Specialist · San Diego · Member since 2010 · 37 posts · 18 votes
In California. I am in process on a refi of a 4-plex rental property via Finance of America Commerical. We've already completed appraisal. FoA is requiring they be listed as "additional insured," which my insurance policy does not allow. I have now been getting quotes for commercial policies but the cost increase is considerable.... from $1600 - 4000 / more per year. It makes the overall loan cost unattractive and I'm sure many lenders could beat it, even at higher interest rates. Has anyone else run into this? If so, what was the outcome?
Looks like you’ll have to educate your lender, @Emily Di.
An “Additional Insured” only has liability protection under a policy. There is no coverage for physical loss such as vandalism, theft, fire, wind, hail, and so on. That is, if the home burns down, your lender is not covered. This is not what they want though they probably don’t understand it.
Makes me wonder what their Deed-of-Trust requires.
A wise lender will expect to be added as a “Mortgagee.” Some companies will more broadly call this the “Loss Payee.” Either works, though “Loss Payee” is a bit broader and often includes non-real estate related property such as auto loans.
Thanks @Jeff S. they want to be BOTH the mortgagee and the Additional Insured. The reasoning provided was: "This is a business purpose loan made to you as an investment. The purpose of being added as additional insured FACo. wants the ability to discuss details of any claim in the event an insurance claim is filed."
I have closed 5 non-QM loans and this is the first time I have experienced such a request.
Somehow I don't think educating my lender will be of much value. Seems to be a take it or leave it proposition. That's why I was curious if others experienced this with FoA. They seem to be a popular lender, but my insurance cost increase is effectively a .75% bump on the interest rate in terms of what the monthly loan cost ends up being.
Any lender that is lending you money is going to want to be a payee on insurance. They have a financial interest in your property and want to make sure you are keeping insurance on it at all times.
I have not heard of needing to be an additional insured though, that's bit much. I don't care for FAC though there are much better options out there. Open to looking at some?