Can I reduce the amount of Home owner's insurance I carry?

**afisherdba** · 12-03-2008, 05:40 PM

Short Version... I bought a lot/house whose market value is about 275K. The mortgage company (based upon appraisal prior to close) sees the value of the house at 87K, so I have 87K worth of insurance on the structure. The actual value of the house (I use the term loosely) is about 12K. The County has it appraised at 11K. Will I be able to change my insurance policy to cover 12K worth of structure or will the lender prevent that?

More detail... First of all, this property is all about the property. That is what I bought it for, not the house. The fact that the property had a 600 square foot "livable structure" presented problems with me getting a loan. It was too small for most conventional home loans, but since it was a "livable structure", it prevented me from getting a pure land loan. This is a very rural area. What transpired was an appraisal that showed a 900 square foot structure valued at 87K with the land valued at 188K. Total value of 275K. Since I was focused on closing the deal, I figured I'l let this go, secure the loan, pay the extra insurance premium for the first year, and straighten it out the following year. Well, now it's the following year and I would like to reduce my insurance premium. The land/house is definately worth at least 275K, but the house is really only worth 12K.

Am I stuck paying an 87K premium on a 12K house?

Thanks for any help.

**Mike Taylor** · 12-04-2008, 02:29 AM

You only need to insure the structure, not the land. You should be fine to reduce your coverage to cover only the structure.

**afisherdba** · 12-04-2008, 11:21 AM

I understand. The lender believes (based upon the appraisal) that the structure is worth 87K, therefore I carry 87K worth of insurance.

The structure is truly only worth 12K.

**Greg** · 12-04-2008, 12:17 PM

Originally Posted by afisherdba

I understand. The lender believes (based upon the appraisal) that the structure is worth 87K, therefore I carry 87K worth of insurance.

The structure is truly only worth 12K.

The lender will want the value of the structure covered. Get another appraisal that shows the house value as lower and then the lender might agree to the lower value. You telling them this means nothing.

**hassansr** · 12-04-2008, 03:20 PM

The lender will need to have the amount of the loan balance covered at a minimum. If you don't and something like a fire occurs, repairing it has to come out of your pocket.