Homeowners Insurance

An insurance policy is required when we submit the loan to underwriter the underwriter for approval. So if you could provide the declarations page (which is a summary page of the coverages) and an estimated amount due within the first one or two weeks of loan application that would be best. You will be required to pay the first year in advance, as well as several months of the annual premium into an escrow account. You can the first year in advance or the insurer can also collect at the settlement table. The lender usually requires that you escrow for homeowners insurance.

Replacement Cost

Homeowners insurance policies typically cover what is known as “replacement cost” and not, as is sometimes thought, market value. “Replacement cost” is the amount needed to repair the damage or rebuild the home to its pre-loss condition. For insurance purposes, the replacement cost of a home is not the market value of the home, its purchase price, or the outstanding amount of any mortgage loan. It does not include the value of the land but it does include the cost of rebuilding your home. A contractor or appraiser can help estimate your home’s replacement cost. We can get a copy of your appraisal to your insurance agent, which has an estimate of replacement cost.

If you are purchasing a condominium

The insurance may be part of a “Master Umbrella Policy” that covers the whole building, and payment for this is included in your condo fee. In this case you would not have to shop for an insurance policy that covers the dwelling/structure including the interior of your unit. But it is rare that the building’s master umbrella policy covers the interior of your unit. I usually see that a mortgage borrower needs an “HO6 policy” to cover interior fixtures and upgrades, which you can read more about here: HO6 Policy.

Additionally you will want to get insurance to cover your belongings. This is similar to a “renters policy” and may also be called a “contents coverage policy.” If you experience a theft of belongings out of your condo the insurance that the condo carries or your HO6 policy will not cover you, so this additional “renters” policy is a good idea.

What does a homeowners insurance policy cover?

A homeowners insurance policy will cover you in the event of a loss due to fire, theft, and more. Be sure to get an exact accounting of what you are covered for under your insurance policy. The insurance requirements usually give you coverage for at least the amount of the loan or have a “guaranteed replacement cost policy.” This type of policy means that your house would be rebuilt no matter what the cost. Some insurers have a policy in which they start out with a certain amount of coverage as well as offering annual inflation adjustments to cover increased building costs. This type of policy is fine too, as long as the initial coverage covers the amount of the loan.

How to shop for a homeowners insurance policy

In shopping for the lowest premium be very careful to compare apples with apples. The things you must hold constant in getting quotes from different carriers are the deductible and the amount of coverage. Higher deductibles carry lower premiums. Consumer Reports suggests carrying a high deductible. The logic is that you should only be using your insurance for large claims and major losses. If you have a bike stolen you should buy a new one on your own without making a claim. But if a fire means you lose all your furniture, rugs, electronics and more, by all means, pay the deductible and make a claim. Homeowners insurance should not be used as a way to budget for minor mishaps such as a falling tree or bike theft.

Flood damage

The typical homeowners policy does not cover flood damage as defined by the National Flood Insurance Program. That definition of flood damage is: a general and temporary condition of partial or complete inundation from overflow of inland or tidal waters or unusual and rapid accumulation or runoff of surface waters from any source.

In the event of a catastrophe how will you know what you have lost? It is recommended you do a complete inventory of your belongings. Start by taking video or still photos of each room and then committing all major items to paper. Record brand, model, date of purchase, and purchase price. Also record serial numbers and save receipts for big ticket items. For antiques and jewelry, written descriptions and appraisals are important. Don’t forget to look in your closets and attics. Your insurance agent can provide you with checklists to make the process easier, and remember to store the video, pictures, and paper inventory in a safe location away from your home.

When refinancing

For a Refinance transaction, please have your current insurance agent immediately contact my assistant:

Capital Bank NA
185 Harry Truman Parkway, Suite 100
Annapolis, Maryland 21401
ATTN: Kimberly Kanetzky
301-761-1996 office

Your insurance agent will need to send a copy of your current policy to us and we’ll give your insurance agent the name of the new bank which they will put on the current insurance policy.