Insurance Replacement Cost

[Alejandra Roca]

Hello, 

We are looking to buy our second investment property in Missouri. Our first property was a 4-plex, and it was purchased through a conventional loan. Towards the final steps of the process, the lender indicated we needed to insure our property to cover full replacement costs. Since the 4-plex is an all brick property, replacements costs were much higher than the purchase price of the property, so our insurance policy turned out to be very expensive.

We would like to avoid a repeat of the same situation. However, I'm getting a lot of mixed messages from different lenders. For conventional loans, some banks say they do require replacement costs, and others indicate that as long as we are covered up to market value, then we should be ok. When is replacement cost really required? Can we avoid replacement costs and still get a conventional loan? 

Any help would be greatly appreciated! Thanks!