How to get insurance for your fixer upper

Despite a decrease in interest rates over the last couple of years, Canada still has one of the most expensive real estate markets in the world (especially in urban centers). That’s why for many Canadians, buying a fixer upper can seem like a sensible and affordable way to enter the market.  

But while the lower sale price of a fixer-upper may seem tempting, securing both a mortgage and insurance for a home in need of major renovations comes with its own unique challenges — ones that you don’t encounter when buying a move-in-ready house.  

Welcome to the mortgage-insurance catch-22: You need insurance to get a mortgage, but you need a mortgage to buy and fix the house.  

Some insurers might not want to take you on (but some definitely will!) 

With a move-in ready home, insurance is pretty straightforward: You choose your home, get pre-qualified for your mortgage, secure your insurance, and close on the home. 

But when it comes to fixer-uppers, insurers are often hesitant to provide insurance to properties in need of massive repairs.  

“Homebuyers often face challenges getting insurance for older homes,” says Daniel Mirkovic, president and CEO of Square One Insurance. “That’s because older homes tend to have older electrical, heating and plumbing systems. They may have also been built with older materials no longer in use. These systems and materials typically drive higher claims costs, which makes it more difficult and expensive to secure home insurance coverage.”  

However, not all is lost. According to Mirkovic, even these old rough and tumble homes can be covered, though it will take more effort to find insurers who can take them on.  

“Insurance is almost always available,” he says. “It just may require a bit more shopping around.”  

For those purchasing homes with known issues like knob-and-tube wiring or asbestos Mirkovic suggests doing targeted research.  

“The easiest way to find a suitable insurance provider is to conduct an online search,” he says. “For example, if the home has knob-and-tube wiring, try searching for ‘insurance for homes with knob-and-tube wiring.’” 

In any case, it’s worth calling around, because each insurance company sets their coverage rules differently. An existing relationship you have with the company might just sweeten the deal with them, too. 

“Many providers, especially if you already have insurance with them, may offer coverage even if the home doesn’t currently meet underwriting guidelines if you have a clear plan to bring it up to those guidelines in a reasonable amount of time,” he adds.  

Insuring your extensive renovations  

If you’re planning significant renovations, standard home insurance may not be enough. Your insurance company may insist on a complete home inspection before providing coverage.  A home undergoing significant renovations - for example, structural work - may require builder’s risk insurance.  

And if you can’t live in your home during renovations, your property may be classified as vacant, which means that it’s uninhabited for 30 consecutive days or more (however, the vacancy term may vary by insurance company).  

If the renovations are projected to take a month or two, most insurers will offer something called a vacancy permit. If the renovations are not structural and you can guarantee that someone can check in on the home periodically, you may not even have to pay a premium for your vacancy permit.  

However, if you anticipate a long vacancy, you’ll need to get vacant home insurance, which can run as much as 50% or more above your regular home insurance rate — because a vacant property is more at risk for issues like vandalism and flooding.  

How do you know when a fixer upper is worth the trouble?  

A home often hides more than it reveals. The first step would be to hire a certified home inspector to thoroughly go through the property and find any major flaws. Also speak to an experienced mortgage broker who can help you better manage lender requirements for non-standard properties.  

It’s also wise to consult with contractors for renovation estimates — though be forewarned that there may be unexpected challenges.  

As Joshua Oladehinde, builder/general contractor and co-founder of Level Custom Build notes “With older homes, some of the most common hidden issues you'll find are knob-and -tube electrical wiring, plumbing issues, lead or asbestos and structural defects.”  

While Mirkovic notes that insurance is usually available for almost all homes, Oladehinde advises caution with certain types of properties.  

“The only kind of renovation someone should absolutely think twice about are century homes (pre-1930s built homes that have never been renovated or only marginally renovated),” he says. “They tend to have a lot of issues and require the most amount of money to remodel up to code.” 

Related: The best home renovations that pay off at resale 

How to prepare for buying and renovating a fixer-upper 

Be informed

You might not be a contractor or even that handy with a hammer, but you should learn everything you can about what to expect – and the best way to do that, says Olahinde, is to queue up some Youtube videos. “The best way for homeowners to have realistic expectations about timelines and costs is to watch videos and read articles about the home renovation process and perhaps even more specifically, content related to the type of project you’re doing,” he says. “I always recommend this to my clients because it's easier to align in terms of timeline and cost expectations when they have at least minimal exposure to the process on a more technical level, especially if it's their first renovation.” 
Learn more: DIY or hire a pro? What Canadian homeowners need to know 

Look into permits

Major renovations usually legally require permits. “It’s your responsibility as a homeowner to ensure all the proper permits are pulled for your project(s), even if you hire a contractor to do the job,” says Olahinde.  

He also recommends getting multiple detailed estimates and making sure the scope of work is clearly outlined in your contracts to avoid costly misunderstandings or delays. 

Plan (and budget) for surprises

Fixer-uppers, especially if they are older, can conceal costly problems that even the best home inspectors and contractors can’t predict because so much can be hidden behind plaster.s 

Be honest with your insurer

While it may be tempting to keep costs down by not informing your insurance provider about renovations, honesty is the best policy.  

“Be transparent with the insurance provider about the home’s condition and your plans for it,” says Mirkovic. “Failure to do so could render your entire policy and any claims under it void. It’s not worth lying to save some money on your insurance.” 

Read next: Should you tell your home insurance company about your renovations?