I live in a possible wildfire area in California. It’s near the ocean but wooded. A fire would devastate this area and take my home with it. I’m well insured (I think!), but I don’t know what it would be like to have to rebuild.
I guess I’d have to:
Find rental housing (need to check insurance limits on this)
Find someone to design me a house
Find a firm to build it
Go through permitting
Build
And I don’t know what other steps.
I can see ending up with basically burned land, no structure, no way to sell to settle the bank loan, and an endless frustrating permitting and rebuilding process. And paying for both your mortgage on the burned house and rental expenses (if the insurance runs out) while the rebuilding process is negotiated.
Has anyone here had to do this, or know stories of folk who did?
That’s what being declared a disaster area is supposed to do.
It sets you in a special category that not only gives you access to assistance (like money for temporary housing), but also fast tracks some of the processes for rebuilding.
In that case you be relying on your relationship with your insurer.
The purchase price of your home consists of the value of the house, land and improvements.
So, depending on how well you’re insured, you should be able to get more than just a replacement value for your house.
A house alone typically costs $150 per sq foot to build. And some insurers have relationships with contractors that they trust to help expedite the process.
Read your insurance contract closely. If it’s right for your situation there should be provisions to also get some living money.
You’re probably gonna have to pay off the old mortgage first, and then renegotiate with the bank for your new loan to rebuild.
I should have been clearer in the OP: I do get a stipend for housing when I’d rebuild. I don’t know if it’s enough to cover the term of rebuilding.
So if I’m following: the insurance company would declare my property “totalled” (like a wrecked car) and pay off the original mortgage? Otherwise how would I pay off the bank?
That is, indeed, the tricky part. Depending on how long each of the steps take, you could easily exceed that stipend.
And any other lien holders, that’s correct. And any money left on the insured value of your property is what you’ll use to put a down payment on your new house.
One thing to note. To try and make insurance fraud less profitable, insurance companies usually don’t just hand you a big check anymore. They’ll make payments directly to the bank and to the companies you’ll be doing business with.
That way you can’t just take the money and walk away from the whole situation.
Something doesn’t make sense here. The insurance company pays out on the rebuild cost of the structure. But your mortgage is based on the value of the structure plus the value of the land, which will often be a substantial proportion of the value. The insurance payout might fall well short of the amount of the mortgage. Under these circumstances, I guess you have to do it like a refinancing, and hope that somebody will give you a reasonable deal? Or sell the land and make a fresh start somewhere else.
Take this for the worth of the pixels its printed on, observations from a couple decades ago when I worked in disaster cleanup. Yes, your homeowners insurance will give you money for living while your home is being rebuilt, but I think you have to ask for it(submit rents hotel whatever as part of the claim) and they might not cover all of it. There are a lot of things people don’t think of with this sort of thing that insurance will help pay, but only if you actively ask. Was your car parked in the garage and destroyed or damaged in the fire? Your homeowners insurance likely will cover some (maybe even all) of that. Maybe you have an outbuilding, a barn or separate garage or something that got water damaged by the firefighters soaking it to prevent it burning too. building drying uses a lot of electricity, so your power bill will be quite a bit higher. Insurance will, or should, cover the difference from your average monthly power bill if you submit it in your claim.
As far as paying off the mortgage, I’ve never heard of insurance doing this, but maybe they do. My experience is that they will rebuild the home in order to return you and your home to the “whole” status assumed before the fire, and the mortgage is your problem.
Part of the asset that backs the mortgage has been destroyed. It’s a provision of any mortgage that you insure, and I think the bank has a direct claim on the insurance payout. I’m not sure exactly how it works in practice, though, hence my question above.
The asset has been destroyed, but the insurance is going to either pay a contractor directly to rebuild the home, or cut a check to the homeowner. If the homeowner says “Nah, I’m out of this fire prone area” They can direct the insurance company to pay the bank instead (i’ve seen similar with contractors) but the insurance company doesn’t give a hoot about the bank. The bank isn’t the insurance company customer.(usually) and they will only pay the cost for rebuilding the house
Most home policies are not like auto policies. They do not just give you a replacement cost.
But it does depends on your particular policy.
Some policies only cover rebuild costs, which depending on where you are in your repayment schedule, could mean you’ll have alot of out of pocket expense. But a good home policy should be on the assessed value.
And the new mortgage will be for less than the original because your now only paying for the home not the land as well.
I’m not an insurance expert but have had some experience.
We had a garage fire some years ago, and in that instance all that was needed for the bank was an assurance from the insurance company that the garage would be rebuilt to value. But the bank was definitely aware of how it would affect the value of the collateral.
Maybe that would’ve been the case with a home fire as well but I did not get that impression.
Two things to be aware of:
(1) Mortgage insurance won’t help you. All it does is move your debt from the Bank to the Insurance Company. Good for the bank, no help for you.
(2) If your area is then declared fire-prone, or flood-prone, or whatever, your building costs may go up, your insurance cost may go up, you building permits may go — where ever building permits go to… If you already know that you live in a fire-prone area, check to see if building regulations have (already) changed since your house was built.
I see that they will pay the full cost of a rebuild.
They will cover the cost of a rental while this is done.
Contents would be replaced.**
The car is covered if it is in the garage, if it’s on the drive, I guess the two insurers would duke it out.
Liability is covered, so if a neighbour gets scorched rescuing me, they can claim.
I don’t have a mortgage but that would remain my responsibility anyway.
** Some years ago I switched insurers and combined house and contents in one policy. This avoids disputes about who pays for what.