Insurance Requirements at Closing in New Jersey

You found the perfect home, your offer was accepted, and your financing is in order. But there is one more thing that can delay or even derail your closing: insurance. Understanding what insurance coverage you need at closing, and when to get it, is essential for a smooth transaction in New Jersey.

After helping more than 636 families buy and sell homes across Burlington County and South Jersey, I have seen closings delayed because buyers waited too long to get insurance, chose the wrong type of coverage, or failed to provide the right documentation to their lender. This guide covers everything you need to know to avoid those pitfalls.

What Insurance Do You Need at Closing?

Your mortgage lender will require specific insurance coverage to be in place before they fund your loan. The exact requirements vary by lender and loan type, but here are the most common requirements:

• Hazard insurance (homeowners insurance): This is the primary requirement. Your lender will require a homeowners insurance policy that covers the structure of your home against fire, wind, hail, lightning, and other perils. The dwelling coverage must be at least enough to cover the loan amount, though most lenders require coverage equal to the replacement cost or the purchase price, whichever is lower.
• Flood insurance: If your property is in a FEMA-designated Special Flood Hazard Area (SFHA), flood insurance is required for any federally backed mortgage. This includes FHA, VA, USDA, and conventional loans sold to Fannie Mae or Freddie Mac.
• Wind and hail insurance: In coastal areas of New Jersey, separate wind and hail policies or endorsements may be required. In Burlington County, this is typically included in your standard homeowners policy, but it is worth confirming.
• Title insurance: While not a property insurance policy, title insurance is required by most lenders. It protects the lender (and optionally the buyer) against claims or defects in the title that could affect ownership of the property. See our title insurance guide for more details.

When Should You Get Insurance?

The short answer is: as soon as your offer is accepted and you have a signed purchase agreement. Here is a timeline to follow:

1. Day 1-3 after offer acceptance: Start shopping for homeowners insurance. Contact at least three insurers or an independent agent to get quotes. Have your purchase agreement handy, as the insurer will need the property address, purchase price, and closing date.
2. Day 3-7: Choose a policy and provide the insurer with the information they need to issue a binder. The binder is a temporary proof of insurance that your lender will accept before the closing date.
3. Day 7-14: Send the binder or declarations page to your lender and real estate agent. Confirm that the coverage meets the lender's requirements.
4. At least 30 days before closing (if in a flood zone): Order your flood insurance policy. Remember, most NFIP policies have a 30-day waiting period. This is the single most important deadline to remember.
5. Week before closing: Confirm with your insurer that the policy is in effect and that the lender has received the required documentation.
6. Closing day: Your insurance should be active and your lender should have all the documentation they need. You will need to pay the first year's premium at closing (typically included in your closing costs).

What Documentation Does Your Lender Need?

Your lender needs specific documentation to verify that insurance is in place before closing. The exact requirements vary by lender, but typically include:

• Insurance binder or declarations page: This document shows the policy effective date, coverage limits, deductible, and the mortgagee clause listing the lender as an interested party. It must show that the policy is in effect on or before the closing date.
• Proof of paid premium: Some lenders require proof that the first year's premium has been paid. This is usually handled through the closing process, where the premium is paid from your closing funds.
• Flood insurance documentation: If required, the flood insurance policy declarations page must be provided, showing that the policy is in effect and meets the lender's coverage requirements.
• Mortgagee clause: Your policy must include the lender's mortgagee clause, which means the lender is listed as an additional insured and will be notified if the policy is cancelled or lapses. Ask your insurance agent for the exact wording of the mortgagee clause required by your lender.

What Happens If You Do Not Have Insurance at Closing?

If you cannot provide proof of insurance by the closing date, your lender will not fund the loan. This means the closing will be delayed, and depending on the terms of your contract, you could be in breach of the agreement.

Some lenders may allow you to close with a "force-placed" insurance policy, which the lender purchases on your behalf. Force-placed insurance is almost always more expensive than a policy you buy yourself, and it only covers the lender's interest, not your personal property or liability. You want to avoid this scenario at all costs.

The good news is that insurance-related closing delays are almost entirely preventable. As long as you start the process early and stay in communication with your insurance agent, lender, and real estate agent, you should have no problem getting the right coverage in place on time.

How Much Does Insurance Cost at Closing?

The cost of insurance at closing is typically included in your closing costs. Here is what to expect:

• First-year premium: You will typically pay the first year's premium at closing. For a standard homeowners policy in South Jersey, this is $1,200 to $2,000. For flood insurance, add $500 to $5,000 depending on the flood zone.
• Escrow account: Many lenders require you to set up an escrow account for insurance premiums. This means you will prepay a portion of the premium into the escrow account at closing, and the lender will pay the premium from the escrow account when it is due. Typically, you need to pay the full first year premium plus a cushion of 2-3 months of premiums into escrow.
• Title insurance: Title insurance is a separate cost at closing. The lender's title insurance policy is required, and the cost is based on the loan amount. In New Jersey, title insurance costs are regulated by the state and typically range from $500 to $1,500 for a standard purchase.

What About Title Insurance?

While title insurance is not the same as homeowners insurance, it is an important part of the closing process. The lender will require a lender's title insurance policy, which protects the lender against claims or defects in the title that could affect their interest in the property.

You may also choose to purchase an owner's title insurance policy, which protects you, the buyer, against title defects. This is optional but recommended, and it is typically a one-time cost paid at closing. For more details, see our complete guide to title insurance.

Special Considerations for Burlington County Home Buyers

Burlington County has unique characteristics that can affect your insurance requirements at closing:

• Flood zones near the Delaware River: Communities like Burlington City, Riverside, Delran, Riverton, and Florence have areas in flood zones. If you are buying in these towns, check the flood zone status early in the process. A property that is a few blocks from the river may be in a different zone than property directly on the waterfront.
• Older homes: Many Burlington County towns, including Moorestown, Medford, Mount Holly, and Burlington City, have historic homes with older roofs, electrical systems, and plumbing. Some insurers may require a home inspection or roof certification before issuing a policy. Plan for this if you are buying an older home.
• Condominium insurance: If you are buying a condo in Burlington County, the master policy held by the homeowners association covers the building structure. You will need a separate HO-6 policy (walls-in coverage) to cover your personal property, interior improvements, and liability. Your lender will require proof of this coverage.
• Private mortgage insurance (PMI): If your down payment is less than 20%, you will need PMI. This is not the same as homeowners insurance, but it is an additional cost that protects the lender if you default. PMI is typically included in your monthly mortgage payment.

Common Mistakes to Avoid

Here are the most common insurance-related mistakes I see buyers make at closing, and how to avoid them:

• Waiting too long to get insurance: Do not wait until the week before closing. Start the process as soon as you have a signed purchase agreement.
• Not understanding the flood zone: Check the flood zone status early. If the property is in a flood zone, remember the 30-day waiting period for NFIP policies.
• Choosing the wrong coverage amount: Your lender requires coverage equal to at least the loan amount, but that may not be enough to rebuild. Consider your actual replacement cost.
• Forgetting the mortgagee clause: Make sure your insurance agent adds the lender's mortgagee clause to the policy. Without it, the lender will not accept the policy.
• Not shopping around: Do not just accept the first quote you get. Compare rates from multiple insurers to make sure you are getting the best price.
• Assuming your homeowners insurance covers everything: Remember that standard policies exclude flood damage, earthquake damage, and some other perils. Make sure you have the coverage you need for your specific situation.

Frequently Asked Questions

Plan Ahead for a Smooth Closing

Insurance requirements at closing do not have to be complicated. The key is to start early, communicate with your lender and insurance agent, and make sure you understand what is required before you get to the closing table.

As your Redfin Senior Agent, I will help you navigate the insurance requirements from day one. I will remind you about timelines, help you understand what your lender needs, and connect you with trusted local insurance professionals who can get you the right coverage at the right price.

My goal is to make sure the only surprise on closing day is how smooth the process was.