I'm Buying a House That Needs to Be Renovated and I Ran Into This Issue When Getting Insurance

We are currently in the process of buying a home. The house is a fixer-upper that needs some renovations. And one of the things it needs is a new roof.

We were aware of this going in and we made our offer on the home accordingly. But, what we didn't know is that we would face an added challenge when it came to getting homeowners insurance coverage. Here's why. 

Home insurers have certain minimum requirements when buying coverage

In order to be able to close on our home loan, we needed to have insurance for the home that we're buying. We obviously would have wanted coverage even if it wasn't required since we can't afford to risk losing the house and being out the money if something went wrong after purchase. 

The problem we ran into, however, is that insurance companies generally don't want to provide insurance for a home with a bad roof. In fact, insurers have a number of requirements with regard to:

• The age of the roof. Generally, insurers will be reluctant to provide coverage if the roof is more than 15 to 20 years old. 
• The roof's condition: My roof is not in great shape. There are several active leaks. Insurers want to be sure a roof is actually functional because otherwise there's a huge risk of structural damage to the home. 
• Whether the roof has been inspected. Many insurers said they would cover our house, with its 20-year-old roof, only if we paid for a roof inspection showing there were no problems. Obviously, we could not do that since there are problems. 

We had several insurers who agreed to provide coverage only if we would accept an actual cash value policy. That meant that if a problem developed, we would be covered only for the depreciated cost of the old roof rather than what it would cost to replace it.

Since we're going to put a new roof on after closing, this wouldn't have been a huge problem for us, but it was an issue for the mortgage lender that wanted replacement value coverage. 

Here's how we solved the problem

To resolve the problem, we ended up buying high-risk insurance. We found a company that would provide the coverage we needed -- albeit at a higher cost. We're paying around 50% more for insurance than we would have if we had a newer roof on the house. 

We're OK with this because we plan to replace the roof as soon as we officially own the home. But, it means we'll have to budget for extra home insurance costs for the first few months until we get the necessary permits and approvals and complete the project.

If you are planning on buying a home that needs some remodeling, you should be aware you could run into this issue as well. Home insurers generally do not want to cover properties if there are health and safety issues. Fortunately, there are solutions -- you just may have to shop around for a high-risk insurer and be willing to accept higher costs on a temporary basis.

If the home is a good deal despite the remodeling costs and the added insurance expenses, this may well be worth it. Just be sure to consider the impact on your personal finances, do the math, and factor in all the costs of your remodeling before you move forward.