The Biggest Issue in Real Estate Isn’t Mortgage Rates, It’s Obtaining Homeowners Insurance
As a full time REALTOR, I’m noticing a trend in my San Diego real estate transactions. The biggest obstacles facing homebuyers was the severe lack of inventory and higher mortgage rates, but now a new issue is center stage. The ability to obtain property insurance and, not only the ability to obtain insurance, the cost involved, has become a big pain for San Diego homebuyers. This is mostly due to the devastating wildfires in California and will only continue as climate change continues.
Once a seller accepts a buyers offer, it’s game on. Typically a buyer will order a home inspection and approve seller property disclosures along with HOA documents (if the home is part of a homeowners association). If a buyer is qualifying for a mortgage an appraisal will be ordered. Let’s say, buyer approves seller disclosures, the home inspection is clean or seller agrees to repair or credit buyer for any deficiencies, and the appraisal comes in at value. The next step is for buyer to remove contingencies. But wait, what about property insurance? If you are a cash buyer, you technically do not need property insurance to close escrow on a home, but if you are obtaining a mortgage, your lender requires it. Let’s say the buyer forgets about obtaining homeowners insurance and removes contingencies. Now, your deposit is in jeopardy!
Why am I being turned down for a homeowners insurance policy?
If you are planning to purchase in a high fire or flood zone, you may not be able to get insurance. Start planning early. If you are honing in on a certain location, reach out to your insurance professional ASAP. Some insurance carriers have stopped writing new policies and others are finding reasons to not offer insurance.
The other issue is your HOA and their master insurance policies. Home Owners Associations are also being affected by the home insurance crisis in San Diego. Many insurance carriers are dropping HOA’s or not renewing policies.
My advice to my San Diego home buyers is to be smart. Never remove remove your inspection contingency before verifying that you can get insurance at a cost you can afford. This is especially true if you are trying to qualify for a mortgage. If the cost exceeds your qualification ratio, you will no longer qualify for a mortgage.
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