The spring buying season started early this year. February felt as busy as any April, May, or June, I’ve ever experienced, and it should only grow as we move into the prime spring buying season. I believe it’s a perfect time to look at how home insurance can impact home buyers when purchasing a new home.
Once the offer has been accepted, there are a lot of moving pieces that demand the buyer’s attention such as scheduling the inspection and appraisal. I also recommend home insurance quotes be obtained prior to the end of the option period. The quotes should be “firm” which means a replacement cost estimate and claims report were run. Here are three things to know and evaluate.
Insurance Rates: Home insurance rates for north Texas have and are rising at a rapid rate. I’ve already seen increases of 20% to 30% and there are still a few carriers which haven’t yet released revised rates. The reason for the increases is due to the tornadoes which struck the area in December 2015 and last year’s hail storms. Home insurance companies paid out millions in claims from those storms and are hedging those losses against future hail claims. Unless you’re buying a home that’s less than 10 years old, expect rates to be much higher than they were last year.
Higher rates can make or break a home buyer’s debt to income ratios which the mortgage underwriter will review. Be open to looking at multiple carriers to find a home insurance rate that works within those ratios. It’s also a good idea to know what your ratios are before you evaluate home insurance, and your loan originator should be able to tell you what it is.
Claims: I always review the CLUE report as a part of creating a home insurance quote. This report shows prior home claims the seller and the buyer filed within the past 5 years. Some home insurance companies factor both the buyer’s and the seller’s claims when determining the annual premium while others only factor the buyer’s claims.
Knowing if the home you’re about to buy has any prior home insurance claims is very important. Even if the home insurance company doesn’t count them when calculating the rate, underwriters will want to know what caused water leaks and that they were properly repaired and confirm if the roof was really replaced after last year’s hail claim.
Updates: This is also a good time to find out if the seller has updated the home. The kind of updates I’m referring to aren’t tile, countertops, or items like that, but rather when the roof, water heater, and HVAC equipment were last replaced. Updates to roofing, plumbing, HVAC, and electrical are worth discounts that help lower the cost of home insurance. You may also need to provide written proof they were done which the seller should provide.
Roof age has become very important to home insurance companies. In addition to impacting the cost of coverage, it can also impact the type of coverage (replacement cost versus actual cash value), as well as the wind / hail deductible (1% versus 1.5% or 2%). I’ll write more on this in a couple of weeks.
Buying a new home can be an exciting or trying time. Working through the home insurance before the option period ends can ensure your home fits your budget and avoid any unpleasant surprises. What do you think? Share your thoughts, questions, and experiences with me on my Facebook, Google +, and LinkedIn pages. I’d love to hear from you!