Florida homeowner's insurance at closing: what the lender needs

In most of the country, homeowner's insurance is a box you tick in the last week before closing. In Florida it can decide whether you close at all. The lender won't fund without a policy in force on closing day, and that policy has to meet its rules on how much coverage, how big a deductible, and who is listed on it. This guide covers each rule, works the numbers for one house, and explains the Florida-only problems: the hurricane deductible, storm binding freezes, and Citizens.

What the lender asks for

Before closing, the lender needs proof of a homeowner's policy that starts no later than the closing date. That proof is a binder or the policy's declarations page. It has to show:

• the property address and the borrowers as named insureds,
• the lender as mortgagee, using the exact mortgagee clause the lender gives you (this is how claim checks get made out to both of you),
• the dwelling coverage amount and the deductibles, and
• the first year's premium, which on a purchase is usually paid at closing, with the escrow account set up to pay the renewals.

Most of what goes wrong is small: a missing mortgagee clause, a misspelled name, a binder that starts the day after closing. Send the lender's clause to your agent the day you choose an insurer, and ask for the binder at least a week before closing.

How much dwelling coverage is enough

On conventional loans sold to Fannie Mae (Selling Guide B7-3-02), dwelling coverage must be at least the lesser of the house's full insurable value (its cost to rebuild, not its sale price) and the loan balance. But it can never be less than 80 percent of the insurable value. A lower loan doesn't let you underinsure the house:

On the $250,000 loan, the loan balance is below the floor, so the minimum is $280,000. FHA, VA and USDA loans have their own coverage rules, and many lenders simply ask for coverage equal to the insurer's replacement-cost estimate. That is also the amount that actually protects you, since a policy well below the rebuild cost can leave you paying part of a large claim.

The hurricane deductible, in dollars

Florida homeowner's policies carry two deductibles: one for most claims (the "all other perils" deductible) and a separate one for hurricane damage. Under Fla. Stat. §627.701, insurers must offer hurricane deductibles of $500 or 2, 5 or 10 percent of the dwelling limit. The $500 option isn't required at higher dwelling limits, so on most homes the real choices are the percentages, and the percentage is of the dwelling limit, not of the damage:

The hurricane deductible applies once per calendar year for all hurricanes combined, with the same insurer. If a second hurricane hits in the same year, you pay the greater of what's left of the hurricane deductible and the all-other-perils deductible. The hurricane period starts when the National Hurricane Center issues a hurricane warning for any part of Florida and ends 72 hours after the last Florida watch or warning ends. The Department of Financial Services' hurricane deductible page has the details.

Here's the lender's side. Fannie Mae caps the total deductible for a single occurrence at 5 percent of the dwelling coverage, and that includes a separate wind or named-storm deductible. A 10 percent hurricane deductible, $35,000 in the example, is a common way to bring a quote down. On a conventional loan it usually won't be accepted. Pick the deductible with the lender's cap in mind before you bind, not after the underwriter flags it.

When a storm is named, binding stops

When a hurricane or tropical storm watch or warning is issued for any part of Florida, most insurers, Citizens included, suspend binding new policies and coverage increases statewide. They usually resume about 72 hours after the last watch or warning is lifted. Citizens announces each suspension on its website.

During hurricane season (June 1 to November 30) this is the most common insurance reason a Florida closing slips. A policy bound before the suspension stands. A buyer still shopping when a storm forms waits, and the lender can't fund without it. From June to November, bind as soon as you have a final quote, rather than in the last days before closing.

Citizens: the insurer of last resort

Citizens Property Insurance is the state-created insurer for homes the private market won't cover at a reasonable price. Its eligibility rule (Fla. Stat. §627.351(6)) is the 20 percent rule. You can't buy or renew a Citizens policy if an authorized private insurer offers comparable coverage for a premium no more than 20 percent above Citizens' premium. This holds even if you turn the private offer down.

A Citizens policy works for a mortgage like any other. It comes with conditions that matter at closing, though. Homes more than 30 years old need a 4-point inspection, and flood coverage is required on Citizens policies that include wind, phasing in to every such policy on January 1, 2027. The wind mitigation and 4-point guide and the flood insurance guide cover both.

Why two quotes on the same house can be far apart

Buyers are often surprised that two insurers quote very different premiums on the same house, or that the seller's premium tells them little about their own. A Florida quote mostly turns on a few facts:

• Roof age and condition. An older roof can mean a higher premium, roof coverage paid on actual cash value instead of replacement cost, or no offer at all. Florida's roof-age law limits when an insurer can refuse a roof under 15 years old.
• Wind mitigation features. Roof-to-wall connections, roof shape and opening protection earn credits on the wind portion of the premium, but only if a current inspection form documents them.
• The hurricane deductible you pick. A larger percentage lowers the premium. That only helps if it stays within the lender's cap.
• Location. Distance to the coast, the county's wind zone and the building code in force when the home was built all count.
• The insurer's own appetite. Each company decides how many homes it wants in each area, so one insurer may decline a house that another quotes.

So get quotes on the actual address, with the inspection reports in hand, during your inspection period, while you can still negotiate or walk away. Ask each agent to quote the same dwelling limit and the same hurricane deductible so the numbers can be compared.

A closing-day checklist

Insurance sits alongside the other costs on the closing costs guide, and the closing cost worksheet lets you add your own quote to the total.

Quick answers

What is the hurricane deductible on a Florida home?

A separate deductible for hurricane damage, offered at $500 or 2, 5 or 10 percent of the dwelling limit (§627.701). It applies once per calendar year for all hurricanes. On a $350,000 dwelling limit, 10 percent is $35,000.

Can my lender reject a high hurricane deductible?

Yes. Fannie Mae caps the deductible for a single occurrence at 5 percent of the dwelling coverage, including a separate wind or named-storm deductible, so a 10 percent hurricane deductible usually isn't accepted on a conventional loan.

Why can't I get homeowner's insurance during a hurricane watch?

When a hurricane or tropical storm watch or warning is issued for any part of Florida, most insurers suspend binding new policies statewide until about 72 hours after the last watch or warning ends. Bind early in hurricane season so a storm doesn't delay closing.