What Type of Home Does an HO3 Policy Cover?
An HO3 covers single-family, owner-occupied houses, including ones you rent out a room in, but not condos, mobile homes or multi-unit buildings.
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Does your new house qualify for an HO3
An HO3 is built for a single house that one family lives in and owns, whether that's a house in a subdivision, on its own lot, or a townhouse you own outright rather than through a homeowners association. If you're buying a condo, the HO3 won't fit since condo buildings use a different policy, called HO6, because the building itself is covered separately by the condo association. Mobile and manufactured homes also fall outside HO3, since those typically need their own policy type built for that construction. Multi-unit buildings, like a duplex or a building with more than one household, usually need a landlord or dwelling policy instead. If you're not sure which category your new house falls into, the property listing or your purchase contract will say how it's classified.
Since your dwelling coverage has to match what it would actually cost to rebuild your house, not what you're paying for it, the number on one insurer's quote can be too low while another's is priced right. A lender needs proof of coverage before closing, so it's worth checking that the figure holds up across a few options rather than taking the first one offered.
What counts as the structure under an HO3
An HO3 treats your house as more than the four walls. Dwelling coverage pays to rebuild the structure itself, including the roof, framing, built-in cabinets, flooring, and the wiring and plumbing inside the walls. Anything attached to the house, like a deck, an attached garage, or a built-in porch, falls under that same dwelling coverage instead of needing its own line item.
Detached structures on the property get their own slice of coverage, usually a percentage of the dwelling amount. Your declarations page lists the exact figure for your policy. This covers things like a detached garage, a shed, a fence, or a freestanding workshop. If your new property has a detached structure that seems large or valuable relative to the house itself, it's worth checking that this separate coverage amount would actually cover rebuilding it, since people are often surprised by what a detached garage costs to replace.
Land itself is never part of dwelling coverage. If a covered event destroys the house, the payout rebuilds the structure, not the lot it sits on. That's part of why the rebuilding cost and the purchase price of the house are two different numbers. A house on an expensive lot in a desirable area can be cheaper to rebuild than its sale price suggests. A house on a cheap lot can cost more to rebuild than it sold for, depending on the materials and size of the structure.
Some features of a house push dwelling coverage higher even when the sale price doesn't reflect it. Custom millwork, stone exteriors, high ceilings, or an older home built with construction methods that aren't standard anymore all raise what it would cost to rebuild to the same standard. If the house being bought has any of these features, it's worth asking whether the quote actually reflects that, since an estimate based on square footage alone can miss it.
What else an HO3 pays for besides the structure
An HO3 is a package of coverages, and dwelling is just the first piece. Personal property coverage pays to replace belongings inside the house, furniture, clothes, appliances not built into the structure, usually set as a percentage of the dwelling amount. If the house comes with appliances or fixtures included in the sale, it's worth noting which ones count as part of the structure versus personal property, since that affects what's covered and how.
Loss of use coverage pays for living expenses if the house becomes unlivable after a covered event, things like a hotel stay or temporary rent while repairs happen. This matters more than it seems during a purchase, since a new homeowner without savings set aside for this kind of gap can be caught off guard by a fire or burst pipe in the first year.
Liability coverage is the part of an HO3 that has nothing to do with the house itself. It pays if someone is injured on the property and sues, or if the policyholder is found responsible for damage to someone else's property. This coverage carries over no matter what kind of house is being bought, and the amount is a separate number from dwelling coverage on the declarations page, usually chosen independently of what the house costs to rebuild.
Medical payments coverage is smaller and separate from liability. It pays for minor injuries to guests on the property regardless of fault, without the need for a lawsuit. It is typically a modest amount, but it's the first line of coverage that responds to something like a guest slipping on the front steps. None of these coverages need separate policies the way flood or earthquake coverage does. They come built into the HO3, and the amounts for each one are listed together on the declarations page a lender will want to see before closing.
Before you sign anything
Check that the dwelling amount on any quote matches what it would cost to rebuild the house, not its sale price, and confirm the binder date lines up with your closing date your lender gave you.
