Time and time again borrowers, (investors/contractors/ rehabbers), are puzzled by the amount of insurance the lender is requiring. The borrower is buying something cheap, primarily doing cosmetic fixes yet the lender is insisting on a greater amount of insurance than what the borrower is anticipating.
There are always multiple ways of looking at things so let’s look at the process a typical insurance agent goes through when they are asked to quote for insurance. Step one is to gather information such as property address, sq footage, year built, type of foundation, type of roof etc. The insurance agent then enters the information into some type of software system, Marshall Swift is one of the more commonly used ones, and a number comes out. This number takes into consideration material and labor cost for that zip code using licensed contractors and trades. Usually this number is larger, sometimes considerably larger than what the contractor is in it for. Premiums will be higher because of the larger amount of insurance. [Read more…]