Well we are working with our 3rd lender and we have an accepted offer on a nice home. Set to close next month!!!
inspection and VA APPRAISAL this week. my question is about insurance. the house is 7 years old in a subdivision that is still building houses, floor plans start in the 170,000.00.
Our offer was right around 200,000. On the house we love. it is a large home 4000 sq Ft 4 beds 4 bathrooms. but we are checking insurance rates and they are nuts we checked 4 places that range from 400,000.00 to 600,000.00 dwelling coverage. yearly price 1600- 2200 a year. The agents keep saying it is because the house is big and that it would cost more then 400,000.00 to rebuild it if it was damaged!!! NOTHING in the house is upgraded all builder grade standard stuff. basic carpet, basic vinyl floors in kitchen and bathrooms. laminate counters, basic cabinets. Basically a blank slate for years to come for us to make it our home!
Does this seem reasonable ? Our realtor thinks it sounds ridiculous. We want to insure our home correctly not too little but certainly not over insure it. How do you know when you have the right coverage is their a formula that we can use?
Tell the insurance that you only want to insure the mortgage amount not the replacement/rebuild cost. That should halve your yearly payment amount. YMMV
I don't understand why the potential house replacement costs are anticipated to be more than you are paying right now for the house and land. Isn't the land the house is built on worth something? Unless you are building on a cliff that is in risk of sliding into the ocean (and thus, having the land completely disappear), presumably the land will still be there if something horrible happens to your house. The insurance broker I worked with used to be an insurance adjuster, and he could tell me approx cost per square foot what it would take to rebuild our home now. I can tell you that this was quite a bit less than the mortage. Of course, I live in an expensive city in California where land is expensive.
Note that when I first contacted an insurance company (the one my car insurance is with), I spoke to some young girl who clearly didn't have an idea about replacement costs. She simply quoted me ~$100K more than our mortgage, and suggested that "this amount should do you fine". After working with the broker, I realized that it would be odd (in my case) to have the replacement value be the same or higher than the cost of the house and land.
IMO i think it is an appropriate amount.
However, it really depends in the area you live in. If the cost to build for example is $130/sqft for a 4000 sqft home, the RCT would be $520k. I would ask your agent what the RCT per sqft in the area is and see what you come up with. The great thing about RCT is you get like quality like kind.
You can insure for Actual Cash Value, but personally it is not worth it. You would only get the value of the home itself not including the land, which is what ACV policies cover you for.
Most lenders like for you to insure your home with guaranteed RCT.