This week’s topic is taken from an experience one of our newer loan originators recently had, and I thought it might be useful to some of you. Many of you will probably say, “I already knew all that,” but I’m hoping that some of you will walk away feeling enlightened and educated. (Some may say that last sentence is my passive-aggressive challenge to get everyone to read this article to the very end. No comment.)
So, here’s the deal: after the borrowers were approved, made their offer, and the house went under contract, the underwriter came back to us and indicated that the home was in a flood plain so flood insurance was required. Here’s the reason I mentioned that the loan originator was of the less-than-veteran status: when qualifying the borrowers, he did not take the possibility of a flood insurance requirement into account so the debt-to-income ratios were dangerously close to being out of whack. Someone sneezing on the loan application or looking at it wrong could have sent it over the edge. When he was discussing this with some of the other loan originators in the office, each one sort of smiled and told him that the area in which this house was located almost always required flood insurance. Lesson learned by the rookie.
When the flood insurance requirement was mentioned to the seller’s agent, she acted like the deal was dead by making a comment that it would be next to impossible for the borrowers to get a flood insurance policy both in a timely manner and at an affordable price. The loan originator had already done his homework and informed the seller’s agent that the existing policy held by the current home owners could be transferred to the new buyers. She laughed and said that she’d been selling homes in that area for over twenty years, and she knew that wasn’t possible. Our loan originator wasn’t deterred, and he called the buyers’ agent to give him an update on the loan’s progress.
The buyers’ agent and our loan originator, after discussing all of this, agreed that it was odd that the listing agent would act this way. If she KNEW that getting flood insurance was difficult and expensive in an area KNOWN for requiring flood insurance, wouldn’t it be in her best interest to address that elephant in the room at the very beginning? Sure, it might turn off some buyers, but if she’s so confident in her knowledge of the area and what it required, she wouldn’t have to waste here time going under contract and waiting for the underwriter to be the bearer of bad tidings.
The existing flood insurance policy WAS transferable to the buyers at the same premium rate that the sellers were paying per month, so everyone lived happily ever after. It was an educational experience all around: (1) the rookie loan originator learned to research the area better to anticipate costs; (2) the sellers’ agent learned that flood insurance was transferable, which kept it affordable; and (3) YOU learned that whenever a client of yours buys a house in a flood plain, they should keep the flood insurance current at all times because when they go to sell, that home is more attractive to buyers because the flood policy can be transferred at the same premium rate. If you already knew #3, good on you. If you didn’t, though, I’m glad you made it to the end. Have a great week!