel, what the title company does for the next 30 days is a helpful companion read.

Coverage choices buyers rush and later regret

When closing is days away, it is tempting to take the first quote that satisfies the lender. Satisfying the lender and protecting yourself are not the same thing. The lender cares that the loan is covered. You care about what you will pay out of pocket after a hailstorm, a burst pipe or a lawsuit.

The Texas Department of Insurance recommends replacement cost coverage to be fully protected, because actual cash value pays replacement cost minus depreciation and usually leaves you paying more. In the Dallas area, the roof and the wind and hail deductible deserve particular attention. Ask whether the roof is covered at replacement cost, and what the wind and hail deductible is in dollars. If you are comparing agents as well as policies, the questions that reveal a good agent will help.

• Accepting actual cash value on the roof without realizing what it means after hail
• Choosing a percentage deductible without converting it to dollars
• Skipping water backup coverage on a home with a history of drain problems
• Leaving out jewelry, art or other valuables that need their own coverage
• Keeping low liability limits on a home with a pool or frequent guests

After the keys: the first year in the house

Once you move in, the policy should keep up with the house. If you replace the roof, update the electrical system, add a security system or finish a renovation, tell your agent, because those changes can affect both the coverage you need and the price. Keep the receipts and photos in one place. If you bought a bigger house, it may also be the right moment to look at an umbrella policy, since your assets and your liability exposure both changed at closing.

We review every policy before it renews, and I suggest new homeowners make that first renewal a real review rather than a formality. My annual home and auto review checklist lists what to look at.

Working with us on a closing

Tell us your closing date on the first call, and we will work backward from it. Send the details on the list above, along with your lender's requirements, and we will come back with options from more than one carrier, explain the differences, and bind your choice in time for the lender to clear it. If anything about the house could complicate coverage, we would rather find it in week one than on closing day.

Our office on LBJ Freeway in Dallas is open 8:30 AM to 5:30 PM for binders and questions, and we work with buyers and their mortgage professionals across Texas. If you are refinancing rather than buying, the lender will still want updated proof of coverage, and it is a good time to make sure the policy still fits.

Questions people ask me