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Realtors, Loan Officers, & Attorneys: The home insurance transaction is not what you think.

January 31st, 2018 | 2 min. read

By Steven Ladd

3 Things to Know About Your Buyer’s Homeowner’s Insurance

As a professional who is a part of a residential real estate transaction, you know that homeowner’s insurance is a critical part of the closing.

However, there are three things about it that could make or break your deal:

The effective date of the policy is the effective date.

If you insist on the buyer/borrower clearing the underwriting hurdle for a paid receipt and binder, beware. Once bound, it cannot be changed. Unlike a closing date, that works as an on-or-about kind of date, an insurance policy is different.

A binder, represents “bound coverage”. There is no unbinding. There is only cancelling. Scrapping the policy. Starting over. The insurance policy is a contract. Unlike a closing date, it cannot be changed with an amendment. As annoying as it might be, a binder simply can’t be re-dated.

Since there are many hurdles to clear before a borrower can be cleared to close, try to save this one for the end. A policy can be bound, paid, and produced within a matter of moments. If an insurance agent tells you otherwise, find a new one.

Instead, have the buyer/borrower get a quote using the estimated closing date as the effective date. Ask the insurance agent to provide a copy of the quote to underwriting. The underwriters can use that to help with determining the P.I.T.I. payments. Once everything else is about done, get the binder (with the exact closing date) and paid receipt.

Never estimate the insurance premium.

Even if the property was the same size and on the same block as your last closing, still don’t do it. An insurance premium is made up of two equal(ish) factors. They are property and person.

Just like you can’t establish debt-to-income from a credit report alone, you also wouldn’t know your buyer’s $25,000 engagement ring was lost on the honeymoon three years ago. The loss resulted in an insurance claim. That claim is now used when establishing the applicant’s rate. More than 2 claims in five years, and not only is the premium going to skyrocket, but the number of carriers even willing to write the policy will plummet.

Other factors that affect the premium would be whether the auto policy is a part of the package. The multi-policy discount on the home can be as high as 40%. This might not be possible if one of the borrowers had a DUI in the past 5-years. The carrier might not be able to offer an auto policy to help make the home cheaper. Again, there’d be no way for you to know that when estimating the premium.

Running the social security number for the quote will NOT impact their credit.

The use of the S.S.N. for insurance is routine. It is used to establish an insurance score. It is a “soft pull” and will not register on the credit report as an inquiry nor affect the score in any way.

Knowing these three things will help you better navigate the transaction for your client. Don’t ever let something as simple as a homeowner’s insurance policy negatively affect all the hard work you put into the deal.