Insuring a house prior to purchase, as a condition of Mortgage offer

gerrybbadd

Hi,

luckily enough, we have been offered a Mortgage with Bank of Ireland. Happy days:).

However, one of the conditions of the offer is that we must have house insurance on the property we are buying. Now, I realise this is likely a common condition. But it seems a bit strange to be insuring a house that is not ours yet.

Also, i'm wondering (God forbid), if the sale falls through, what happens with the policy then - are you locked in for 12 months, insuring a house you don't own?

Any advice here would be appreciated

P. Breathnach

You can't insure anything unless you have an insurable interest in it. That means that you cannot insure a house that you do not own.

You can probably arrange with an insurance company that a policy becomes operative on the day contracts are signed.

gerrybbadd

P. Breathnach wrote: »

You can't insure anything unless you have an insurable interest in it. That means that you cannot insure a house that you do not own.

You can probably arrange with an insurance company that a policy becomes operative on the day contracts are signed.

That's what I was thinking. We don't even have an idea of a closing date for the sale yet!

Would a letter of indemnity only be issued then upon taking out a policy?

miezekatze

I think there's usually a cooling off period during which you can cancel the contract anyway. We had to have our home insurance active about a week before the mortgage was drawn down and we got the keys, otherwise the bank wouldn't have been able to issue the funds on time apparently. It felt weird signing up for insurance for something I didn't own yet, but it was just a matter of a few days anyway.

gerrybbadd

miezekatze wrote: »

I think there's usually a cooling off period during which you can cancel the contract anyway. We had to have our home insurance active about a week before the mortgage was drawn down and we got the keys, otherwise the bank wouldn't have been able to issue the funds on time apparently. It felt weird signing up for insurance for something I didn't own yet, but it was just a matter of a few days anyway.

It does seem odd! Suppose the bank need to be sure they have thier bases covered. I think the best thing to do is wait to find out the projected closing date, and have the insurance in place for a week prior to this.

Thanks for the replies so far guys.

oldyouth

gerrybbadd wrote: »

That's what I was thinking. We don't even have an idea of a closing date for the sale yet!

I have come across that before. It falls in to the category of mortgage lenders not knowing a flying fig about what they are asking for, but it is on the list of requirements in front of them.

There is a cooling down period on a policy, but if you don't know the closing date on your purchase, you are likely to go past the cut off point. I have provided clients with letters confirming the insurer, policy cover details, sums insured, interest noted etc stating that the policy will be effected on instruction from the client. Sometimes it worked, sometimes it didn't.

If that fails, take out a bare minimum Fire Only policy on Buildings and convert it to a proper Household Comprehensive policy when you take possession. That way, if you have to lose premium, it won't be too much. Having said that, others here have correctly pointed out that you can't (shouldn't) insure something which is not yours

phormium

But isn't it the case that as soon as you sign the contract you should insure as you are then compelled to complete the purchase and you have an insurable interest in the property?

Liam D Ferguson

phormium wrote: »

But isn't it the case that as soon as you sign the contract you should insure as you are then compelled to complete the purchase and you have an insurable interest in the property?

+1

As mad as it sounds, if the house burnt to the ground after you've signed contracts but before you've closed, you can still be compelled to complete the purchase. A solicitor told me that the standard purchase contract does not include a "get-out" clause in such circumstances.

sydthebeat

Home insurers well take your premium regardless of your ownership. I have first hand of this. We bought this year, ownership only official in August but we were required to have insurance in place, so insurer asked us when it was likely to have contracts signed and at the time it was proposed for end of June so we really had our house insured for a month and a half without owning it.
There may have been allowances as we were tenants in the house up to purchase.

oldyouth

sydthebeat wrote: »

Home insurers well take your premium regardless of your ownership. I have first hand of this. We bought this year, ownership only official in August but we were required to have insurance in place, so insurer asked us when it was likely to have contracts signed and at the time it was proposed for end of June so we really had our house insured for a month and a half without owning it.
There may have been allowances as we were tenants in the house up to purchase.

The insurer didn't just take your premium 'regardless'. You failed to inform them of a material change in the circumstances with a delay in the closing date. However, if you had paid a deposit on the purchase prior to the closing, it would have given you an interest in the property

sydthebeat

oldyouth wrote: »

The insurer didn't just take your premium 'regardless'. You failed to inform them of a material change in the circumstances with a delay in the closing date. However, if you had paid a deposit on the purchase prior to the closing, it would have given you an interest in the property

No deposit, and no, the insurers were quite happy to start direct debit payment and say 'you are insurered from 2Xth June'. Mortgage company happy that i had insurance in place. I realise I pRobably wasnt really insured for the month of july, but my point is that that's what's been asked for now and the insurers are more than accommodaTing to take your money.

oldyouth

sydthebeat wrote: »

No deposit, and no, the insurers were quite happy to start direct debit payment and say 'you are insurered from 2Xth June'. Mortgage company happy that i had insurance in place. I realise I pRobably wasnt really insured for the month of july, but my point is that that's what's been asked for now and the insurers are more than accommodaTing to take your money.

You're missing my point. The insurer was more than accommodating on taking your money, based on the information you gave them. Why wouldn't they???

However, the circumstances changed and you did not inform them. It is a material fact and might have had consequences in the event of something happening to the property

Trish56

This is a standard condition on all loan approvals and your mortgage cheque wont issue until a letter of Indemnity is provided to the lender with their interest noted on the policy before cheque issue.

It is usual to liase with your broker/bank and Solicitor to find out when they expect the sale to close and cheque to issue and you put the policy in place approx. 1 week beforehand to comply with the condition. In the meantime the vendor will have or should have the house comprehensively insured.


QUOTE=gerrybbadd;87516426]Hi,

luckily enough, we have been offered a Mortgage with Bank of Ireland. Happy days:).

However, one of the conditions of the offer is that we must have house insurance on the property we are buying. Now, I realise this is likely a common condition. But it seems a bit strange to be insuring a house that is not ours yet.

Also, i'm wondering (God forbid), if the sale falls through, what happens with the policy then - are you locked in for 12 months, insuring a house you don't own?

Any advice here would be appreciated[/QUOTE]

sydthebeat

oldyouth wrote: »

You're missing my point. The insurer was more than accommodating on taking your money, based on the information you gave them. Why wouldn't they???

However, the circumstances changed and you did not inform them. It is a material fact and might have had consequences in the event of something happening to the property

You don't seem to understand. Insurance being in place was a requirement to close. I HAD to set up a direct debit to pay it and i had to use the date i was given by my solicitor to do this. The solicitor took over four weeks Longer than expected. So by the time i knew the contracts would take longer the insurance was in place and the first installment paid.

oldyouth

sydthebeat wrote: »

You don't seem to understand. Insurance being in place was a requirement to close. I HAD to set up a direct debit to pay it and i had to use the date i was given by my solicitor to do this. The solicitor took over four weeks Longer than expected. So by the time i knew the contracts would take longer the insurance was in place and the first installment paid.

I fully understand the requirement. I'm just saying you should have told the insurer about the delay in closing on the property to avoid a misrepresentation on your policy. They would have amended things to your circumstances

sydthebeat

oldyouth wrote: »

I fully understand the requirement. I'm just saying you should have told the insurer about the delay in closing on the property to avoid a misrepresentation on your policy. They would have amended things to your circumstances

It still would have been 'after the fact' and after i had already paid for the month.

oldyouth

sydthebeat wrote: »

It still would have been 'after the fact' and after i had already paid for the month.

Payment has nothing to do with it. You instruct an insurer cover is to start on X date and if it the closing is delayed, you tell them. End of................

sydthebeat

oldyouth wrote: »

Payment has nothing to do with it. You instruct an insurer cover is to start on X date and if it the closing is delayed, you tell them. End of................

Ive been through the process, I know what the 'end of' is, so to answer the ops question again, yes it is a requirement and no it's not unusual.