Another high priority checklist item for home buyers: getting a homeowners insurance policy set up early in the process.
Yes, the Homeowners Insurance Policy.
These policies are lender requirements and they will only give you a mortgage if you can show them a fresh policy.
What you don’t know is that insurance companies use an industry database (yes, a kinda-secret database) know as the C.L.U.E.
The Comprehensive Loss Underwriting Exchange (CLUE) knows a lot about the house you are planning to buy since any old claims will pop up when your insurance agent is preparing a policy proposal for you. Like a FICO Score, the CLUE Report will determine the risk involved and ultimately the policies cost (and availability).
But there is something else home buyers should know, and the factors are similar to getting auto insurance if you have been a bad driver who has filed claims in the past.
Here are two actual client examples…
The CLUE report will flag you if you filed claims on your old house. Yes, your old house back in (insert your old town) for example.
Recently, this scenario happened to clients relocating to Vienna who feverishly worked the phones to get a new Homeowners Policy on their new home. The quotes from the insurance providers was $1,000 more per year than any estimate I had given them, and I was baffled by the consistency of the insurance quotes.
As it turned out, they had filed a claim on their old home in Atlanta about two years ago after water damaged some floors. Their insurance company paid the claim, and added that information into the CLUE database.
So, when the insurance agents pulled up their information on a new policy, the old claim put them into a special, high-risk category. What I learned is that insurance companies use this negative information for three years (almost like you are on probation) and, only then, will put you back on the “okay” list
Can negatively impact real estate Sellers and Buyers
Another client was impacted by a CLUE report when I was helping sell her deceased father’s home. In this case, there had been multiple claims paid over the years to repair damage.
So, when the new buyer went to get insurance these old claims surfaced in the CLUE report and multiple insurance companies refused to provide policies.
As insane as this may sound, especially since the repairs had been made and the house had been in good condition for years, the inability to get a Homeowners Policy was going to prevent the buyer from getting his mortgage.
Yikes!
To solve this problem, I was able to find an insurance broker who was willing to roll up her sleeves and do the hard work of finding a national insurer that could see the situation clearly. My client was the seller here, but helping the buyer get a Homeowners Policy allowed the “deal” to get done.
My tips:
- I recommend that my clients start the process of getting the Homeowners Policy shortly after the contract is Ratified. You may be able to get a discount if you contact your automobile insurer.
- A Homeowners Policy is really a worst-case-scenario insurance policy. Mortgage lenders require one be in place from Day 1 since they may be lending you 80% of the cost.
- Consider a high deductible since you really don’t plan to ever file a claim.
- Understand that filing a small claim, such as a bike stolen from your garage, may negatively impact your reputation in the CLUE database.
- What you should know is that insurance companies prefer to collect your money, and not pay claims!
Consumers can order a CLUE Report online.
Tweet this article if you have had a problem with your CLUE report.
