Improvements being made to Property

Posted By: Likes to Comply

Improvements being made to Property - 08/12/15 02:34 PM

If you know during underwriting that improvements are going to be made to multiple buildings on a property after closing, should the estimated value of the buildings after improvements be used for replacement cost value of the insurable buildings or the actual at the time of closing?
Posted By: David Dickinson

Re: Improvements being made to Property - 08/12/15 03:30 PM

Yes.
Posted By: Likes to Comply

Re: Improvements being made to Property - 08/12/15 05:15 PM

Sorry, but my question may not have been clear. Require insurance for the RCV of the buildings at closing or for the RCV with planned improvements?

Thanks smile
Posted By: David Dickinson

Re: Improvements being made to Property - 08/12/15 10:04 PM

I understood. My reply wasn't very clear.

Yes, you need to consider what the insurable value WILL be with the loan proceeds improving the building. Otherwise, you'll have knowledge that the insurable value is more than what you're requiring.

Think about this: I have a bare lot. I'm borrowing to build a $200,000 house on it. The insurable value before the loan is $0. The insurable value after the construction is complete is $200,000+. Flood insurance must be required for the estimated value of the completed home. Then, upon first renewal, the flood insurance should be re-evaluated based on the RCV of the completed home.
Posted By: Likes to Comply

Re: Improvements being made to Property - 08/13/15 04:07 PM

Thanks very much smile