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We bought a house over a month ago now and during the extremely slow escrow period, our lender said we needed to increase our insurance coverage to cover the full value of the loan. I should say that they called our lender and told them to do it. When our lender replied back (cc'ing me), they said they could only do it at our request. When I got on the phone with our insurance, they said we should not have to have insurance for a loan, we insure the home. I went back to the lender and they said no coverage for the full value of the loan (~$70-80k difference between that and the replacement cost calculated by the lender), then no loan. We were 2 weeks off of our original time line to close and I was starting a new job in a week, so we increased the insurance coverage and closed.
I have an email from my mortgage broker stating explicitly that my insurance coverage has to be for the full value of the loan. But I've googled and it seems like this is not true.
My insurance agent said I could lower the coverage later, but I would need to be careful, because the lender can request coverage at any time. We have not lowered the coverage, but I feel like something is not right and I'm at a loss for how to go about correcting the problem. The amount of additional premium we're paying isn't breaking us, but that's not the point.
So, does anyone know what my options are? Is this legal?
Victor is dead on - we see investors all over the place. What's scary (and tells me we are about to see insurance rates skyrocket on homes) is the fact I haven't seen an appraisal with the replacement cost below the price of just the structure in quite a few months. Routinely, we are seeing $470,000 as the cost to replace a $425,000 dwelling (that's minus land).
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