In my 11+ years of working in the insurance business I've provided home insurance policies for a lot of people. One of the more frustrating things I deal with is people who call up for home insurance 1 day before a closing with the mortgage broker, realtor and attorney all on my heels screaming at me for a binder of insurance yesterday. I would like to help explain the process from the insurance side for realtors, mortgage brokers and prospective home buyers.
In most cases the process starts out with the realtor helping the client out with finding a home. Good realtors generally start to think about making sure their client is lined up with a mortgage broker and attorney and some go as far as mentioning the need for insurance. The mortgage broker then jumps in and starts working with the client to find the best rates, best loan program etc. The broker is generally in touch with the attorney and they work together to schedule closing dates. Good mortgage brokers will also mention the urgency to get insurance quotes for the property as this information is very helpful when figuring out the good faith estimates for closing. The attorney generally is working with the client to look over the contracts etc and once again - should be mentioning insurance and stress the importance early in the process as well.
I never get upset at the clients of course. I know some wait until the last minute to get things done but it's really not their fault if no one in the process has stressed that they need this right away. Between the mortgage broker and the attorney - someone should tell them it's extremely important to get an idea on the insurance rates. I've had several deals over the years fall apart all because of insurance costs being too high or people realizing they need both home insurance and flood insurance. These are all things that should be determined early in the process.
Most mortgage brokers give clients a ballpark estimate on the home insurance. The problem with this is it could be very much different from what the actual rate will be and change the closing costs. Really good mortgage brokers make sure the client is all set with the insurance rates so their numbers are more accurate. Why would you want to have to go back to your client and tell them they have to pay more based on your ballpark estimate? Shouldn't ever happen. With credit scoring on home insurance with the majority of the insurance companies, you can have 2 people buying the same size house next door to one another and one could be paying double the insurance premiums of the other based on their credit etc. It's too difficult now to guess these things.
There is also a huge misconception that you have to have insurance in place first in order to get a closing date established. I can't tell you how many "mortgage brokers" tell me to send them a binder of insurance when the closing date has not been established and they say they need it to close on the loan. It doesn't work that way. The broker and attorney schedule the closing date and we provide an insurance binder for that date. The closing date needs to be established at some point - that's when the insurance gets issued.
For the vast majority of people buying a condominium, please note that when you are told that the bank needs proof of insurance -- it's almost never your own personal insurance policy on the condo -- it's the master policy that the condo association has in place on the building(s) that the bank wants to see. The bank doesn't care if your clothes burn - they want to make sure the building is covered and can be rebuilt. It's in your best interest to get your own personal policy of course and I'll post a blog on condo coverage at a later date!
In terms of timing - most banks want to see proof of insurance a certain number of days prior to the closing date. It would be made effective for the closing date but they want to see it ahead of time to get everything in order. I generally prefer to start working on the insurance 2 weeks or more prior to the closing as it gives me more time to search for the best rates and to have conversations with the attorney and the mortgage broker so we're all on the same page. I know the other parties prefer it as well and it makes the whole closing process run smoothly.
Flood insurance is another huge part of the deal. Here in CT we deal with many coastal homes of course but also many that are inland that could have a tiny stream running through a corner of the property. Depending on the flood zone the home is in, the bank could require flood insurance. The price on this can be double or triple that of the home insurance. It has to be paid in full every year and cannot be canceled until the mortgage is paid off. The client needs to be made aware early in the process if they are required to carry this as it could end the deal as many of you know.
Home insurance in general has become a complicated policy that has many components. It's no longer just the rebuilding cost of the home and the deductible. Now insurance companies base their premiums on all of the house features, age of roof, heating, electric, distance to coast, credit of buyer, age of home, distance to hydrants/fire station, age of buyer and many many other factors. They now have multiple rating tiers -- some companies have hundreds of premium tiers that you could be placed in based on the previous mentioned factors. So do yourself or your clients a huge favor and suggest that they look into the home insurance early in the process. It's just one more thing that could end a deal as quickly as it started.
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