Need to Increase Homeowner's Insurance for Refinance?!?
Hi,I am currently in the process of refinancing my detached condominium in southern California. The loan amount is for $554,200, and the appraised value of the home is $782,000. I am being told by the lender that I need to increase my homeowner's insurance from the cost to rebuild ($320,000) to the value of the new loan (i.e., to $554,200). I am currently carrying more than enough coverage to rebuild just in case ($361,000), but I'm still being told that I need to increase. To me, this does not make sense because it doesn't make sense to insure for more than the cost to rebuild the dwelling. Supposedly, the increase request has something to do with the 20% equity rule but I haven't gotten a clear answer on it. My broker says that these days it's the higher of the loan value or the rebuild cost. Can someone enlighten me? Thanks!!!Mark by kaiser_164_435 from Redondo Beach, California. Jul 9th 2012
Bert Carpenter (BertCarpenter)
#37 ranked lender in Arizona - 2,431 contributions
As long as your policy limits cover 100% of the cost to rebuild (full replacement coverage), then in theory the policy should be acceptable to the lender. The reason the lender is probably balking is... well look at it from their perspective. They lend you $550k, you insure it for an amount that in theory will pay to rebuild ($360k). Next year the place burns to the ground (with you in it) and your heirs decide not to rebuild. The lender is stuck with a $500k loan, a vacant lot and only $360k to settle with. They don't want to fool with rebuilding. They want to get their money back and move on. In the end, you will need to have a policy with sufficient coverage to satisfy the people giving you the money. If they're not happy...~ Bert Carpenter, The LoansA2z team of NOVA Home Loans ~ NMLS 40586 ~ www.LoansA2z.com 888-889-9950
Michelle Curtis Loan Originator NMLS 401173 (MichelleCurtisLO)
#77 ranked lender in Florida - 2,245 contributions
Unfortunately it depends on the lender. Some lenders will be okay with the lower amount as long as on the binder it says guaranteed replacement costs, but most lenders are requiring the value of the new loan amount. It is the banks money and they can require what they wish. All the best!
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