Uninsurable Property: What it is, How it Works, Private Insurance

What Is Uninsurable Property?

Uninsurable property is a home that is not eligible for insurance through the Federal Housing Administration (FHA) due to extensive repairs needed. In some cases, alternative FHA financing options may be available to individuals purchasing uninsurable property.

More generally, uninsurable property refers to real estate or personal property that an insurer chooses not to cover.

Key Takeaways

• An uninsurable property is a home that the FHA refuses to insure in the housing market.
• Typically, this is because the home is unlivable and/or requires extensive repairs.
• Private insurance companies may offer coverage for uninsurable homes, but at higher premiums due to added risk.

Understanding Uninsurable Property

FHA insurance and mortgages have requirements for property condition. If the necessary repairs exceed the FHA limit, the property cannot be accepted into the program. Repairs may be necessary due to fires, storms, or age-related deterioration.

How Uninsurable Property Is Treated by Private Sector Insurers

Private insurers, in addition to FHA, may refuse coverage based on specific issues. These issues can include dead trees, hazardous wiring, and other infrastructure problems. Insurers may also be hesitant to cover properties with swimming pools, unless certain safety features are in place.

During a home inspection, it’s important to ask about the insurability of the property and address any noticeable issues. Failure to do so could result in purchasing a property that cannot be insured. If the property owner plans to make repairs, insurance policies may cover the presence of workers during the repair process.

Department of Housing and Urban Development (HUD) homes undergo appraisal and inspection before being listed for bidding. These homes are typically categorized as insurable, insurable with repair escrow, or uninsurable. Uninsurable HUD homes usually require financing options other than FHA. However, HUD offers financing through the FHA 203K loan program for the purchase of uninsurable properties. These rehab mortgages include repair costs rolled into the mortgage and are often sold at a discount, not through conventional financing due to their condition.