Rising insurance costs are pushing homebuyers to a breaking point

When Andrew Cady started working in mortgages in Jacksonville, Florida a decade ago, he would budget about $120 per month for homeowners insurance when qualifying new clients.

Today, that number has more than doubled.

“Now, you don’t prequalify a client unless you’re putting a holding of $250 to $300 a month at minimum,” said Cady, a producing branch manager with UMortgage in Inlet Beach, Florida. “And that’s if everything is really good in a house.”

The math for homebuyers is brutal. Homeowners insurance rates have soared, with major insurers raising premiums by an average of 10.4% in 2024, following a 12.7% increase in 2023, according to a study from the insurance marketplace Insurance.com. Over the past five years, average home insurance premiums from the top 10 companies in the U.S. have spiked by an eye-watering 53.1%, the study found.

Housing affordability is already a major obstacle, thanks to stubbornly high mortgage rates near the 6.5% mark and the national median home sales price reaching a record high of $435,300 in June. But higher home insurance premiums are dealing another blow, pushing borrowers’ debt-to-income (DTI) ratios — a key factor in determining someone’s ability to repay their loan — well beyond many loan program maximums.

For every $100 monthly increase in insurance costs, homebuyers see their purchasing power reduced by about $16,000, Cady said. That means if someone is approved for a $400,000 home and insurance costs $300 more per month than expected, their buying power falls to $352,000.

Home insurance is no longer an afterthought in determining how much house you can afford. In many cases, it’s now one of the first line items mortgage and real estate professionals advise their clients to consider.

For starters, insurers are shelling out for higher claim amounts. Building costs related to home insurance jumped 55% between 2020 and 2022, according to the Insurance Information Institute.

The frequency and severity of catastrophic natural disasters have also increased, with 2023 seeing 28 billion-dollar weather and climate disasters totaling nearly $93 billion in damages, according to the National Oceanic and Atmospheric Administration (NOAA) National Centers for Environmental Information (NCEI).

National insurance rates have risen by an average of 40.4% over six years, with Colorado seeing the steepest increase at 76.6%, followed by Nebraska (72.3%) and Utah (70.6%), according to a report from LendingTree. No state saw a decrease in insurance premiums in 2024.

Western states have been plagued by devastating wildfires in recent years as other parts of the country grapple with more severe flooding and hailstorms, intense hurricanes, and tornado activity. 

“Insurance companies have been raising their rates to keep up with their escalating expenses,” Rob Bhatt, LendingTree’s home insurance expert and a licensed insurance agent, said in the report. “The early 2020s saw an uptick in natural disasters and inflation. Insurance companies have had to rebuild more homes than normal, and the cost of rebuilding each one has become more expensive.”

Florida is a prime example. The average annual rate of homeowners insurance in Florida was $14,140 in 2024, according to a report from Insurify, another online insurance marketplace. For 2025, Insurify estimates that rates in the Sunshine States will jump 9% to $15,460. Hialeah, a city just outside of Miami, will have the highest projected average home insurance cost of any U.S. city at $26,693, Insurify said.

Throw tariffs into the mix, and rates could easily surpass those projections, Insurify noted. “Tariffs would increase the cost of imported construction materials by up to $4 billion, and insurers would pass those costs on to homeowners through higher premiums,” the company said.

But when insurance costs spike unexpectedly, borrowers can quickly exceed those limits, stretching their budgets past the point of comfort, Cady said.

“We are seeing people that are under contract on a home, and when they go to get insurance, they find out there’s probably two liens on the home, and the insurance comes back and says, ‘We’ll do it, but it’s a $16,000 policy,'” Cady said. “And now the debt-to-income ratio is too high, and we have to issue a loan denial.”

In fact, 68% of lenders report their borrowers’ DTI ratios exceed limits once insurance is factored in, according to a survey of mortgage professionals from Matic. Nearly 60% of lenders also said that insurance-related issues are causing closing delays when homebuyers encounter problems securing coverage.

In Fort Lauderdale, Cady encountered a property about a mile from the water that required a $19,000 annual insurance premium — nearly half the principal and interest payment. This economic reality is forcing many buyers to adjust their expectations. They’re either buying cheaper homes or abandoning coastal dreams entirely, Cady said.

“Buyers that want to be by the coast end up buying across the bay or inland, just for the sheer sake of insurance cost,” Cady said. “That $450,000 house, when they see what that payment looks like when we add the insurance to it, they tend to take a step back and say, ‘Why don’t we readjust our budget to $375,000?’”

On the front end, the process is now more labor-intensive for lenders and insurance agents. Rather than running quotes only on properties under contract, Cady said he’s advising his clients to get insurance estimates on different properties during the house-hunting phase to ensure it’s not out of reach before going through drawn-out offer negotiations.

Shop aggressively: Work with independent insurance brokers who can shop rates with several carriers, Cady recommends. When he shopped for coverage on one of his own properties, he found rates ranging from $6,500 to $16,000 annually for the same coverage.

Do your homework early: Before making offers on homes, obtain insurance quotes from at least three different insurers specific to each property. Factors like roof age, proximity to water and construction materials can create thousands of dollars in premium difference between similar homes in the same neighborhood.

Consider trade-offs: Buyers may need to prioritize insurance costs over location preferences or home features. This might mean moving more inland instead of looking at coastal homes, or taking additional home-hardening measures for homes in a wooded or forested area.

Review your policy annually: Like those preventive medical checkups, homeowners should review their insurance policies annually. Even if you like your current insurer, it’s worth checking if your policy and pricing are still competitive.

Another reason to give your policy a second look: If your home value has gone up significantly in the years since you bought it, you’re likely underinsured, Cady said. Your replacement value coverage may not be enough to rebuild your home if it’s destroyed because the policy is based on the home’s value when you first insured it, he added.

Ask about flood insurance: In many cases, standard home insurance policies don’t cover damage from flooding. If the property is located in a federally designated flood zone, you must purchase supplemental flood insurance coverage on top of your standard home insurance policy.