Your offer has been accepted.
Inspections are scheduled, the lender is working on the loan and escrow is moving forward.
This is also a good time to start investigating homeowners insurance.
Waiting until the final days before closing can create unnecessary pressure if the property turns out to be expensive or difficult to insure.
That is especially important in Orange County and Southern California, where underwriting can vary based on wildfire exposure, roof age, property condition, previous claims and location.
Insurance should be part of the buyer's early escrow checklist, alongside inspections, disclosures and financing.
When Should You Start Shopping for Homeowners Insurance?
Early in escrow.
You do not necessarily need a final policy issued immediately after your offer is accepted.
But you should start early enough to understand:
- Whether traditional homeowners insurance is available
- Approximately what it will cost
- Whether an inspection or additional underwriting is required
- Whether specialty coverage or the California FAIR Plan may be necessary
- Whether the proposed coverage will satisfy your lender
The more unusual the property, the more important this becomes.
Homes near brush, hillsides, canyons or open space may deserve additional attention.
Older homes can also create insurance questions because of roofs, electrical systems, plumbing or general property condition.
Why Can Insurance Become an Escrow Problem?
A buyer can have:
- An accepted offer
- Completed inspections
- Reviewed seller disclosures
- Loan approval
- A completed appraisal
and still have trouble closing if adequate property insurance cannot be obtained.
For financed purchases, lenders generally require acceptable coverage before funding.
Cost matters too.
A buyer who expected insurance to cost $2,000 per year may look at the property differently if the available option costs $6,000 or more.
The question is therefore not simply:
Can I get insurance?
It is:
What will it cost, and does that change the economics of buying this home?
What We've Seen in Orange County
A property can look completely normal during a showing and still create an insurance issue.
In a recent Orange County transaction, a buyer began obtaining insurance quotes early because the home was near open space.
The first option was substantially more expensive than expected.
Because the buyer started early, there was still time to investigate alternatives and understand the actual cost of owning the property.
Had the same problem been discovered immediately before closing, there would have been much less time to respond.
That is why homeowners insurance increasingly belongs in the same general category as inspections and disclosures:
something worth investigating while the buyer still has options.
Insurance Can Change the Monthly Cost
Consider two homes with the same purchase price.
Home A
Homeowners insurance:
$2,000 per year
Approximately:
$167 per month
Home B
Homeowners insurance:
$6,500 per year
Approximately:
$542 per month
Difference:
$375 per month
or:
$4,500 per year
The purchase prices may be identical.
The ownership costs are not.
For buyers in Orange County and Southern California, where housing costs are already high, insurance should be included when evaluating affordability.
A more complete calculation is:
Mortgage + Property Taxes + Insurance + HOA + Assessments + Maintenance
rather than simply looking at the mortgage payment.
What Can Make a Home Harder to Insure?
Each insurance company has its own underwriting standards.
Factors may include:
- Wildfire or brush exposure
- Roof age and condition
- Previous insurance claims
- Older electrical or plumbing systems
- Property condition
- Rebuilding cost
- Vegetation around the home
- Previous insurance non-renewals
Conditions can vary even within the same neighborhood.
One home may have several traditional insurance options while another nearby property may receive fewer options or much higher quotes.
Buyers can review general wildfire information using CAL FIRE's Fire Hazard Severity Zone maps and resources from the Orange County Fire Authority.
But an actual quote for the property is more useful than assuming insurance will be easy or difficult based solely on location.
What If Traditional Insurance Is Not Available?
Do not automatically assume the transaction cannot work.
An insurance professional may be able to investigate:
- Other traditional carriers
- Specialty insurance markets
- The California FAIR Plan
- Supplemental coverage
If FAIR Plan or specialty coverage is considered, the buyer should understand the total cost of the complete insurance package.
The proposed coverage should also be reviewed with the lender to make sure it satisfies financing requirements.
What Should Buyers Do During Escrow?
A simple checklist is:
- Start getting insurance quotes early
- Provide the actual property address
- Ask whether the quote is still subject to inspection or underwriting
- Understand the annual premium and major deductibles
- Determine whether traditional insurance is available
- Understand any specialty or FAIR Plan coverage being proposed
- Confirm the insurance with your lender
- Add the premium to your total monthly ownership calculation
The goal is not to create another complicated part of escrow.
It is simply to avoid discovering an important expense or problem when there is almost no time left to address it.
What About Condos?
Condo buyers have another layer to review.
The buyer generally obtains an individual HO-6 policy, while the homeowners association carries a master policy for certain parts of the development.
The HOA's insurance can affect:
- Financing
- HOA expenses
- Monthly assessments
- Deductibles
- Potential special assessments
That means condo buyers should investigate both the individual unit's insurance and the association's master coverage.
The HOA's insurance is also part of the larger financial review of the community.
Sellers Can Prepare Too
Insurance is not only a buyer issue.
A seller may already know that a property:
- Has been non-renewed
- Uses FAIR Plan coverage
- Has an older roof
- Is near brush or open space
- Has experienced previous insurance problems
Understanding those issues before accepting an offer can help reduce surprises once the buyer begins shopping for coverage.
The seller does not choose insurance for the buyer.
But knowing that additional investigation may be needed can make the transaction easier to manage.
Add Insurance to Your Early Escrow Checklist
A buyer does not need every insurance detail finalized on the first day of escrow.
But waiting until the end of the transaction creates unnecessary risk.
Early in escrow, try to determine:
- Whether the property can be insured
- Approximately what coverage will cost
- Whether additional underwriting is required
- Whether the lender will accept the proposed coverage
If everything looks normal, you can move forward with more confidence.
If there is a problem, you still have time to investigate it.
That is the real reason to shop for homeowners insurance early:
Time gives buyers more options.
For a broader look at the issue, read How California Home Insurance Is Affecting Home Sales or explore Legacy Real Estate Insights for additional Orange County housing analysis.
Legacy Real Estate does not provide insurance or legal advice.