02 What you need to know
Why California homeowners insurance can affect your purchase
Some insurers in California have limited the new homeowners policies they write, especially in higher-risk areas. Buyers may get fewer quotes, higher premiums or a policy with less coverage than expected.
Wildfire risk and underwriting
Insurers look closely at wildfire exposure. Factors can include:
- Location in or near brush and wildland areas
- Fire Hazard Severity Zone designation
- Roof age and material
- Defensible space and vegetation around the home
The California Department of Insurance’s Safer from Wildfires regulation requires insurers to offer discounts for qualifying mitigation, such as home hardening and defensible space. Discounts vary by insurer.
The California FAIR Plan
If you can’t find a standard policy, the California FAIR Plan is the state’s insurer of last resort. Its basic dwelling policy covers fire and a limited set of other perils, not liability or theft. Many owners pair it with a difference in conditions (DIC) policy from a private insurer to fill the gaps.
Why insurance changes what you qualify for
Your homeowners insurance premium is part of your monthly housing payment. Lenders include it in your DTI (debt-to-income ratio), your monthly debts divided by your gross monthly income. A higher premium leaves less room for the loan itself.
Before closing, your lender will require evidence that coverage is in place, with enough dwelling coverage to meet the lender’s requirements.
03 Real-world example
Example: a surprise $6,000 premium and your buying power
Say you budgeted $2,400 a year for homeowners insurance. Once you’re in escrow, the best quote you can find is $6,000 a year.
| Annual premium | Monthly | |
|---|---|---|
| Budgeted premium | $2,400 | $200 |
| Actual quote | $6,000 | $500 |
| Difference | $3,600 | $300 |
If your DTI is already at a 45% cap, every dollar of insurance is a dollar that can’t go toward principal and interest. Here’s how much loan those monthly amounts could otherwise support:
Assumptions: 30-year fixed loan at a hypothetical 7% rate (illustrative only, not a current rate), so each $1,000 borrowed costs about $6.65 a month in principal and interest. Hypothetical 45% maximum DTI. Actual limits depend on the loan program and your full profile.
That $300 a month can be the difference between staying approved at your price and needing more down payment. See your full number in the mortgage payment calculator.
04 What most people overlook
What buyers overlook about homeowners insurance
- Condos have two layers. The HOA’s master policy may be “walls-out” (covering the structure but not your interior) or “all-in” (covering more of the unit’s fixtures). Your own HO-6 policy covers what the master doesn’t, plus your belongings and liability.
- Loss assessment coverage matters. If the HOA’s policy has a large deductible or excludes a peril, the HOA may assess owners. Loss assessment coverage on your HO-6 can help with your share.
- The property has a claims history. A CLUE report, a database record of past insurance claims on the home, can affect your quote. Ask the seller if they can provide one.
- Earthquake isn’t included. If you want it, that’s a separate premium. See why earthquakes aren’t covered.
- Premiums can change at renewal. That’s one reason a fixed-rate payment can still rise. More in why a fixed-rate payment can still go up.
Get a real quote on the specific address before you write an offer, or right after, while your contingencies are still open.
05 How I’d approach it
How I’d handle insurance before you make an offer
I’d rather find out a home is hard to insure before you write an offer than three days before closing.
First, when you find a home you like, I ask you to send the address to an insurance agent right away. In wildfire-exposed areas, I suggest getting more than one quote.
Second, I plug the actual premium into your numbers instead of an estimate. If it changes your DTI, we know now, not after you’ve removed contingencies.
Third, for condos, I look at the HOA’s master policy along with your HO-6 quote, so we know who covers what and what your total monthly cost really is. If the only option is the FAIR Plan plus a DIC policy, I make sure the combined premium and coverage still work for the lender and for you.