I’ve noticed that homebuyers often put off ordering their homeowner’s insurance policy until the week before closing. It is wise to investigate the insurability of both the home and the buyer as early as possible. That’s right, both the home AND the buyer need to be approved by the insurance company before they will issue a policy. If they feel that either the home OR the buyer is highly likely to result in expensive claims, they many not offer a policy. Without an insurance policy, the lender won’t lend the money and the deal falls apart. This is very rare, but it’s something to be aware of and you should do your homework ahead of time.
For the home, the insurance company is especially concerned about homes with prior water leaks or a history of claims. In regard to the buyer, the insurance company will be reviewing their credit history and also their history of claims in their prior residences, even if they were renting. There is something called a CLUE (Comprehensive Loss Underwriting Exchange) report that can be ordered on the home and the potential buyer ahead of time. If you are a buyer, talk to your insurance agent. If you are a seller, talk to your listing agent and they can help you order one.
Another reason to start early with the CLUE report is that by law, an insurance company can cancel your policy up to 60 days after you apply for the coverage. Here is the worst-case scenario: You buy a home and close escrow but then two weeks later you get a cancellation notice on your insurance because the home has a history of water damage. This means that you’ll have to get insurance from a company that specializes in high-risk homes, and their premiums can be very expensive.
If you have any questions on any other real estate topics, please let me know.