There is a step in a rental purchase that sits outside your loan file entirely, has no deadline on your lender’s checklist, and can kill the deal anyway. An insurance carrier sends somebody to look at four systems in the house and decides whether they want the risk. If they say no, and the next three carriers say no, you do not have a fundable property. You have a cash purchase.
This is the four-point inspection. It applies to older housing stock, which is most of what investors buy, and almost nobody budgets the time for it.
What the four points actually are
Roof, electrical, plumbing, and heating and cooling. That is the list, and it has been the list for decades.
The inspector is not doing a home inspection. They are not looking at the foundation, the windows, the grading, or whether the basement smells. They are answering four narrow questions on a one page form:
- Roof. What material, how old, how many layers, what condition, and what is the estimated remaining life. Three years of remaining life is the common cliff.
- Electrical. Panel brand and amperage, breaker or fuse, any aluminum branch wiring, any knob and tube, any double-tapped breakers, whether there are GFCI outlets where code wants them.
- Plumbing. Supply line material, drain line material, water heater age, any active leaks, any polybutylene.
- HVAC. Heat source, age of the unit, whether it operates, and whether there is anything disconnected or improvised.
Four systems, maybe forty minutes on site, usually 100 to 175 dollars. Many carriers will accept a four-point completed by a licensed home inspector, a general contractor, or a licensed trade in the relevant discipline.
Why a carrier asks for it and when
The trigger is almost always age. Carriers commonly require a four-point on dwellings over thirty years old, and some pull that back to twenty-five for non-owner-occupied risk. A rental with absentee ownership and a tenant is a worse risk to an underwriter than the same house owned and lived in by a family, so the thresholds are tighter on the investor side.
The inspection usually gets ordered after you bind, or as a condition of binding. That is the timing problem. You have a quote, you have a closing date, and then the carrier says they need a four-point before they will issue. If it comes back ugly, the quote evaporates and you are shopping coverage with eight days to close.
Your lender will not know any of this is happening. All they want is a binder with the right coverage amounts and the right mortgagee clause before they fund. Whether you got that binder for 1,400 dollars or 4,200 dollars is your problem, and so is whether you can get one at all.
The findings that actually stop a policy
Not every defect matters. These are the ones that produce a decline rather than a surcharge:
Federal Pacific Stab-Lok, Zinsco, Challenger, and Sylvania panels. These are specific panel lines with documented failure-to-trip histories. A carrier that sees one on a four-point will frequently decline outright and require full replacement before reconsidering. Replacement runs 1,800 to 3,500 dollars depending on service size and local labor.
Knob and tube or aluminum branch wiring. Both are commonly treated as uninsurable in the standard market. Aluminum can sometimes be remediated with approved connectors at every termination, which runs 1,500 to 4,000 dollars in a small house and satisfies some carriers. Knob and tube generally has to come out. If you are buying a house with this wiring as a rehab, the rehab budget treatment of knob and tube, fuse panels, and aluminum wiring is the piece to read first.
Fuse panels. Not automatically fatal, but frequently paired with 60 amp service, which is. Most carriers want 100 amps minimum and many want 150.
Polybutylene supply lines. Near-universal decline in the standard market because of the class-action claims history. Repipe on a small house runs 4,000 to 9,000 dollars. The full picture on galvanized supply lines, polybutylene, and lead service lines covers what each material does to both the loan and the policy.
A roof under three years of remaining life. This is the most common single finding. Some carriers will write it at actual cash value on the roof only, which is a different and worse outcome than a decline. What roof age does to a finished rental loan file walks that specific scenario.
A water heater over twelve years old, or an unvented or disconnected heat source. Cheap to fix, so these are conditions rather than declines. A water heater is 1,200 to 2,000 dollars installed and buys you a clean point.
What the repricing does to your ratio, worked out
This is where the inspection stops being a nuisance and starts being a financing problem.
Take a 1952 brick duplex. Purchase at 189,000 dollars, 25 percent down, loan of 141,750 dollars at 7.375 percent on a thirty year term. Principal and interest is about 979 dollars. Taxes are 265 dollars a month. Your original insurance quote was 1,560 dollars a year, which is 130 dollars a month. Total payment including escrows comes to 1,374 dollars.
Combined rent on the two units is 1,800 dollars. The coverage ratio is 1,800 divided by 1,374, which is 1.31. A comfortable file.
The four-point comes back with a Zinsco panel and a roof at two years remaining. The quoting carrier withdraws. Two more standard carriers decline on the panel. You end up with a surplus lines policy at 4,320 dollars a year, which is 360 dollars a month.
Your payment is now 979 plus 265 plus 360, which is 1,604 dollars. The ratio is 1,800 divided by 1,604, which is 1.12.
At most rental lenders a 1.12 is still fundable, but not at the price you were quoted. Ratios under 1.15 or 1.20 commonly carry a pricing adjuster of a quarter to a half point in rate, or a reduction in maximum leverage. Call it a quarter point: your rate moves to 7.625 percent, principal and interest becomes about 1,003 dollars, and the payment is 1,628 dollars for a ratio of 1.11.
So one page of inspection findings cost you 230 dollars a month of insurance, roughly 2,760 dollars a year of permanent carrying cost, and a quarter point of rate for the life of the loan. The panel replacement that would have prevented it was 2,400 dollars, one time.
And there is a second-order problem. That surplus lines policy may not be acceptable to your lender at all, depending on the carrier’s financial strength rating. Admitted carriers, surplus lines, and the rating that stops a funding is the companion piece, and it is the reason a cheap non-admitted quote sometimes cannot be used at any price.
The sequence that keeps this from happening
Order the four-point during your inspection period, not after you bind. This is the entire fix and almost nobody does it.
When you schedule your general home inspection, ask the inspector to complete a four-point form at the same visit. Most will do it for 75 to 125 dollars on top of the inspection because they are already on site and already looking at three of the four systems. You then walk into the insurance market holding the document the carrier is going to ask for, and you get real quotes instead of preliminary ones.
What you learn in that window is actionable. If the panel is a Zinsco, you can make replacement a seller condition, ask for a credit, or walk. Once you are past contingencies, you have none of those options and you are just absorbing the number.
The other half of the preparation is the claims file. A carrier pulls loss history on the address before they quote, and the CLUE report can reprice your deal ten days before closing for reasons that have nothing to do with the four systems. Pull the four-point and expect the CLUE pull, and very little should surprise you in the last two weeks.
Where a condo rental is different
On a condominium, the association’s master policy covers the structure, and a four-point on the building is the association’s problem rather than yours. What you insure is the inside of the unit. That sounds simpler and mostly is, but it introduces a different gap, because the master policy stops at the drywall and you inherit the deductible. A unit owner’s policy on a 1970s building can still get a questionnaire about the age of the plumbing stack and the electrical service, so the question does not disappear entirely. It just moves.
What to do with the findings you decide to live with
Sometimes the answer is to accept a worse policy and move on. If you do, understand what you accepted.
A roof written at actual cash value rather than replacement cost means a twenty year old roof destroyed by hail pays you a depreciated number, not the cost of a new roof. On a 14,000 dollar roof at eighteen years of a twenty-five year life, that could be a 4,000 dollar check. Replacement cost, actual cash value, and the coinsurance clause is where that arithmetic lives, and it is the single most expensive thing investors agree to without reading.
Also understand what happens if the policy you accepted gets cancelled later. Surplus lines carriers exit markets. If coverage lapses, your servicer buys a policy for you at two to four times the cost and bills it to your escrow, and force-placed insurance after a lapse is a worse outcome than anything the four-point would have produced.
If the findings are cheap to cure, cure them. A water heater, GFCI outlets, and a double-tapped breaker are a few hundred dollars of licensed labor and they clear three of the four points. The repair or replace decision on a furnace, roof, or water heater looks different once you price the insurance consequence into it rather than just the repair.
The parts of the file this touches
Insurance is not a standalone line item. What coverage a rental lender actually requires sets the floor the policy has to clear, and a four-point failure can leave you with a policy that technically exists and still does not satisfy those requirements.
If the property is titled in an entity registered in a different state from the property, make sure the named insured matches the vesting exactly before the binder goes out. Foreign qualification, registered agent, and good standing covers why that mismatch gets caught late.
And screening matters here too. A property with marginal systems and a tenant who does not report a slow leak for four months produces a claim, and that claim lands on the loss history that prices your renewal. Screening an applicant properly is cheap insurance of a different kind.
Finally, every insurable defect you leave in place travels with the property onto the schedule of real estate owned that decides how big your next loan gets. A portfolio of houses carrying surplus lines policies at triple the premium is a portfolio with a weaker aggregate ratio, and that shows up when you go for number six.
The short version
Order the four-point during your inspection period from the inspector you already hired. Expect it on anything built before about 1995 that you intend to rent. Know the five findings that produce a decline rather than a surcharge: obsolete panel brands, knob and tube, aluminum branch wiring, polybutylene supply, and a roof with under three years left. Price the cure against the permanent premium difference, because the cure is almost always cheaper. And get the insurance number nailed down before you lock, not after.
Put the real premium into the DSCR deal calculator rather than a placeholder, and you will see immediately whether a four-point surprise has room to move in your file. If you want a second set of eyes on a deal where the insurance came back ugly, reach out or call 412-990-2941.
FMC Capital is a Pittsburgh-based mortgage brokerage serving real estate investors. We place loans on rentals and flips across Pennsylvania and additional states. NMLS #1840537. This article is general information, not insurance advice. Carrier appetite, inspection thresholds, and premiums vary by state, carrier, and property, and loan terms, pricing, and guidelines vary by lender and are subject to change.