Why Do I Pay A Full Year of Homeowners Insurance Up Front?
The third blog in a series of mortgage blogs of 10 most frequently asked questions that I am asked on a weekly basis… Is one that is
related to the second blog in this series “What Do You Mean I Need Money For Closing Costs”
FAQ #3 ……… Why Do I have To Pay For A Full Year Of Homeowners Insurance Up Front When I Am Paying For It Every Month In My Mortgage Payment?
This is one of the shortest explanations that I give, but a very important and confusing one for especially First Time Home buyers. It is also an explanation that I usually end up giving again after the loan is approved, and I instruct the Borrower that they now need to go and get Homeowners Insurance, and that the insurance company is going to ask them for the first year’s premium of homeowners insurance up front.
Homeowners Insurancelike any other insurance is paid in advance. Therefore, at the Closing there isn’t any money in the escrow account to pay the first year’s premium.
A year from the Closing enough money will have been collected through each monthly mortgage payment to pay for the second year’s premium, as well as every year thereafter, but the initial annual payment will have to be paid on or before the Closing.
As simple as that may seem, it tends to be a major source of confusion for First Time Home buyers, and even Home buyers that have been through the home buying process several times. I would have expected the confusion to be why they need to pay taxes on a house that they have not even lived in yet, but that question oddly is rarely asked.
But I can count on giving the simple explanation above at least at the beginning of the loan process, and at the time they are instructed to obtain Homeowners Insurance, and some times even a third time when they receive the HUD-1 just before the Closing. Why Do I Pay A Full Year of Homeowners Insurance Up Front?
This blog post is courtesy of my guest blogger, George Souto. Info about my guest blogger and author:
George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George can be contacted at (860) 573-1308 or email@example.com.