DSCR Loan and Insurance Requirements

Detroit, Michigan
Insurance
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DSCR Loan and Insurance Requirements

Antonio Ward JrPro Member
Member since 2025 · 17 posts · 13 votes

Good Morning BP Fam, 

I am currently in the refinancing phase of my multifamily BRRRR project. We have a DSCR lender and we are moving toward closing but they are requiring for my insurance plan to hold 80% of a replacement cost estimator for my property even though it would not cost that high amount to replace the entire house in the event that such occurs. My lender is helping with trying to find a work around. In my area a landlord policy is very high, but based on what we are bringing into the property we would still be cash flowing a decent amount of income monthly after expenses. My lender is suggesting to get a homeowners insurance policy, close the DSCR in our personal name, and then the insurance agent they connected us with informed us a new product coming in April that will allow us to transition of insurance into our business name as well as deed the house back into the business name. I am here to gain some insight on this situation, so I can get an idea of what to be researching or doing moving forward.

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Owen RosenBusiness Member
Professional · Clinton Township, MI · Member since 2015 · 682 posts · 259 votes
7mo
Quote from @Antonio Ward Jr:

Good Morning BP Fam, 

I am currently in the refinancing phase of my multifamily BRRRR project. We have a DSCR lender and we are moving toward closing but they are requiring for my insurance plan to hold 80% of a replacement cost estimator for my property even though it would not cost that high amount to replace the entire house in the event that such occurs. My lender is helping with trying to find a work around. In my area a landlord policy is very high, but based on what we are bringing into the property we would still be cash flowing a decent amount of income monthly after expenses. My lender is suggesting to get a homeowners insurance policy, close the DSCR in our personal name, and then the insurance agent they connected us with informed us a new product coming in April that will allow us to transition of insurance into our business name as well as deed the house back into the business name. I am here to gain some insight on this situation, so I can get an idea of what to be researching or doing moving forward.


 Your lender should stick to lending.  They're not helping at all. Their solution makes no sense and won't solve the problem with the added bonus of committing insurance fraud.

You should look for a good insurance broker that might be able to help.

Royal Oath Insurance Group4.9203 Reviews
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  • Tony Wilcox
    Insurance Agent · Member since 2020 · 177 posts · 76 votes
    7mo

    The bank will require the RC amount so there won't be a work around. Issuing a policy as a personal homeowners policy would not be a great idea since that is not what it will be used for and a claim would most likely be denied if you had one. I think it would be best for you to look into other options to see if there are better priced options for RC. The agent they sent you seems a bit limited in my opinion. Also the idea they gave you of insuring the property this way is a bad idea in my opinion. 

    0Reply
  • Scott WolfPro Member
    Lender · Boca Raton, FL · Member since 2014 · 1k+ posts · 958 votes
    7mo
    Quote from @Antonio Ward Jr:

    Good Morning BP Fam, 

    I am currently in the refinancing phase of my multifamily BRRRR project. We have a DSCR lender and we are moving toward closing but they are requiring for my insurance plan to hold 80% of a replacement cost estimator for my property even though it would not cost that high amount to replace the entire house in the event that such occurs. My lender is helping with trying to find a work around. In my area a landlord policy is very high, but based on what we are bringing into the property we would still be cash flowing a decent amount of income monthly after expenses. My lender is suggesting to get a homeowners insurance policy, close the DSCR in our personal name, and then the insurance agent they connected us with informed us a new product coming in April that will allow us to transition of insurance into our business name as well as deed the house back into the business name. I am here to gain some insight on this situation, so I can get an idea of what to be researching or doing moving forward.

    @Tony Wilcox is right.  Search other insurance options.  The lender should have one they work with often.  

    Steadily and Obie are also providers used for landlord insurance.

    0Reply
    • Owen RosenBusiness Member
      Professional · Clinton Township, MI · Member since 2015 · 682 posts · 259 votes
      7mo
      Quote from @Scott Wolf:
      Quote from @Antonio Ward Jr:

      Good Morning BP Fam, 

      I am currently in the refinancing phase of my multifamily BRRRR project. We have a DSCR lender and we are moving toward closing but they are requiring for my insurance plan to hold 80% of a replacement cost estimator for my property even though it would not cost that high amount to replace the entire house in the event that such occurs. My lender is helping with trying to find a work around. In my area a landlord policy is very high, but based on what we are bringing into the property we would still be cash flowing a decent amount of income monthly after expenses. My lender is suggesting to get a homeowners insurance policy, close the DSCR in our personal name, and then the insurance agent they connected us with informed us a new product coming in April that will allow us to transition of insurance into our business name as well as deed the house back into the business name. I am here to gain some insight on this situation, so I can get an idea of what to be researching or doing moving forward.

      @Tony Wilcox is right.  Search other insurance options.  The lender should have one they work with often.  

      Steadily and Obie are also providers used for landlord insurance.


       I work with Steadily and Obie as an Independent Agent but it's unlikely they will be helpful in Detroit.

      Royal Oath Insurance Group4.9203 Reviews
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      0Reply
  • Owen RosenBusiness Member
    Professional · Clinton Township, MI · Member since 2015 · 682 posts · 259 votes
    7mo
    Quote from @Antonio Ward Jr:

    Good Morning BP Fam, 

    I am currently in the refinancing phase of my multifamily BRRRR project. We have a DSCR lender and we are moving toward closing but they are requiring for my insurance plan to hold 80% of a replacement cost estimator for my property even though it would not cost that high amount to replace the entire house in the event that such occurs. My lender is helping with trying to find a work around. In my area a landlord policy is very high, but based on what we are bringing into the property we would still be cash flowing a decent amount of income monthly after expenses. My lender is suggesting to get a homeowners insurance policy, close the DSCR in our personal name, and then the insurance agent they connected us with informed us a new product coming in April that will allow us to transition of insurance into our business name as well as deed the house back into the business name. I am here to gain some insight on this situation, so I can get an idea of what to be researching or doing moving forward.


     Your lender should stick to lending.  They're not helping at all. Their solution makes no sense and won't solve the problem with the added bonus of committing insurance fraud.

    You should look for a good insurance broker that might be able to help.

    Royal Oath Insurance Group4.9203 Reviews
    WebsiteView Page
    1Reply
  • Rod HanksBusiness Member
    Insurance Agent · Dallas, TX · Member since 2013 · 743 posts · 462 votes
    7mo

    @Antonio Ward Jr 

    What your lender is asking for is pretty typical with DSCR loans. Most of them require the property to be insured at 80% or more of the replacement cost estimate, even if you personally believe the building could be rebuilt for less. It’s mainly tied to the coinsurance clause in insurance policies. If a property is insured too low and you have a partial loss, the carrier can reduce the claim payment.

    The bigger concern in your situation is the idea of using a homeowners policy on a multifamily rental just to get the deal closed. Homeowners policies are written for owner-occupied properties. If the carrier finds out the property is tenant-occupied, it can create major issues during a claim. I’ve seen investors run into trouble when a fire or liability claim revealed the property was actually a rental.

    Another thing to keep in mind is that replacement cost calculators used by lenders often look inflated compared to local construction costs. They’re factoring in debris removal, contractor overhead, labor shortages after storms, and building code upgrades.

    After working with rental investors for a long time, the cleanest path is usually structuring the insurance so it satisfies the lender from day one. Trying to “patch” the coverage temporarily can sometimes create bigger problems than the premium savings.

    Rod Hanks Insurance4.9156 Reviews
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    0Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    7mo
    Quote from @Antonio Ward Jr:

    Good Morning BP Fam, 

    I am currently in the refinancing phase of my multifamily BRRRR project. We have a DSCR lender and we are moving toward closing but they are requiring for my insurance plan to hold 80% of a replacement cost estimator for my property even though it would not cost that high amount to replace the entire house in the event that such occurs. My lender is helping with trying to find a work around. In my area a landlord policy is very high, but based on what we are bringing into the property we would still be cash flowing a decent amount of income monthly after expenses. My lender is suggesting to get a homeowners insurance policy, close the DSCR in our personal name, and then the insurance agent they connected us with informed us a new product coming in April that will allow us to transition of insurance into our business name as well as deed the house back into the business name. I am here to gain some insight on this situation, so I can get an idea of what to be researching or doing moving forward.


    By definition, as DSCR loan is only made to an LLC.

    So, closing it in your name, actually means their switching the loan product to a FNMA/FHLMC conforming mortgage.

    What insurance company is quoting you this coverage?

    [email protected]248-209-6824
    Logical Property Management4.9460 Reviews
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