Are You Buying the Right Homeowners Insurance Policy?

What Type of Homeowner’s Insurance Do I Need for a Renovation Loan?

I am not an insurance agent, but I do have several excellent referral partners that have educated me on the differences in the insurance companies and their policies in relation to a standard home purchase and a purchase + renovation transaction.

My job is to understand every aspect of the 203K / Renovation Loan process, homeowner’s insurance is a key piece of the puzzle. So, like the rest of the renovation loan process I know the scoop.

I get asked a lot about this process. As you know from my previous manifestos, if I get ask more than three times then the topic is blog worthy.

Homeowner’s insurance is not optional if you have a mortgage. Lenders are not going to risk their collateral. If you have to have it, then be educated on the process.

Home-buyer’s will shop for a mortgage, they’ll shop for an agent, but I am constantly surprised at how few shop for their homeowner’s insurance. I get consistently sassed over .125 in rate. The difference between a 4% and 4.125% on a$200,000 mortgage is approximately$15 a month.

The difference between an$800 annual homeowners policy and a$600 annual homeowners policy is$16 dollars a month. Yet, for the most part, home-buyers call one insurance agent and their done. Why?

Home-buyers need to understand what drives the price differences.

First, many insurance companies are credit score driven. Not all of them though. If you are sitting at 660 mid score then you might see vast differences in price and, if you don’t research, then you’ll pay more. The insurance companies refer to this as “insurance scoring”.

You won’t find a lot of info about which insurance companies weight credit score more heavily. Since the hard data isn’t there, I’ll give you my observations based on seeing thousands of insurance quotes and my own personal homeowners insurance experience.

In general, USAA will often present some of the best hazard insurance rates. From observation, that isn’t true for lower credit score borrowers. Traveler’s appears to be the same. AllState, State Farm and Progressive also havetendenciesto price my lower score clients higher.

So what company is better for lower score home buyers? From my experience, Hanover Insurance is typically a price leader for my clients with less than stellar credit.

So what else plays heavily into your homeowner’s insurance rate? Proximity to fire and police is a huge factor. If you live in the sticks then you’ll get the house for cheaper, but expect to pay more for homeowners insurance.

So, we’ve discussed the insurance basics let’s talk about the specifics when you are buying and using a FHA 203K, HomeStyle or HomePath Renovation loan.

Where Standard Homeowner’s Insurance Fails for Home Renovations

Nearly all of the big insurance provider’s either charge a lot more if you or renovating or flat out tell you no deal. Why? Easy, they want the upsell into an expensive builder’s risk policy.

Don’t get me wrong, builder’s risk coverage is a MUST if you are doing a 203K or Conventional renovation loan. Standard policies have gaping holes in coverage during the process.

You need the coverage, you just don’t have to pay more for it. Their are insurance providers that, for the same price as a traditional homeowner’sinsurance policy, will offer a temporary period of builder’s risk coverage.

The cost is about the same as a standard purchase policy and once the renovation is complete the insurance converts into typical hazard insurance.

I’ll recommend Hanover again, they are my go to insurance provider for renovation loan policies.

In conclusion, spend just a small fraction of the time you spend shopping me on rate and apply a little bit of that effort to shopping for the right homeowners insurance, you’ll be glad that you did.

Protect Your Investment With the Right Homeowner's Policy

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