When you are financing the purchase of a home the mortgage company, as part of the underwriting process, will request a home insurance policy and will oftentimes state that the policy needs to be a replacement cost policy.
This request comes directly from the Fannie Mae guidelines and their request is really two-fold.
First, they want to ensure that your home insured on a replacement cost basis as opposed to an actual cash value basis….or to put it another way that your losses are covered dollar for dollar up to policy limits.
And second, that your policy limits for the home, or dwelling coverage, meets or exceeds the entire cost of rebuilding your home in the event of total loss.
Having a replacement cost policy with dwelling limits that meets or exceeds the cost of reconstruction will generally satisfy mortgage requirements and will help to get you to the closing table.
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