Home Insurance and The 3-day Rule

Debt-to-income requirements have certainly had an impact on hazard insurance for home buyers, and now a new factor will increase those pressures. TIME!

New mortgage lending rules that took effect in October could have a bearing on your closings, so let’s update you on how insurance can impact buyers in light of these rules. In essence, lenders will have to be able to give the borrower a firm closing expense calculation three days prior to closing, and the closing must be postponed for an additional three to 10 days if the numbers change during that period. Since hazard and flood insurance premiums are frequently a component of those costs, it is more important than ever for buyers to start the process early. Here are a few of the factors to keep in mind when a buyer is purchasing a home and ways that you can help.

Estimates vs. quotes

Make sure your buyer is getting actual quotes. Estimates are a great way for a buyer to gauge his or her monthly costs, but they aren’t always accurate. The lender will need a firm annual premium in order to meet the three-day rule. In order to get an actual quote the borrower must be underwritten based on his or her credit as well as the features of the home being purchased.

Check flood zones

Don’t wait for the lender to surprise you with a zone determination. If you’re required to order an elevation certificate (which is needed in most cases if the home is in a required zone and was built after 1975), you need to allow for extra time. The survey can take several days to perform and process the necessary paperwork. Also, underwriting requirements may also take several additional days. Estimate that it will take five to seven days to get a flood quote with a new elevation certificate and could take longer depending on weather, volume of requests, etc.

Start early

Your buyer should begin shopping for insurance as soon as a contract is ratified. Many carriers have restrictions on locations so you don’t want your buyer to wait to contact their existing provider only to find out their new home isn’t eligible for coverage. While quotes are only valid for 30 days from the date quoted, the client can always be requoted within a few weeks of closing to ensure the rates haven’t changed.

Compare and bundle

Policy costs can vary widely based on the provider, so it’s important to compare several options so that your buyer can make sure he or she is getting the right coverage at the best rate. In addition, encourage the buyer to compare auto policies in conjunction with the homeowner’s quotes. Bundling policies can save the client as much as 30 to 40 percent with some providers. Making sure that they are getting fair and reasonable rates can prevent debtto-income eligibility issues that could delay or derail your closing. Remember that a client’s satisfaction is largely dependent on how smoothly he or she perceived the transaction took place. Many clients, particularly first-time buyers, may not be familiar with the steps necessary to secure insurance for the home’s purchase and will rely on your guidance and knowledge.

By helping your client to manage the timeline of events, you can prevent possible delays, make the process feel less stressful and leave a smile on your client’s face that will ultimately mean more referrals for you in the future.