So, you’re about to sell your rehab property in the near future. In fact, you have a buyer ready and willing to pay you your asking price. So you obviously want to sell to this person since they intend to give you exactly what you want. But you’re unsure of whether or not they will qualify for insurance to cover the property.
Well, there are a couple of things that you’ll need to learn about the buyer before you can determine whether or not they’ll be able to insure the property. Plus the property and the location itself certainly plays a role in whether or not getting insurance is going to be easy or even possible.
It makes sense to wonder about whether or not insurance is going to be a viable option for your potential buyer. But the truth is, they need to be open and honest with you about their personal history in order to properly determine if they are going to be a good fit. Anyway, please use the following information to make your best determination when trying to figure out if they’ll qualify for insurance or not.
Pay Close Attention to the Underwriting Guidelines
Whenever anyone fills out an application for homeowners insurance, the insurance provider is going to take it through the underwriting process. This process is put in place to determine if a person will be insurable for the coverage that they require based on the particular mortgage rate. Each insurance company has their own specific underwriting guidelines, so it might be helpful to choose an insurance company first and learn their guidelines before requesting an insurance quote.
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The standards are in place to find out if the potential buyer of your rehab is going to be considered an acceptable risk for the insurance coverage provided by the insurer. As part of the underwriting guidelines, an insurance company might even have the ability to look up your credit history and credit score to determine if the buyer will be able to afford paying the monthly premiums.
All in all, it’s up to you to learn about their underwriting guidelines and put it together with the buyer’s credit history and credit score to determine if they are going to qualify based on all these factors. You could always ask the potential buyer to attempt to get insurance before purchasing the property just to see how it goes. It might not be possible since they aren’t the owner yet, but it’s definitely worth giving this a try nonetheless.
Location Is Key and a Big Factor for Insurance Providers
This one has nothing to do with the buyer per se, but the location of the property itself is definitely going to determine the premium amount. And if the property is located in a high risk area, where damage to the home can happen because of hurricanes, tornadoes, earthquakes, etc., then the property itself might become a problem for the insurance company and it won’t pass muster to become insured.
But as an example, if you know the property is in a safe area that doesn’t have too many Acts of God like hurricanes and tornadoes, it’s likely that the insurance company will have no problem covering the property. But they’ll also pay attention to things like water sources and whether or not the local fire department is close by to also decide if the property is insurable or not. So if it’s in a safe neighborhood with a close fire department, it should have no trouble qualifying.
Another factor that could have an effect on insurance premiums is crime in the neighborhood. If it’s a high crime area, the insurance premiums could go up. So keep that in mind when deciding whether or not a potential buyer for your rehab will qualify for insurance.
Home Maintenance and Upkeep
Last but not least, home maintenance and upkeep is definitely a big factor in determining insurance premiums and whether or not a homeowner will qualify for insurance. If the inspector from the insurance company looks over the place and determines that the home meets their standard requirements, then everything is going to be fine and getting insurance shouldn’t be a problem.
On the other hand, if the roof is in terrible condition, the home looks like it’s falling apart and there is other damage, the insurance rates could be much higher or the property might not qualify at all. So make sure you thoroughly rehab the property first and fix everything up before attempting to ask the buyer to find out if they qualify for insurance.
As you can see, insurance providers use a number of different things to determine if a homeowner or property qualifies for insurance. They want to know about the home and the maintenance and upkeep performed, the neighborhood, and the underwriter guidelines need to be followed at all times. If the person and property meets all these criteria, then they’ll have no trouble getting insurance for the rehabbed home.
If you want to learn from the beginning, we urge you to read this post on getting started with flipping homes.