Buying a home is a large financial responsibility for anyone. You are investing a large portion of your monthly income, and most likely, all or most of your savings, into the property. All homeownership comes with risks, but for anyone planning to purchase in an area at high risk for fire, it becomes even more critical to properly protect your home.
First, how do you define “high risk.” In some cases, where the home is set near dry grass or heavily timbered areas, it may be easy to understand, but some homeowners are shocked to learn they also are considered high risk by their insurance companies. Due to drought conditions, there are many locations that fall into “hot spots” that will require extra fire insurance. In California, approximately 25% of homes are in an area that is considered a "high or very high" fire risk zone, and some of these areas can only get fire insurance through the state itself.
When buying a home, the seller is required to provide the buyer with a Natural Hazard Disclosure (NHD) Report. The NHD report provides the buyer with information on the natural hazards that the particular home is susceptible to based upon its location. The report will indicate whether the home is considered to be in a "high" or "very high" fire zone. In most cases, the report will be in line with the homeowner's insurance company; however, it is always important that buyers check with their insurance companies.
The mortgage company will also have concerns about the fire risk to the home and their liability in covering loss. The amount and cost of homeowner’s insurance will be significantly higher than in other locations, and for some buyers, the higher premium could affect their ability to qualify for a particular house. The mortgage company will continue to require insurance that adequately covers the cost to rebuild and this can add thousands of extra dollars to your annual homeownership cost compared to less risky areas.
While obtaining an estimate for homeowner's insurance has always been a standard part of a buyer's due diligence period when purchasing a home, the skyrocketing costs for policies has made this even more critical that buyers research the cost of a policy very early in the home buying process. While there is no reason to automatically reject a home you love in a high fire risk location, before falling in love, it’s worth researching all the costs and risks associated with the purchase.