Jt the reason being is the insurance is to cover the cost to rebuild the home to it's existing status. The loan and it's rating are based on the loan to value ratio which the bank wants to make sure stays the same or better because it affects the rating for investment purposes of the securities sold against it. Also a mortgage loan is securitized by a occupiable home.
So say your home is worth $400,000 at the time of the $100,000 loan. The Insurance company figures it would cost $300,000 to rebuild the home to the standards set forth by their industry at time of the loan. Your loan is based off a 25% loan to value so it has basically minimal risk to the bank as long as is has enough hazard insurance to again keep these same or similiar ratios ( 33% ltv for insurance terms). If you have only $100,000 in hazard insurance then your loan to value (from an insurance standpoint for the loan) is 100% and you don't have the ability to rebuild the home unless you have $200,000 laying around, thus the bank has a much higher risk.
I hope this explanation helps Jt.... more
In a perfect world you would like to think so, but the reality is that the answer to your question is "No". In our current market, there are many areas in Mobile that have a fairly high inventory of foreclosed homes that are selling below the so called Fair Market Value. In many cases, very far below.
I am a RealtorÂ® in Mobile and there are several others that read and respond to questions asked on this forum on a regular basis. I would be happy to provide a CMA for you, a report that should give you an idea of what your home should sell for, and I'm sure several others who will respond to this later would gladly offer the same. You could take the opinion of what your home should sell for into account vs whatever you are looking to put into it to take it from where it is now to where you want it to be. My guess is that you will probably be disappointed in the answer.... more