Sometimes we run into bumps at closing time. Even when clients are organized and take care of everything they need to, last minute issues may arise that make for a stressful few days.
One of the pieces that you need to take care of prior to your mortgage closing (finalizing) is buying home insurance. Sounds fairly simple, but this part of the process can cause headaches for you.One of the pieces that you need to take care of prior to your mortgage closing (finalizing) is buying home insurance. Sounds fairly simple, but this part of the process can cause headaches for you.
Earlier in the home buying process, before you pull your subjects, you need to confirm that the home you are buying is insurable. Your insurance broker will ask you a series of questions about the property you are buying and provide a quote for insurance.
Fast forward to the week before your mortgage closes, when you go to actually purchase the insurance.
There are a few issues I’ve seen lately that you need to think about as you are buying a home and researching your insurance coverage.
I am hearing from more clients that the insurance companies are declining (or limiting what it covers) insurance for homes if the water tank is more than ten years old.
Two summers ago clients of mine ran into a situation where they had to scramble at the last minute for insurance. They had done their homework upfront. Three days before closing a wildfire broke out near Peachland. The company he had originally contacted wouldn’t provide insurance within fifty miles of an active fire.
After two frantic days of calls trying to find an insurance company that would offer a policy, the clients’ mortgage closed two days late.
Most recently, we ran into a situation where the clients purchased their insurance. The replacement value of the policy was about $75,000 less than the purchase price of the home. This is quite standard, as the replacement cost does not include the value of the land.
Your lawyer has to confirm that you have adequate insurance in place. In this case, the lender told the lawyer that either the client had replacement coverage for the full value of the mortgage or they would not finalize the mortgage.
My poor clients were in a panic, afraid they would be homeless.
This was a fairly straightforward situation to fix – several calls back and forth with the lender and the insurance was signed off. However, it was certainly a stressful few days for all involved.
Last, and certainly not least, is a noticeable increase in the cost of home insurance. If you bought a home with a longer closing, say two or three months down the road, you may want to have a little more of a buffer available for your home insurance. I have heard from several clients that the cost of their insurance had increased when they went to finalize their policy. Mine is coming up for renewal and the increase is almost thirty per cent from last year.
It’s important to keep your mortgage professional looped in when you run into these challenges. Often we are able to help you navigate through, reduce (minimize?) your stress, and help keep things on track for closing on time.