that time of year again when hurricane season is in full swing. As we prepare for these storms along the coasts from Texas through New York, it is important to be
prepared for whatever Mother Nature throws our way. Especially when buying, selling, and financing a home.
Hurricane season presents further challenges when it comes to lending, challenges which can be frustrating for everyone involved in the real estate transaction. It can lead to increased lender approval times, increased costs to the borrower, and additional headaches along the way.
It is important to understand how hurricane season affects the lending process and what can be done to alleviate some of these problems. The two main issues during and after a named storm are:
- Obtaining a new home insurance policy.
- Insuring the home being lent against is structurally sound with no damage.
Insurance companies have charts they use to determine if they will issue a new home insurance policy. Once a Hurricane is within these charts, or in-the-box, they will not issue a new insurance policy on the home. The only thing to do at this point is wait out the storm and hope the home being bought/sold and financed suffers no damage. Usually the insurance company will require a new inspection after the storm passes to insure no damage was done, mainly to avoid paying out a claim on that damage.
Insurance companies will provide an insurance binder on a home before a loan closing. It is important to obtain new insurance binders on any homes included in a named storm’s path, provided they are close to loan approval and funding. Insurance companies will stop issuing new policies and binders once the storm is inside-the-box.
Lenders also face challenges when lending on homes during and after a named storm. The home itself could have suffered damage, de-valuing the asset. Because of this a lender will usually require a new appraisal to insure the home is sound. Unfortunately this is a hard cost to the Borrower in most cases and can further delay the closing.
During the 2004-2005 season in Florida it was common for two and sometimes three appraisals to be needed as several storms passed over the state in succession. It delayed many closings by over three weeks. If it appears that a storm is coming on-shore and the home being financed is directly in the path, it would be advisable to cancel the current appraisal inspection date. Once the storm passes the inspection can be re-scheduled. This will save the borrower money and the seller time.
Names storms are something that we deal with when living near the coasts. Being proactive in dealing with these will insure a smooth and informed lending process for everyone involved. At ResMac we have years of experience with this type of situation. We can help you and your client weather the storm.
For more information please call 800.917.7002 or email at info@res-mac.com.
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