THE MORTGAGE BROTHERS SHOW
How High Will A Lender Allow Your Deductible To Be?
For a mortgage, how high is your insurance deductible allowed to be? In this podcast, we cover how you can get the lowest premium you can get with the highest deductible.
*The following transcript has been edited for clarity.
Eddie Knoell — I’m Eddie Knoell.
Tom Knoell — And I’m Tom Knoell.
Eddie — Welcome, everyone. This is our Mortgage Brothers Show podcast from Phoenix, Arizona. Today, as we always do, we answer questions that are mortgage-related. People have questions about mortgages and related items that go into a mortgage, and we have an answer for them. Usually that’s our whole purpose here with this podcast, and today we have a question about homeowners insurance deductibles.
Tom — Homeowner insurance deductibles. Boy, for some, they just get glazed eyes. For others, this is a big deal.
Eddie — Oh, some people know everything about their homeowner’s insurance policy.
Tom — Yeah, absolutely. When you’re on a tight budget, where you’re trying to learn how to save for the future, every little dollar counts, and that homeowners insurance is just so easy. You just call up your agent, get a policy, and just keep moving.
Eddie — I’m just going to give people a range. Right? This is just off the cuff. I’m thinking about homeowners insurance premiums. Premiums usually range… I’m talking about single-family residence homes, your average home from 200 to 400-and-some thousand dollars. Those premiums are going to range from about $600 on average, well, $600 to maybe $1,200. All right? That’s the range.
Tom — Okay.
Eddie — There are outliers.
Tom — Right. So, we’re going to say so, 50 bucks a month to 100.
Eddie — Yeah.
Tom — I don’t know if people think about it more in terms of annual or monthly, but if you are a monthly person, 50 per month versus 100. That’s a big range.
Eddie — Yeah, and most people fall in that range. What has prompted this is we’ve recently had a couple inquiries. People were asking, “Hey, I want the lowest premium I can get, the highest deductible.”
Tom — Or, how about the one that I’ve got going right now. The loan’s not qualified. We can’t get the loan approved unless we get the debt-to-income lower.
Eddie — Oh, yeah.
Tom — Which is one of the ways… That’s one of our little secret ways, is we can actually get that homeowners insurance dropped per month.
Eddie — Okay.
Tom — We can go from 100 per month to 50. Guess what? Ding, ding, ding, ding, ding. Your loan’s approved.
Eddie — So, what Tom’s telling everybody is his loan must have been… his ratio was $20 away from getting approved, $20. It’s something very small, and that can happen. I mean, if we’re stretching the bar where if $20 is the matter of approval and non-approval, Tom was able to do this by using the homeowners insurance.
Tom — So worth it. Okay.
Eddie — Okay. Yeah.
Tom — So, you mentioned the range. What do we need to cover?
Eddie — So, that’s the average range. I mean, we’re not surprised when we see $600 to $1,200.
Tom — Yep. Okay. Now, why does it range?
Eddie — That’s just because that’s the average home. The average home is between $200,000 to maybe $450,000. Those are the average homes. You’re going to have, of course, luxury stuff. That’s luxury, premiums, and stuff like that. Now, for the average person buying a house, you might be asking, “What’s the lowest I can probably get on my homeowners insurance, and how do I get the lowest?” The way you would get the lowest is to basically maximize your deductible. That means if you have a claim, you’re basically telling the insurance company, “I’ll pay you a high deductible per claim in exchange for a low monthly payment or the low premium.”
Tom — Right. So, if you have a homeowner claim, my block wall tipped over in a storm, if you have a $1,000 deductible, the insurance company will likely come and fix that if it’s a weather-related event, but you’d have to pay them $1,000. Right? That’s your deductible.
Eddie — Right.
Tom — You pay them 1,000, that makes your deductible. They come out, and they fix the wall for you.
Eddie — Okay. That’s right. To get a mortgage, your lender, your bank, has requirements. They have certain minimum requirements, and that would be this. They don’t want your deductible… They don’t want you to be caught in a position where you have a high deductible, it’s a problem for you to pay it. So, basically, they’ve limited it to $5,000 or 5%, whichever is less.
Tom — Whichever is less. Okay. So, what’s the typical deductible?
Eddie — $500 to $1,000.
Tom — To $1,000. So, in that 50… I guess I’m going to say in that range that you quoted at $50 to $100, not only does it range because of the price of the home, but it also ranges a little bit because of the deductible.
Eddie — Yeah.
Tom — But likely, a lot of our borrowers that don’t think about it have probably a lower deductible than what they might need. Right?
Eddie — Right.
Tom — That’s kind of the point. We’re not insurance experts.
Eddie — Yes. There’s a disclaimers here, which means not all policies are equal, and there’s a lot of different policies and coverage issues. We’re just talking if all things were equal.
Tom — Right. Yeah, and what do they also say? You get what you pay for. So, if you end up paying for a higher-deductible policy, you’ll be paying less. It’ll be a lighter policy than what you’d get otherwise. So, if you’re heavy into insurance, you’d want low deductibles, high coverage, but this was something that we thought, wow, this is a nice little nugget.
Eddie — Yeah. We’ve recently seen some really low premiums, and that’s someone who has, let’s just say, average coverage on their premium or on their policy, but what they’ve done is they’ve increased their deductible from $1,000 to $5,000. They’ve seen their premiums go from, let’s just say, $800 down to $350. See? That’s a lot, let’s just say. I mean, that’s the type of difference you’ll see, something in that low 300s. Tom, you saw one that was 200-and-something recently.
Tom — Oh, I can’t even repeat it because it’s so low.
Eddie — Yeah.
Tom — I think there was something wrong with it. But you were saying 800, and let’s just say high 400s. Let’s just say 480. You’re talking $320 a year. That’s $320 a year that’s just going out the window if you don’t care how high your deductible is.
Eddie — Right. So, basically, you’re saying, “I don’t care. If I have to spend $5,000, this insurance premium or this insurance policy is basically a catastrophic policy for something really bad that happens to the house.” You’re not going to be going claim happy.
Tom — Right. I’ll also say this too. For the first-time home buyers that are like, “Man, these mortgage guys, these mortgage brothers are sure talking about insurance a lot. What are they talking about?” There are some people that like to put claims on their homes, and I would say that they’re professional claimers, where they know the ins and outs of the insurance world. They have claim after claim after claim because they don’t want to fix roofs, issues with stuff. Most people don’t ever go after a claim, like myself. I don’t ever want a claim, because guess why? Number one, it’s very complicated, but number two, it makes your premiums go up. Just like if you get into an accident in your car, your premiums will go up. So, most people don’t ever touch the insurance.
Eddie — Yeah, they have a record of all that. They know who makes claims.
Tom — Right. So, if you’re in the camp that is not going to be making a lot of claims, then why would you need a super low deductible? That just doesn’t make sense, unless you are very conservative in nature, and you are a what-if person, but still, if you go five years without a claim or 15 years without a claim, you could save $320 a month or a year for 15 years.
Eddie — Yeah. What is that? You said 300? Yeah. Wow.
Tom — What is it?
Eddie — 320?
Tom — 320 times 15, that’s 5,000 bucks.
Eddie — Yeah, so, if you did one claim every 15 years-
Tom — Which you won’t even do.
Eddie — Yeah.
Tom — You’ll probably do one claim your entire life.
Eddie — Yeah, one claim per 15 years, you’re breaking even. Well, anyway, it’s a topic that does come up sometimes. It’s recently come up a couple times even in the last couple weeks, so we wanted to bring this answer to you. Of course, insurance, we’re not experts, so disclaimer there. Talk to your insurance agent.
Tom — Yeah.
Eddie — But what we’re talking about is generally what we see and what we know.
Tom — Yeah, what we see, what we know, and how we help our borrowers. We just don’t originate loans. We actually put thought and brainpower into how can we give the best product and get our borrowers approved, so we would love to be able to help you guys.
Eddie — All right. So, make sure to subscribe if you haven’t already, and drop us a question in the descriptions. You can email us or call us. I think we’re done.
Tom — Perfect. All right. Let’s call it a day.
Eddie — All right, everyone. Take care and thanks for listening to the Mortgage Brothers Show. Please let us know if you have any questions you’d like us to answer on this podcast. You can email your questions to firstname.lastname@example.org, or yours truly at email@example.com, and be sure to ask us for a free quote on your next mortgage. Tom and I will personally work with you and help you through the whole process.
Signature Home Loans, LLC does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal and accounting advisor before engaging in any transaction. Signature Home Loans NMLS 1007154, NMLS number 210917 and 1618695, equal housing lender.