A point that matters
A big change in roof insurance rules
Fannie Mae and Freddie Mac now allow actual-cash-value coverage on roofs - a change that may make some homes easier or less expensive to insure, but also can leave homeowners with more to pay after a loss.
There's been an important change in the mortgage world that homeowners may never hear about directly. Fannie Mae and Freddie Mac have changed their property insurance requirements so a roof no longer has to be insured for its full replacement cost.
That's a significant change. In the past, if a conventional mortgage was going to meet Fannie Mae or Freddie Mac requirements, replacement-cost coverage generally was the standard for the home, including the roof. Now, the rest of the home still generally needs replacement-cost coverage, but the roof can be covered on an actual-cash-value basis.
Why does that matter? One reason is insurance availability. Replacement-cost coverage on an older roof can be expensive, and in some cases it can be difficult to obtain at all. Allowing actual-cash-value coverage gives insurers another option. That could make some older-roof properties easier to insure and, depending on the policy, potentially less expensive to insure.
But there's an important tradeoff. Actual cash value doesn't mean the insurer necessarily pays what it costs to put a new roof on your house. Depreciation can be deducted from the claim based on the age and condition of the roof. The older the roof, the larger that difference potentially can become.
For example, suppose a storm destroys a roof that would cost $20,000 to replace. With replacement-cost coverage, the policy may cover the replacement cost subject to the policy terms and deductible. With actual-cash-value coverage, depreciation also may come out of the settlement. The insurance may satisfy the mortgage requirement, but that doesn't necessarily mean the claim payment will cover the cost of a new roof.
That's why I think this change is worth knowing about. From a lending standpoint, greater flexibility in roof coverage could help with homes that have become difficult or expensive to insure. From a homeowner's standpoint, though, a lower premium or easier-to-obtain policy may come with more financial responsibility if the roof is damaged.
This isn't a reason to avoid actual-cash-value coverage, and it isn't a recommendation to change your policy. It's simply a new option with a real tradeoff - one worth understanding if you're buying a home with an older roof or if your insurance company changes the way your existing roof is covered.
Another point worth considering
Should you inspect your home before you sell it?
A pre-listing inspection can uncover issues before a buyer finds them - giving a seller more time to decide what to do about them.
Most of us think of the home inspection as something the buyer orders after a contract is signed. But a seller can turn that process around and have the home inspected before it ever goes on the market.
The potential advantage is simple: fewer surprises. An inspection may identify a roof issue, plumbing leak, electrical concern, or other condition that a buyer's inspector is likely to find later. Discovering it before listing gives the seller time to decide whether to repair it, price with it in mind, or simply be prepared to address it when an offer arrives.
That can matter to the financing side of a transaction too. A home inspection and a lender's appraisal are different things, and lenders generally don't require the buyer's inspection report. But some property conditions can eventually affect an appraisal, insurance availability, or the buyer's ability to close. Finding a significant problem earlier can give everyone more time to deal with it.
A pre-listing inspection isn't automatically the right choice for every seller. Once you know about a problem, there also may be disclosure considerations to discuss with your real estate agent. But if you're preparing to sell, it's one more tool for deciding whether you'd rather learn about the home's condition before a buyer does.
Have a question about your mortgage, equity, or plans for your home?
If something in this issue raises a question about your own situation, We're happy to help you think through the numbers.