• Nadlan Capital Group – USA Real Estate Financing for Foreign Nationals and Residents

  Why a Lender May Request a Borrower to Change Their Insurance Policy Type

  Posted by Nadlan Group on April 9 at 22:53

  So in what cases a lender will request a DSCR borrower to change their insurance? we had a client that was asked to change it from DP1 to DP3 which was way more expensive.

  As well lets understand whats the difference between DP1 and DP3.

  📌 Why a Lender May Request a Borrower to Change Their Insurance Policy Type (e.g., DP1 ➝ DP3)

  Lenders are primarily concerned with protecting the collateral—the property. If the insurance coverage is insufficient, the lender stands to lose if there’s damage or loss. That’s why they sometimes require a policy upgrade, especially from DP1 to DP3, even if it’s more expensive.

  🔍 Common Situations When a Lender Might Require Insurance Changes:

  See attached table

  🧾 What Is the Difference Between DP1 and DP3 Policies?

  See attached table

  ✅ Example:

  Your borrower had a DP1 policy that only covered fire and vandalism. The lender required DP3 because:

  • The property is being used as a rental (so tenant issues matter)

  • It’s a DSCR loan, and rental income continuity is vital

  • The lender needed Replacement Cost coverage in case of total loss

  • The DP1 didn’t include water damage or liability coverage for tenant lawsuits

  🧠 Final Recommendation

  If you’re a borrower applying for a DSCR loan, consider securing DP3 coverage upfront—especially if the loan amount is high or the lender is conservative. While it costs more, it protects both you and the lender from unforeseen financial risk.

  

  

  Nadlan Group replied 1 week, 6 days ago 1 Member · 0 Replies

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