Why Is Homeowners Insurance So Much When You Buy a Foreclosed House?

Based on risk, insurance is a viable business model. For homeowners, premiums are based on the likelihood that an insurance claim will damage your home. Various elements go into this, such as where you live, the age and condition of your home, and whether or not you live there.

Condition

A foreclosed property is simply one that the lender has taken over because the borrower has defaulted on his loan. They are being sold "as is." According to "Time," evicted residents are known to vent their frustrations on the property, leaving it in a dismal state. Homes in bad condition have a far higher risk of a problem, such as water damage from a leaking roof or fire damage from an inefficient heating system; thus, they are more expensive to insure.

Vacancy

Bankrate estimates that it takes 195 days until a foreclosed property is purchased. The higher your homeowner's insurance premiums, the longer your residence has been vacant. Insurance firms face significant risk when there is a lot of vacant space. Vacant homes tend to suffer from a general lack of upkeep, and mechanical systems are left neglected to face the danger of serious degradation and damage. For residences that are more than a decade old, the need for a specialized insurance solution is all the more pressing.

Insuring a House While It Is Unoccupied

If you want to move into the property but don't intend to stay there immediately, you may not be able to get normal homeowner's insurance. Insurance companies like Farmers, Allstate, Travelers, and State Farm will not provide coverage on vacant buildings unless they are expected to be filed within 30 days, the Better Business Bureau reports. Existing policies usually expire when a house is no longer occupied. To put it another way: Vacant properties are more vulnerable to theft, arson, and water leaks than those occupied. You will need a vacant dwelling policy if you are not living in your house. Flood and theft are typical exclusions, so you could expect your premium to be 30 to 200 percent higher than a conventional homeowner's insurance, depending on your other risk factors. This may not cover all risks.

Rehabilitation

You'll need a specialized insurance policy if you have to vacate your property while it undergoes extensive renovations. If you're planning on renovating your house, you'll want to get "builder's risk" insurance. Premiums normally begin at a low level and rise as the project progresses and the value of your house increases. Before moving in, you can switch to a normal homeowner's policy by completing the renovations and moving in. In the absence of other risk considerations, standard rates should apply if the rehabilitation was completed following building code requirements.