How much homeowner’s insurance do I need?

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I am purchasing a peice of property and a modular home that is not new, it is maybe 10 years old. I am doing the whole owner finance/contract for deed deal so I am having to pay 120,000 for the place. I think it is worth less. But hey, that is what bad credit gets you. Anyway he said I would have to buy homeowners insurance and I asked how much and he said 120,000. This home itself without the land especially is not where near worth 120,000!!!! Why would I need that much? And if something happened to home would it be right for insurance company to pay 120,000 for a 10 year old modular home. May be even a little older for all I know but it is not 120,000!!!! What is the minumum that I should get? I don’t have much money and never had homeowner’s insurance.
It is not being loaned on by a bank. The owner is financing it to us.
Waiting to repair our credit really is not an option because we live in a 2 bedroom mobile home with a 4, 3, and 1 year old. We live in the ghetto of a small town in a trailer park. I have to get out of here NOW!!!! It is not safe.

  1. Reply
    July 21, 2011 at 12:55 am

    You need that much insurance, because if the whole thing were to spontaneously combust, you’d need to pay that loan.

    The bank giving you the $ 120,000 loan wants to know that they’ll get their money in the event of a castrophe.

    If you buy a place for cash, and you own it outright, you can choose to insure it, or not. Your risk, your choice. And the amount you insure it for is up to you, too.

    But since the bank will own the mortgage – it’s THEIR risk right now, not yours. Because if the place goes poof – they’re the ones who will have lost money if you don’t have the rest of the amount of the mortgage on you.

  2. Reply
    July 21, 2011 at 1:18 am

    Insurance does not cover land.

    Therefore, you insure the structures on the land. You would insure the home for what it would cost to rebuild the house exactly like it is (if stick built) or for what it would cost to purchase a home of the same age/condition if mobile home.

    Your agent will have a program on his computer that will tell him how much the insurance company is willing to insure it for. If it will not cost 120K to rebuild or replace -then the insurance company will not insure it for that much.

    Good Luck

  3. Reply
    Queen B
    July 21, 2011 at 1:28 am

    you cannot insure the land. you need to have an insurance agent do a cost replacement estimator to see how much you need to insure for. you want a policy that gives you replacement cost on the home and your contents. the owner wants you to insure it for the $ 120,000 because that’s the purchase price, but you need to explain to him that includes the land and you CAN’T insure the land.

  4. Reply
    July 21, 2011 at 2:07 am

    It depends on how the policy is written. You’ll have to talk to your agent, who can explain all this to you, and might even be willing to talk to the seller.

    If the policy is a REPLACEMENT cost policy, you have to have enough to rebuild the house. If it’s a FLAT policy, it’s whatever the lender says. There is also a “market value” and a “actual cash value” issue.

    A MODULAR home, is NOT a trailer or mobile home – so it’s usually rated the same as a stick built house. But, little insurance secret here . . . if you are trying to insure a house for under $ 100,000, you actually have to pay HIGHER rates.

    Bottom line – You’re getting rooked on the property purchase price, you’re not going to be able to close right away if this is a land contract, you’re unhappy with the contract terms . . .and you’ve got bad credit. I think you’re better off just waiting before ‘buying” under these conditions. Use the time to clean up your credit, and get a REAL mortgage.

  5. Reply
    July 21, 2011 at 2:45 am

    You only insure the home for how much it would cost to rebuild it. How many square feet is the home? And how much per square feet does it cost to rebuild in your area?
    These are the only two factors to consider in how much insurance the home needs.

    Call some insurance agents for some quotes. They can help you.

  6. Reply
    MARK S
    July 21, 2011 at 3:41 am

    I think he’s saying you need $ 120,000 because that is loan amount and bank usually want coverage to equal the loan amount.
    Get a policy that is enough to rebuild or replace the structure and make sure it has “extended replacement cost” and then the bank won’t squawk.

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