Policy amount relative to mortgage

[Clayton787]

What is the name of your state (only U.S. law)? Texas

I am purchasing a home for $615,000 and financing with a $417,000 mortgage.

The land is worth $500,000.

Do I have to insure the house for the mortgage amount, even though the house is worth considerably less. Replacement cost might be $300,000 for the house, but still well below the mortgage amount.

 

[tranquility]

What you have to do is what the lender requires. What do your loan docs say?

 

[HomeGuru]

What is the name of your state (only U.S. law)? Texas

I am purchasing a home for $615,000 and financing with a $417,000 mortgage.

The land is worth $500,000.

Do I have to insure the house for the mortgage amount, even though the house is worth considerably less. Replacement cost might be $300,000 for the house, but still well below the mortgage amount.

**A: most lenders require full building replacement cost so it's the house value that is insured not the land value.

 

[Clayton787]

The replacement cost for the House (excluding the land) is approximately $325,000. So I shouldn't have to insure for the loan value of$417,000.

 

[seniorjudge]

The replacement cost for the House (excluding the land) is approximately $325,000. So I shouldn't have to insure for the loan value of$417,000.

Then if the house burns down, you will have to come up with the difference immediately.

 

[Clayton787]

What is immediately?

I have land that is worth more than the loan. I still have income and can pay the mortgage. The insurance company pays me "loss of use" payments, which pays me to rent somewhere else.

Do mortgage companies require "immediate" payment if the house burns down?

 

[seniorjudge]

Q: What is immediately?

A: Definitions of immediately on the Web:

* without delay or hesitation; with no time intervening; "he answered immediately"; "found an answer straightaway"; "an official accused of ...
* near or close by; "he passed immediately behind her"
* bearing an immediate relation; "this immediately concerns your future"
wordnet.princeton.edu/perl/webwn

* In an immediate manner; instantly or without delay
en.wiktionary.org/wiki/immediately

 

[seniorjudge]

Q: Do mortgage companies require "immediate" payment if the house burns down?

A: Ask your mortgage company. I suspect the difference in premium is not that much. Talk to your insurance agent.

 

[Clayton787]

Thanks everyone.

As I peeled back the onion I found out the following:

The mortgage company did not require insurance for the full amount of the loan. They require replacement cost on the house. However, since they had no appraisal in this case (because loan to value didn't require it), they had no good way of determining the replacement cost. So they told me to insure for the value of the loan.

In this case, the mortgage company (countrywide) has an insurance subsidiary that offers homeowners insurance. I got a quote from them. They calculate replacement cost based on a variety of factors. With their quote in hand, the mortgage company reduced the amount of the required insurance to the replacement cost. (which is less than the loan amount).

 

[HomeGuru]

Thanks everyone.

As I peeled back the onion I found out the following:

The mortgage company did not require insurance for the full amount of the loan. They require replacement cost on the house. However, since they had no appraisal in this case (because loan to value didn't require it), they had no good way of determining the replacement cost. So they told me to insure for the value of the loan.

In this case, the mortgage company (countrywide) has an insurance subsidiary that offers homeowners insurance. I got a quote from them. They calculate replacement cost based on a variety of factors. With their quote in hand, the mortgage company reduced the amount of the required insurance to the replacement cost. (which is less than the loan amount).

**A: ok, case closed. I thought I gave you the correct info from the start.

 

[Clayton787]

you did give the correct answer, but it was at odds with the mortgage company at first.

Thanks.

 

[seniorjudge]

you did give the correct answer, but it was at odds with the mortgage company at first.

Thanks.

HG's answer was meant to protect YOU.

Obviously, it is in your best interest to have it insured for as much as possible.

 

[Clayton787]

What's with Srjudge?

No useful info. Just snide comments. What's the point?

If you don't know what the legal payback requirement is in the case of the house burning down, why offer such useless advise?

You obviously only have opinions to offer with no basis in facts.

 

[Clayton787]

It doesn't protect anyone to over insure since you won't get paid the full amount on a replacement cost policy!

 

[seniorjudge]

What's with Srjudge?

No useful info. Just snide comments. What's the point?

If you don't know what the legal payback requirement is in the case of the house burning down, why offer such useless advise?

You obviously only have opinions to offer with no basis in facts.

Nothing snide from me; just wanted to make sure you were fully protected.

Good luck!