Find Affordable Homeowners Insurance

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How Is Homeowners Insurance Paid?

If you are financing your home through a lender, they will help you decide how your home insurance will need to be paid. They will require that you have insurance as they have a vested interest in the property and won’t allow you to move in until you have provided them with insurance information.

If you opt to pay cash or use an unsecured form of credit via a credit card or a personal loan in order to pay for your property, you don’t need to provide proof of home insurance and aren’t required by law to purchase it. In most cases, however, if you are getting a mortgage you will be required to get homeowners coverage.

How Is Home Insurance Paid?

Typically, first-time homebuyers will have their home insurance in escrow. Escrow accounts hold funds allocated for property taxes as well as home insurance. Every month you will see that you pay a few hundred dollars above what your standard mortgage payment would be and the lender or mortgage provider keeps those extra funds held in escrow.

At the time that the property taxes and the homeowners insurance comes due, the mortgage provider pays them out of the escrow account on your behalf. Lenders are in favor of escrow accounts as these assure that you stay up to date with payments for property taxes and home insurance. Homeowners prefer the escrow method of paying these bills as well in that they can do so on a monthly basis as opposed to paying annually or semi-annually in one lump sum.

Escrow as a Requirement or Is It An Option

If the Federal Housing Administration carries the financing for your loan, the lender is going to mandate that you have an escrow. It can go either way when you have a conventional loan. A loan that carries more than 80% of the value of your home will be sustained by a lender who will want an escrow account. Not carrying much equity with the property puts the lender at risk for being more invested in the property’s protection than you are. They will need to be sure that you carry a home insurance policy and that it stays current.

If a lender isn’t going to expect an escrow account for you, you’ll need to realize that the homeowners insurance that you purchase is going to be a bill that will be separate from the mortgage that you pay and you’ll be responsible for making the payment on the premium. It will be your call if you want to pay it on a monthly basis or if you’d rather pay it in full.

Home Insurance And Closing Costs

Lenders are going to require payment of home insurance first term during closing. A majority of lenders are going to take approximately 10 to 20% worth of the annual premium from your home insurance with closing costs, which they will deposit into escrow to be paid out at the time the bill becomes due.

If you don’t intend to have an escrow, you will need to offer up the whole premium of home insurance that you will have from the first year in your house during closing. There are some lenders that will also take a fee in order to waive the requirement for having an escrow.

Whether you choose to have an escrow account or not, it is crucial that you take out a homeowners insurance policy and keep it up to current status for the protection of your property and your assets. You don’t know when something catastrophic will happen causing you to lose all that you have invested.

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