If you’re thinking about buying a home, you’re likely focused on the important aspects of location, amenities, price, square footage, etc.
On the long list of things to worry about or look into, homeowner insurance may not sound like a pressing issue. In fact, most home buyers don’t call their insurance agent until well into the escrow period to arrange a policy.
Wait too long, however, and you could find yourself with a potentially costly problem on your hands.
Why Some Properties May Be a Challenge to Insure
Property insurance companies try hard to minimize their risk and potential of losses. When considering coverage on a home, they will consider the home’s loss history. If the property has been the subject of prior claims, you might find that your trusty insurance agent can’t issue a policy on it.
This is especially true if the home has had large or high-risk claims. Water damage claims, for example, are a big problem for many insurers. Mold is another issue that may make a property uninsurable.
In some cases, you may be able to find a company willing to write a policy, but at a cost that could significantly raise your monthly mortgage payment.
Should You Request a CLUE Report when Buying a House?
You may have heard sellers or real estate agents mention something called a CLUE — Certified Loss Underwriting Exchange — report.
In theory, a CLUE report is a little like CarFax, except for a house. However, this is a bit of a misconception. A CLUE report is not an insurance loss history for a specific property, but rather it follows an individual. It’s more like your credit report, but for insurance. You can request your own CLUE report from LexisNexis, but it won’t necessarily reflect a complete loss history for your home.
Ask Your Realtor® About Including an Insurance Contingency
If you don’t discover a problem with a home’s insurability until after your inspection period has expired, you may be stuck in a contract you can’t fulfill.
If you’re buying the house with a mortgage, your lender will require you to have homeowner insurance in place before they will fund the loan. If you can’t get insurance, you can’t get a loan. This means you’ll have to cancel your purchase contract and sacrifice your earnest money.
To avoid this, talk to your agent about including an insurance contingency in your contract. Many standard real estate purchase contracts today include this contingency, but you’ll be safer if you ask the question.
You could also ask your agent to request a loss history from the seller, which the seller can request from their insurance company. However, the safest approach is to call your own insurance agent during your due diligence period and have them verify that they will be able to provide insurance. You’ll potentially save yourself time, money and heartbreak on the transaction.
Contact the Edie Israel Team of professional Realtors® today for more information on selling or buying a house in Yorba Linda or the surrounding Southern California communities.