Here are a few tidbits about Hazard Insurance, something that is required with every mortgage.
1. Hazard insurance is also known as fire insurance and homeowners insurance, and it should not be confused with mortgage insurance, which only covers the mortgage and not the dwelling.
2. Lenders require the “Dwelling Coverage” to match or exceed the lower of the loan amount, or the replacement cost estimate.
3. The replacement cost estimate (also called the rebuild cost estimate) can either come from the insurance agency or from the appraisal. If the insurance agency’s estimate is significantly lower than the appraisal’s, underwriters will sometimes request the agency’s breakdown and then condition for more coverage. Some lenders will only accept the appraiser’s estimate.
4. For condos, there are no minimum requirements per se, but they are required to have “Walls In” coverage. “Walls In” or HO-6 insurance covers the interior of a condo unit (carpet, paint, drywall, appliances, and contents in general). Some HOA master policies include “Walls In” and some do not. Underwriters carefully review every HOA package to ensure overall coverage is sufficient.
5. Fintech Insurance vs. Large National Companies. If one of our borrowers needs insurance, we still go the old-school route and refer them to an excellent Farmers Agent who provides extraordinary service. But we are seeing Fintech make inroads and have had surprisingly good experiences with upstarts like Hippo and Lemonade. I say “surprisingly” good b/c we have so many bad experiences with large, national companies who do not have local reps.
6. Coverage needs to be very specific and from the date the loan funds, NOT from the date the purchase “closes” or records. Loans often fund the day before a transaction closes, so accuracy and adhering to exact COE dates are important.
7. Non-responsive agents and companies delay escrows. We have had numerous escrows delayed solely b/c we could not get evidence of insurance in a timely manner. This happens more often than not with large, national companies (as stated above).
8. Borrowers need to get insurance immediately for fast escrows; they can switch after close of escrow. This is extremely important b/c buyers often lollygag :). They need to pull the trigger ASAP, and they need to know they can change insurance anytime so they are not so stressed about finding the “very best deal” when there is a time-crunch.
Jay Voorhees at (925) 855-4491
Real Estate Broker, CA Bureau of Real Estate, BRE# 01524255, NMLS# 335646