Homeowners insurance for VA-loan homes

What the VA guaranty does not do

The VA guaranty is a promise to the lender that part of the loan is backed if you default. It is not insurance on your house, and it covers nothing that happens to the building.

What it does save you is private mortgage insurance. There is no PMI on a VA loan at any down payment, which on a conventional loan would run into hundreds a month. That saving is real, and it is unrelated to the homeowners policy you still have to buy.

The hazard insurance requirement

• Coverage has to be in force before closing, and kept for the full loan term.
• The type and amount must cover the hazards customary for your area, which is why the specifics differ between a house in Kansas and one on the Gulf coast.
• The lender is responsible to the VA for making sure it stays in force, which is why a lapse notice gets an immediate response and, if you do nothing, a force-placed policy at several times the price.
• The VA does not require escrow, but most lenders do it anyway. If yours does not, the premium is yours to track.

How much to insure for

Lenders care that the loan is covered. You should care that the house can be rebuilt. Those are different numbers, and on a zero-down VA purchase the gap can be large.

• Insure to replacement cost, what it would cost to rebuild today, not the market value and not the loan balance.
• Check the extended or guaranteed replacement cost option. It adds a percentage above the stated limit, which matters when building costs jump after a regional disaster.
• Check ordinance-and-law cover on older homes. Rebuilding to current code is often excluded from the base policy.
• Look at the contents and loss-of-use limits rather than accepting the default percentages.

Flood: the rule with no exceptions

If any part of the building footprint sits in a FEMA Special Flood Hazard Area, any zone beginning with A or V, flood insurance is mandatory. This is federal law for federally backed loans. No lender can waive it, and the VA will not guarantee a loan without it.

• It is a separate policy. A standard homeowners policy excludes flood everywhere, in every state, with no exceptions.
• The required amount is the lesser of the outstanding loan balance or the maximum coverage available for that type of property under the National Flood Insurance Act.
• Private flood insurance is allowed. Lenders must accept a private policy that meets the federal definition, and private cover often prices better and can insure above the federal programme's caps.
• Check the zone before you make an offer, not after. FEMA's flood map service centre takes a minute, and the premium goes into your debt-to-income ratio, so it can change what you qualify for.

The deductibles that surprise people

Most policies have one flat deductible plus one or two percentage deductibles that apply to specific perils.

• Wind and hail deductibles are often 1% to 5% of the dwelling limit rather than a flat sum. On a $400,000 house, 2% is $8,000 out of pocket.
• Hurricane deductibles work the same way in coastal states and trigger on a named storm.
• Roof settlement may be actual cash value rather than replacement cost on older roofs, which can halve the payout on the most common claim there is.

These three lines decide what a bad claim actually pays. Read them before you compare premiums.

If you PCS and rent it out

A homeowners policy covers an owner-occupied home. The day tenants move in, that policy is the wrong one, and a claim can be denied on that basis alone.

• Switch to a landlord policy, which covers the building, liability and lost rent, and expect a different price.
• Tell your lender and your insurer. Occupancy rules on VA loans are their own subject, and silence helps nobody.
• Require tenants to carry renters insurance and to name you as an interested party.

Where veterans actually save

• Bundling. Home and auto with one carrier is usually the largest single discount available to you.
• Military and veteran programmes. The carriers that serve the military market compete hardest on this business. Quote at least three.
• Higher flat deductible. Raising the everyday deductible cuts the premium, as long as the cash is actually there.
• Re-shop every two years, and always after a remodel, a new roof, or a move.

Auto and home usually move together, so the military and veteran auto discounts are worth checking at the same time.

Common questions