Hazard Insurance, Fire Insurance, Homeowners Insurance
Tim Rowen – Branch Manager – Stanford Mortgage
These are all phrases commonly used when referencing the required homeowner’s insurance policy when going through the purchase or refinance home loan process.
There have been some significant changes in the insurance industry in large part due to the fires in recent years.
It has become now, more important than ever before to obtain homeowners insurance policy quotes as quickly as possible when shopping for a home especially if the property is within the foothill or mountain regions.
In years past we have seen annual insurance premiums costs at around $1,500.00 a year for an average home. Currently however we are seeing that some insurance companies will not issue policies in these area’s and the ones that do are having to issue one traditional policy and then add the fire coverage through the California Fair Plan. The result has been insurance costs at $5,000.00 or more annually. We are experiencing similar issues in some portions of Nevada.
So, the big question quickly becomes affordability. Is there a way for consumers to still qualify for their dream home given these much higher insurance costs in these areas?
The answer is yes, this can be dealt with. We first start by building a strategy with our clients to help them overcome the higher insurance costs.
Most consumers want to get a deal when purchasing just about anything and this is no different with real estate. When purchasing a home most tend to believe that getting the best deal is to pay less than the listed sales price of the home and in some cases, this might be the best way to go.
We have started working with our clients before the home shopping process has begun and have started using a “seller funded buydown strategy” to help address the higher insurance premiums.
This is a real example: Sales price $689K loan amount $484K with an interest rate of 4.75%/4.763APR Principal and interest payment of $2,524.00 monthly, homeowner’s insurance $425.00 monthly. Our client wanted to offer $10k less for the property. Instead we decided the best strategy was to offer the full asking price, however to ask for a seller credit towards closing costs of $10k.
If the offer were to get accepted our client’s interest rate would now be 3.750%/3.982APR. This would now result in a new principal and interest payment of $2,241.00 and even though the insurance costs remain the same we have dropped their payment by $283.00. The result is creating a payment similar to what it would have been if insurance premiums had not increased.
If in fact our client offered $10k less for the property that would have only resulted in a savings of $45.00 a month. An almost unnoticeable difference.
The good news is the seller accepted the offer as I outlined, and credited a win for all.
There have also seen similar situations for existing homeowners. Insurance companies have dropped their coverage causing the homeowner to obtain new insurance coverage and again resulting in much higher premiums.
We can apply the same strategy as listed earlier. By using a small portion of equity and doing a refinance we can buy down the rate to again offset the cost of the higher insurance premiums.
It is now more important than ever before to build a strategy designed to help overcome ever changing markets and this can be accomplished by working with both true Mortgage and Real Estate professionals.
The price of a home is not your lever, the rate is your largest lever and will deliver your largest savings.
Please feel free to reach out to any of the very qualified Stanford Mortgage Advisors to start building your strategy today at www.stanfordloans.com or 866-912-3017
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