Before Buying, Make Sure Home Is Insurable
By DIAN HYMER
For years, real estate agents have advised their clients to get pre-approved for a mortgage before they start looking at houses. Today, getting pre-approved for a loan may not be enough to prepare you to be a bona fide buyer. You also need to know that you're insurable.
Years ago, lining up homeowners insurance was one of the last things you did before closing a sale. Now buyers are finding that it's wise to make it a priority. Homeowners insurance is required to close any home purchase in which a new mortgage is involved. A mortgage lender won't give you a loan unless you have hazard insurance on the property. If you can't get insurance, you can't have the loan.
Very few purchase contracts currently include insurance contingencies that make the purchase contingent on the buyer's ability to obtain acceptable homeowners insurance. But that situation could change, given conditions in the industry.
Homeowners insurance carriers have recently been hit with skyrocketing costs due to an increased number of mold and water-related damage claims. In an effort to control costs, carriers have become hyper-diligent about who they will insure and what properties they will insure.
For years, insurers have scrutinized applicants to make sure they were a good financial risk - checking credit reports and scores. Now they also look at your claims record to see if you're a good insurance risk.
House-hunting tip: Insurance carriers are also checking out the property to make sure its claim record is clean before they'll agree to write a policy. This means that you could have a squeaky-clean record, but you could be denied insurance if a claim or two has been filed in the last five years on the property you're attempting to buy.
Most insurers participate in a claims-sharing database, the Comprehensive Loss Underwriting Exchange. CLUE reports in detail every claim made on a property during the last five years. Homeowners can obtain a copy of the CLUE report on the home online at www.choice trust.com, for less than $15. A buyer cannot access the CLUE report on a property unless the seller provides a copy. However, an insurance agent who has access to CLUE can, and will, check the claims record. Insurers are also tightening up with already insured homeowners. Longtime insured customers may not be renewed if they have submitted a claim in the last year. To make matters worse, what you think is a casual inquiry the insurer may interpret as a claim. If you call your insurer for information, be sure to begin by saying: "This is hypothetical."
First-time buyers should consider taking out a renter's insurance policy. Insurers will often write homeowners insurance for their existing customers.
The closing: If your purchase contract doesn't include an insurance contingency, find out if the house is insurable at a price you can live with before you remove your inspection contingency. You can probably find insurance to cover a home with a bad CLUE report, but the cost may be prohibitive.
Dian Hymer is a syndicated columnist and author of "Starting Out: The Complete Home Buyer's Guide," (Chronicle Books, Revised 1998) Distributed by Inman News Features.
Reprinted from Los Angeles Times Sunday Edition, February 16, 2003