Homeowners insurance (sometimes called hazard or fire insurance) is required when you purchase and refinance your mortgage. Even if you own your home outright, it’s smart to have fire insurance, even if there is no lender actually requiring it. Proper coverage is important, so make sure you have an adequate amount that will cover the things you want covered. The lender will require certain minimums, depending on “replacement cost coverage.” A good insurance agent will go over the details with you; if you need any referrals for outstanding agents, please let me know.
Here are some general requirements that most lenders have:
- Providers must have AM BEST Financial Strength rating of B or better and a Financial Size Rating of III or better (check www.ambest.com or www.demotech.com)
- Coverage must equal 100% replacement cost, an amount determined by the appraiser on the appraisal
- On a purchase, you must pay your 1-year premium at close of escrow. For a refi, if your policy expires within 60 days (with some lenders, 90 days) from your 1st payment date, they will require you pay your 1-year premium at or before closing.
- Policy must include Windstorm/Hail coverage
- Maximum deductible is 5% of the face value of policy
Different rules apply for condos and PUDs. Most developments have a blanket policy that covers General Liability costs per lender requirements, but “walls-in coverage” (also called an HO-6 policy) is now required if the development does not provide it. The walls-in coverage must be based on 20% of your home’s appraised value. Some lenders require it for both PUDs and condos; others, just for condos only.
