Many home buyers don’t start thinking about home insurance for their new homes until their lenders ask them about it during their closing process. Inexperienced lenders can be late to check on their clients’ insurance. Too often, things come up that can have a negative impact on loan closing and even wreck deals. We’ve handled enough panicky phone calls and emails from mortgage lenders and home buyers to know. But home buyers and lenders don’t have to worry if they keep a few things in mind.
We at Comparity live in an area where both hurricanes and flooding threaten homes on an annual or perhaps more frequent basis. But even areas not as infamous for damaging weather can face environmental conditions that force insurance carriers to adjust their underwriting criteria, increase rates, and restrict policy issuance. Regional restrictions vary by carrier over time and change frequently. Homebuyers often expect to go to their current insurance carrier for a new policy only to find the carrier has temporarily halted issuance of new policies in the area.
At some point during every closing process both home buyer and lender should be protected by a Claim Loss Underwriting Exchange (C.L.U.E.) Report. No home buyer or mortgage lender should do a deal without a C.L.U.E Report. The C.L.U.E. Report details the insurance claims history of a property. If there have been many claims on a property the cost of insurance on that property can increase, no matter what carrier. But again, all carriers have different appetites for risk so their policies will have different costs for excessive claims properties.
For any number of reasons, including the two aforementioned, the cost of a home insurance premium can put a buyer over a legal limit on the amount of debt they can carry relative to their income. Hazard insurance policies often vary by thousands of dollars across carriers.
Shop and Compare
Anytime someone is buying a home they should shop and compare their options for home insurance. Mortgage lenders should encourage their clients to shop for home insurance well before closing. There are too many variables in every homebuyers situation to assume that they can find the right coverage for the best prices by going to only one seller, even if that seller represents multiple insurance carriers.
Most people are surprised when home insurance becomes an impediment to buying a home. Here are three reasons homebuyers shop for home insurance when buying a home. Mortgage lenders and homebuyers take note. Don’t let these home insurance issues catch you off guard.
1. First Time Homebuyer
This seems obvious but don’t take it for granted. Any experienced loan officer or experienced homeowner knows that buying the home is at the top of a long list of things first time homebuyers are doing for the first time. First time homebuyers don’t think about home insurance until loan officers mention it. When a first time homebuyer is ready to shop for insurance they don’t know how. Many people start with the company that insures their parents. But that can lead to another reason homebuyers shop for home insurance.
2. Underwriting Restrictions
Insurance carriers have underwriting restrictions that prevent them from insuring various properties and people. Both first time and experienced homebuyers alike can be taken by surprise when they shop with a single carrier only to be rejected by that carrier’s underwriting restrictions. Underwriting restrictions are numerous and vary by company. For example, some carriers won’t insure homes past a certain age, homes close to a coast, or homes with certain features. Restrictions are too numerous to list. The best way to avoid getting caught by restrictions is to shop as many carriers as possible.
3. Debt-to-Income Ratio
Government regulations require that homebuyers maintain a prescribed debt-to-income ratio when buying a home. The price of home (hazard) insurance is a required element in debt-to-income calculations for home mortgages. When homebuyers don’t shop for home insurance they risk loan rejection due to home insurance premiums that are too high. The situation naturally leads to price-driven home insurance shopping which can undermine the buyer’s protection unnecessarily. By shopping multiple carriers at once you can compete on price without sacrificing coverage.
Comparity makes shopping for insurance easy for homebuyers and mortgage lenders
When mortgage lenders and homebuyers use Comparity to shop for home insurance they avoid the consequences of not knowing how to shop home insurance. Even better, mortgage lenders who use Comparity get added benefits that matter in the closing process – like evidence of insurance delivery per loan and a single access point for home insurance on all in-process loans.
At COMPARITY we strive to simplify insurance shopping for everyone, including mortgage lenders. As we have grown, we learned from our mortgage Affiliates that an estimated 25% of loan transactions experince pitfalls when it comes to obtaining the Evidence of Insurance (a.k.a. Proof of Insurance) documentation that is critical to their closings. Underwriters, Loan Officers and Loan Processors all reported a similar frequency of issues with obtaining this documentation. The complications result from the mortgage company not knowing where the client is in the process, not knowing who will be providing the insurance and routing that proof of coverage to the right people. This all too familiar pattern of inefficiency not only gobbles up time, but can lead to closing delays.
Today, I’m happy to report that we simplified Evidence of Insurance tracking for mortgage loan closings.
Now when homebuyers use COMPARITY for insurance, the process is streamlined for everyone involved.Our technology enables insurance agents to obtain the loan documentation (mortgagee clause and loan number) required to bind policies. When they are done binding the policy, they upload the Evidence of Insurance to our system which then notifies the loan officer, underwriter or loan processor as soon as it is available. What’s more, we update everyone on the status throughout the process. Our dashboard allows agents and lenders to track where their clients are in the insurance shopping process, see the quotes they have obtained and download Evidence of Insurance.
At COMPARITY, our mission is to simplify insurance for everyone. When it comes to a new home purchase, buyers, mortgage lenders, and insurance agents need to be in sync. There’s no reason that shouldn’t be simple, too.
If you want to learn more about how we can simplify insurance for your next home transaction please contact Mike Vernon at firstname.lastname@example.org or 757.333.0705