When you’re looking to buy a home property, you may learn that insurance is one of your bank’s or lender’s requirements. But, specifically, what kind of insurance are they referring to?
When purchasing a home, you may require a variety of insurance policies. Examine the many types to ensure you’re protected.
So congratulations, you’re purchasing a home and you’ve got a few worries and some questions about some of the things that the mortgage person is telling you.
It’s usually about insurance, so we’re going to go over the five main pieces that I have seen the mortgage brokers be worried about and the insurance agents be worried about when you’re purchasing a new home.
1. The loan value vs the replacement cost of your home
The first piece, which is probably one of the biggest pieces, is the loan value versus the replacement cost of your home.
If you haven’t read and learned what the replacement cost is, at the end of this post, I’ll link to a Home 101 where you can learn about those coverage and get more in-depth on those pieces.
However, the replacement cost is essentially the cost to rip down and rebuild your house if there was a total disaster. That’s what that is.
The loan value is the amount including land because insurance doesn’t cover the land. So when you’re purchasing a house, whether you bought it in California or Michigan, you’re talking about hundreds of thousands of dollars difference between the same houses.
In this case, the replacement cost typically needs to be close to or almost as much as the loan amount. The reason being is that they’re trying to protect the loan with the insurance.
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So if there’s a major occurrence and the house goes goodbye, then you’re not going to walk away and still owe them hundreds of thousands of dollars.
2. Actual building material of the home
The second piece is the actual building material of the home. This determines the value and the replacement cost.
So there’s a flip here. It’s the opposite.
If you have a brick house, it’s going to be a lot more expensive to replace than a wood-framed house.. The type of countertops you have also played a factor.
It’s not just the outside of the house, it’s the inside of the house as well.
So if you have travertine tiles, granite countertops, versus a quartz floor, or whatever the case is, you have to figure it out.
3. Flood insurance
Fourth out of the top five insurance coverage that a new homeowner needs to know about is flood insurance.
It’s not very common, so I would say for 10 percent of you out there reading this video, you may want to find out and make sure that you don’t need flood insurance. That means you’re in a flood zone.
Essentially, what that means is there’s a possibility of water flooding the home.
It’s happened in the past, could have been 100 years ago, we don’t know, but it’s something that is documented and because of that, they need you to purchase flood insurance.
You can’t even buy the house without it, so you likely will know, but you don’t want to find out a week before you go to closing.
The reason you don’t is you’re already stressed and now they’re going to tell you that you need flood insurance, which in most cases can double the cost of your insurance, especially if you’re in Florida, Texas, or any of the states that in the last couple years have had a lot of water damage.
They want certain zones to have flood insurance now, which is quadrupling the rates in some of the areas.
Don’t fear, if you have to have it and it’s a make or break, you can essentially pick the amount of coverage you want with the flood insurance.
It’s not ideal to go that route, but it is something that a lot of people say, “I don’t care if I have a flood, I’m just going to walk away and I just want my contents covered or I just want the house covered.
I don’t care about the stuff in the house.
” Those are some options that you have, so the cost can be adjusted based on how much you want coverage.
It’s really between you and your agent to determine what’s the best fit, and the sixth piece that’s going to be important to you, specifically not so much your loan person, because they don’t care a whole lot about the exact coverage that you get, is water backup.
It’s the most common issue with homes is water coming into the house, water in the pipes bursting, water somehow damaging the house.
There are two types of water damage that we’re talking about.
There’s one that’s already covered under coverage, which will give you another video that goes into depth on that, and then there’s actual water backup.
They also call that sump pump and overflow.
If you’re in one of the west side states, you likely have a basement and then that basement is a giant hole where water comes up and filters out of the house.
It’s one piece, the walls have pipes in them.
Sometimes they freeze, sometimes they burst, sometimes it’s covered, sometimes it’s not.
It gets a little bit confusing with water damage, so how do you figure out the correct amount of water back up and water damage that you need We need to first determine what the risk of water damage is in your specific case and situation.
5. Keep an eye on the weather.
Climate change is wreaking havoc on homeowners today more than ever. Property repairs have risen dramatically in recent years due to an unprecedented number of severe weather disasters. Who are some of the most egregious offenders? Wildfires, high-speed windstorms, and hailstorms are all possibilities. Calgary’s most recent hailstorm, which occurred on June 13, 2020, cost an estimated $1.2 billion in damages.
However, don’t expect your homeowner’s insurance to save you. Even if you reside in a storm-prone area, standard plans rarely cover severe weather, natural disasters, and other “acts of God.” What’s worse than having your home destroyed by a storm? Having to pay hundreds of dollars in restoration fees that you believed your insurance would cover.