Chris Carter. As we enter hurricane season in South Florida, let's discuss hazard insurance from a lending perspective

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1 As we enter hurricane season in South Florida, let's discuss hazard insurance from a lending perspective Hazard insurance is an important part of owning and financing real estate - Lenders require buyers/borrowers to take out and pay for hazard insurance on the property pledged as collateral for a loan. This is in case the property is ever damaged to the point that it is no longer worth the amount loaned. June 24, 2014 Lenders are primarily interested in protecting their investment in the house from physical damage and loss of value. Owners are concerned with making sure they can afford repairs to the house after damage occurs. Hazard insurance makes these repairs more affordable to the homeowner by offsetting their cost. Chris Carter Mortgage Advisor / Originator Projected insurance payments are included in the calculations that go into buyers' home affordability evaluations and pre-approvals, and the premiums themselves are part of the acronym that represents a homeowner's monthly payment: NMLS cell PITI (Principal, Interest, Taxes, Insurance) Hazard insurance must be in place before closing and is mandatory on all property financed with a mortgage loan. Lenders usually want tax and insurance costs escrowed through monthly payments by the borrower, making sure enough of the borrower's money is available when tax and insurance bills are due. Lapses in either property tax payments or hazard insurance coverage result in a default on the terms of the loan.

2 Also called property insurance, it protects the owner and the mortgage lender from the full impact of damage as a result of fire, lightning, rain intrusion, hail, freezing, vandalism, and other specific causes. The deductible represents the homeowner's share of any loss. Important: Standard hazard / homeowners' policies do NOT include flood and windstorm (hurricane) coverage. These are considered separate risks and are covered by separate policies. Talk with a licensed insurance pro for all policy and coverage details. Homeowners' insurance typically goes beyond the hazards of physical damage to the property itself and includes theft of or damage to personal property contained in the house, and liability protection for the property owner in the event of a civil lawsuit. The geographic location of a property contributes to its risk profile and determines other coverages that are suggested or required in addition to a standard hazard policy. Here in South Florida windstorm and flood coverage are required by lenders when the property is in an exposure risk area. We discussed NFIP flood zones and flood maps in our 3-part series on Flood Insurance, so I won't go into further detail here. The general idea is that zones on a flood map indicate the relative risk of flooding, and a property's location on that map (along with it's Elevation Certificate) shows it's basic flood exposure and risk.

3 (If you'd like PDF reprints of my earlier Flood Insurance newsletters, send me a quick and I'll be glad to send them to you.) As you recall from those newsletters, lenders require coverage when the property is located in any A or V zone on the Flood Insurance Rate Map. Realtor Happy Hour Trivia: Atlantic hurricane season runs from June 1 to November 30. In windstorm coverage, there are also specific high-risk zones. In Collier and Lee Counties, this high-risk wind zone extends from the Gulf shoreline to 1000 feet inland and includes all barrier islands. Lenders require windstorm coverage on most South Florida properties, whether or not they're located in the high-risk zone. Property owners in the windstorm high-risk zone have had difficulty obtaining coverage from public companies, and are usually placed with Citizens Property Insurance Corporation, a not-for-profit property insurer run by the State of Florida. In Miami-Dade, Broward, and Palm Beach Counties, this high-risk wind zone includes everything between I-95 and the Atlantic Ocean, which can be 5 or 6 miles wide in some places! All of Monroe County (The Keys) is in the zone. In South Florida when a tropical storm or hurricane is approaching and within a couple hundred miles or so, insurers stop writing new property coverage. If a real estate closing is scheduled during this time and the buyer does NOT already have the required windstorm and/or flood insurance in place, the transaction will NOT close until after the storm passes and insurance is in effect. Lenders often require an after-storm inspection or supplemental appraisal to assess any damage on properties affected by storm delayed closings.

4 Condominium buildings have a different arrangement when it comes to insurance. The building exterior, structure, and common areas are covered by hazard insurance taken out by the HOA. When making loans on individual units in condo buildings, lenders require that the building's overall coverage is sufficient. As with single-family residences, condo coverage will include separate policies for windstorm and flood damage. The unit owners' condo fees/dues contribute to the building's premium payments. When using financing, individual unit owners are also required to take out coverage which insures the interior rooms of their own units. This is sometimes called "walls-in" coverage for the unit. There we are, a brief look at hazard insurance from the lender's perspective. It's important for buyers using financing to be reminded of the insurance requirements early in the loan application process so they can be aware of all their options and get coverage in place by closing. Explaining how all this works and walking them through the financing process from pre-approval to closing is what I do on each transaction. Depend on me to help give them the knowledge, options, and service they deserve. Your deal will progress and close much more smoothly when you do... Let me reinforce the trust your client has placed in you! sm

5 Chris Carter Mortgage Advisor / Originator cell NMLS Paramount Residential Mortgage Group, Inc 4375 Radio Rd Naples, FL office Privacy Policy 2014 Chris Carter