We’ve made a change to our Underwriting Guidelines based upon Agency Policy changes regarding your Home Owner’s Insurance Policy. What does that mean? It means that for many homeowners who are calling around to find your Home Owner’s Insurance policy there’s a little something more that we will need.
For conventional loans we need property insurance coverage equal to the lesser of the following:
- 100% of the insurable value of the improvements, as established by the property insurer; or
- the unpaid principal balance of the mortgage, as long as it at least equals the minimum amount—80% of the insurable value of the improvements—required to compensate for damage or loss on a replacement cost basis.
Home Owner’s Insurance Policy
Effective immediately we can no longer run a Marshall and Swift cost estimator because a cost estimator generated by the lender is not acceptable to the agencies (Fannie Mae and Freddie Mac). If a cost estimator is required on a loan file it must be obtained directly from the HOI company providing insurance.
This change is being made to meet agency guidelines. The agencies require that the cost estimator be provided by the insurance agent.
Remember that a cost estimator is not always required. We use cost estimators in certain scenarios where we have to prove the policy will restore the home to like new condition even though the dwelling coverage is less than our loan amount. (This is especially true with Condos.)
If an insurance agent doesn’t know what a cost estimator is, ask them how they came up with the dwelling coverage. The calculation, form, or criteria that they use to determine that amount is the cost estimator that we need to prove sufficient coverage.
If an insurance agent says they cannot release that information we cannot use their policy. This is an agency guideline and we must follow it.
Underwriting will also accept confirmation from the agent that the policy contains 100% full replacement cost coverage with no cap on the limit. This can be provided via an official letter on letterhead.
Here are some additional Home Owner’s Insurance Policy terms and information we think you should know:
• Guaranteed Replacement Cost Coverage– This means that the insurer will pay for the rebuilding of your home no matter the cost. This type of Home Owner’s Insurance Policy is harder to is find these days.
• Extended Replacement Coverage– Many insurers offer a Home Owner’s Insurance Policy coverage that caps the payout at around 125% of your home’s insured value.
• Inflation Guarantee (or Guard) – This feature makes sure that your home’s insured value stays current with the marketplace.
When you have an appraisal done on your home, we send you a copy of it On FHA Loans they use the Cost Estimate from Marshall and Swift to determine value, not just the comparable sales in the area. Based on the numbers in the appraisal, you should be able to determine how much coverage you will need in your Home Owner’s Insurance Policy, and often times the Insurance Agent will need to see that.
The appraisal provides a realistic starting figure and the inflation guarantee makes sure that your home’s price stays current. The 125% coverage means that, even if construction prices outpace inflation, they probably didn’t outpace it by 25%, so you should have enough money for whatever work you need done.
These are all part of the Closing costs that we will itemize for you in the beginning of the process. Home Owners Insurance, like any other insurance, is paid in advance. Therefore, at the Closing there isn’t any money in the escrow account to pay the first year’s premium.
A year from the Closing enough money will have been collect through each monthly payment to pay for the second year’s premium. This will be the cycle for the Escrow account, while you have your loan. Because we are establishing this escrow account, the initial annual payment will have to be paid on or before the Closing.
In general, it is cheaper to “bundle” your insurance, and have your car insurance and your home insurance with the same company. Depending on where you are purchasing a home in NC, you might find that there’s a WIDE variance in policy charges.
If you have questions about purchasing a home in NC using a First Time Home Buyer Program, or you want to know more about closing costs for a first time home buyer program, and your Home Owner’s Insurance Policy please call Steve Thorne at 919-649-5058. We offer today’s best mortgage programs, and we can help you buy your dream home!
I try and answer all questions :)