Homebuyers may soon be able to buy insurance to protect their down payments in the event they sell their home at a loss.
Much like title insurance protects the lender, this product promises to reimburse homebuyers for their full down payment should they want to sell their new home for any reason between two and seven years after they buy and end up suffering a loss on the sale.
Dallas-based ValueInsured says it will begin offering the new product, which it named +Plus, in January of next year.
“When the down payment is protected, the modern American homebuyer experiences more control, confidence and flexibility, even in a volatile real estate market,” Joseph Melendez, founder and CEO of ValueInsured, said in the announcement.
The company said it has worked with specialty insurer Houston International Insurance Group and reinsurer Everest Re in developing +Plus.
The maximum down payment that can be protected is $200,000. There is no deductible and there is no minimum.
The policyholder will be paid if the value of the house goes down and the owner ends up selling at a loss. The claimant gets less than the original down payment if either the sale price or the home value (as measured by the Home Price Index published by the Federal Housing Finance Agency) fell only modestly but the claimant gets a full refund of the down payment if the sale price and the HPI fell by at least 20 percent.
The premium is based on the amount of the down payment and the location of the home. For example, ValueInsured says that for the average $200,000 home with 10 percent ($20,000) down payment, the cost would be about $1,000. This cost can be paid for through a lender credit and included in the homebuyer’s mortgage payment for “less than a lunch a month,” according to Cleve Bellar, chief marketing officer for ValueInsured.
+Plus policyholders cannot file a claim during the first two years after purchasing the policy or after seven years. The product was created for people who expect to live in their home for a long time but find their plans change.
“We found that most people that stay in a home after seven years will stay for much longer and given other variable like the average tenure at a job (less than three years), many will opt to move in under seven years. We also wanted to avoid flippers that can impact premiums. For these reasons, two-to-seven years was a sweet spot that made +Plus affordable and fit the need for a majority of Americans,” Bellar said.
The home must be owner-occupied during the entire coverage period.
Bellar said ValueInsured is currently reaching out to real estate agents, mortgage lenders and others in the homebuying process to develop its sales and distribution strategy.
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