What type of insurance is needed?

You will be required to provide the lender with homeowner’s insurance that covers the construction of your home. That may be in the form of a so-called “builder's risk policy” or it may be a standard homeowner’s policy with additional coverage for construction.

If your project is a new build, it’s more likely you would get a builder’s risk policy. If your project is a rehab or addition, it’s more likely you will obtain a standard policy with construction coverage. You will need to decide what policy is best for you.

The amount and extent of your coverage is a decision you will have to make as well. Banks will typically require a minimum coverage based on either equal to or the lesser of:

  1. The principal balance of the loan (including the amount of subordinate financing) as long as it equals the minimum amount – 80% of the insurable value of the improvements.

  2. 100% of the insurable value of the improvements as established by the proper insurer.

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CHICAGO CONSTRUCTION LOANS

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