Most Buyers purchasing a property need to arrange financing. Mortgage lenders require Buyers/mortgagors to carry fire and extended coverage insurance. Policies range in prices from company to company, based on the type of policy requested, and the worthiness of the Buyer. The ability to obtain property insurance is a critical component of any real estate transaction. Without home insurance, a Buyer cannot obtain a mortgage, and without a mortgage, the transaction falls apart.
Insurance companies have tightened the rules for obtaining insurance and have become less willing to insure some types of property. Issues such as old wiring or furnaces more than 20 years old, among other things, raise red flags of concern for insurers.
When looking at a home, insurance companies consider the age and condition of the house, including the electrical system, plumbing, heating, wood burning appliances, oil tanks and structural components. They will also want to know if the home is to be owner occupied, rented or left vacant. Insurance companies also look at the individual applying for insurance. Individuals with a number of previous claims, a history of payment problems, policies that have been cancelled, declined or lapsed, a poor credit rating or convictions for insurance fraud are likely to see their applications declined or a surcharge added to their premium.
A home inspection is always recommended for any property a Buyer chooses, but it is particularly important if the home is potentially an insurance risk. Sellers who have these types of houses should consider a pre-listing inspection report, which might outline potential problems with their home. You could then take care of any necessary repairs in order to make the property insurable before it goes on the market, and of course, there's a stronger chance your deal will close successfully when the issues have been addressed already. In addition, a home inspection report, provided by either the Seller or the Buyer, and given to an insurance company, may make it easier to obtain insurance.
The best place to start when obtaining insurance is to ask the Representative who insures your current home, apartment, or automobile. That Representative already has information about you and many companies offer a discount if they insure both auto and property. Buyers should work with their insurance Broker to find an insurer that covers the type of property they are considering purchasing. For example, some companies will underwrite only homes in certain geographic areas; others may not insure homes with underground oil tanks or homes that are over 50 years old. Other concerns include knob and tube wiring, aluminum wiring, 60 amp electrical services, galvanized steel plumbing, old roofs, mould, grow houses, asbestos, income properties, home-based businesses, expensive cottages on private roads, and even vicious dogs.
In cases where you cannot obtain insurance in the regular market, there are substandard and specialty markets available. However, they do not deal directly with the public. An insurance Representative may be able to arrange insurance, but premiums are usually higher and coverage may be less.
Buyers are always protected with a condition in their Agreement of Purchase and Sale regarding home insurance. It usually runs in tandem with the conditions on financing and home inspection for a certain period of days, normally 5-10. You have this allotted time to obtain your home insurance so you can fulfill your condition, failing which, the offer becomes null and void. It's critical to inform your insurer immediately after accepting an offer so they can do the necessary work to insure your future property, especially if it has possible risks.