Buying a House? Get Insured!

Buying a house is complex. There are many hoops that prospective homeowners have to jump through when purchasing a house. One of those hoops is securing insurance cover. Insurance is really important for any homeowner given the value of a home and the potential for loss in the event of damage, but for those who require the help of a lender to purchase a home, it’s a strict necessity. Lenders require proof of adequate and appropriate insurance coverage before they will approve a loan drawdown.

A valuation of the home being purchased is needed to ensure that you seek the correct amount of cover. Banks and other lenders typically insist on this so that they can check the amount they are lending against the potential insurance payout should damage occur to the property.

What lenders are really looking for is assurance that their lending is safeguarded by ensuring that your residence can be reconstructed, or that at least that the sum they’ve extended to you will be covered. This means that it is vital to secure replacement cover that will entitle you to the cost of restoring the property to its pre-damage state.

However, insurance policies do vary, and so you’ll have to take care to ensure you get the right cover for your situation. Fire and intentional damage are the mainstay of all home insurance policies, but these days, especially given the changing environment due to climate change, there are plenty of other contingencies to consider. Earthquake damage is always a risk in New Zealand, but now more than ever homeowners and lenders alike have to be concerned about flood risks, landslides, and subsidence. Ensure you check for potential flood and related risks before you buy and that any such risks are factored into the insurance arrangement.

In some cases, it may be prudent to include clauses in the purchase agreement that make purchase conditional on securing insurance. This is particularly the case for properties located in overland flow paths or flood zones.

Its easy to underestimate the complexity involved in property transactions. For example, the transaction may contain many complications, such as land covenants, other registered interests against title, building reports and warranties for new builds which all need to be checked, managed, and worked through. Further, vacant tenancies have timeline requirements, KiwiSaver withdrawals have timeframes, and Kainga Ora home grants and the first home partner shared ownership scheme have specific requirements all of which need to be complied with.

Freebairn and Hehir Lawyers are specialists in property transactions and all their complexities. If you would like any advice or assistance in purchasing your home, please get in touch.