Posted on: 23rd Sep, 2008 06:27 am
Why do I have to pay one years Home Owners Insurance up front?
Hey there,
I've noticed that the lenders would make sure that your taxes and insurance premiums are fed in time. In doing so they would set an escrow account. A certain percentage of the sum of these amounts would be counted within your mortgage payments every month.
Suppose, you pay 1/12 of the accumulated insurance premium every month. This would help your lender to have the money to pay for your insurance payments within the respective due dates. Under certain circumstances, you would need to bear the entire year's home insurance worth upfront within your closing. This would also go well with your taxes. You may also apportion your tax payments between your monthly payments and your closing taxes. This would again be decided upon your lender agreement and the market practices.
Thanks, Purpleheaded08
I've noticed that the lenders would make sure that your taxes and insurance premiums are fed in time. In doing so they would set an escrow account. A certain percentage of the sum of these amounts would be counted within your mortgage payments every month.
Suppose, you pay 1/12 of the accumulated insurance premium every month. This would help your lender to have the money to pay for your insurance payments within the respective due dates. Under certain circumstances, you would need to bear the entire year's home insurance worth upfront within your closing. This would also go well with your taxes. You may also apportion your tax payments between your monthly payments and your closing taxes. This would again be decided upon your lender agreement and the market practices.
Thanks, Purpleheaded08
See..I'd like to explain a bit of it but briefly!
I've seen that on most occasions wherein you have not paid for at least 20% of the down payment, you would certainly need to pay for Pvt. mortgage insurance. You would need to continue with such payments till the point of time you own a part of the home. In case you start defaulting on your home loan, your lender would use this insurance to feed the losses. As you may pay for your home insurance upfront, likewise you may have the choice to pay for it upfront or as a part of your monthly payments. Hope, that clarifies things a bit further for you :) Crossbreed
I've seen that on most occasions wherein you have not paid for at least 20% of the down payment, you would certainly need to pay for Pvt. mortgage insurance. You would need to continue with such payments till the point of time you own a part of the home. In case you start defaulting on your home loan, your lender would use this insurance to feed the losses. As you may pay for your home insurance upfront, likewise you may have the choice to pay for it upfront or as a part of your monthly payments. Hope, that clarifies things a bit further for you :) Crossbreed
Would you be able to explain why some banks require a year of HO insurance or Hazard Insurance paid up front?
when you obtain a mortgage you are required to insure the home being mortgaged. if you were to purchase a policy that was valid for only one month, the lender would need to monitor your account immediately to be sure that you renewed....and so on and so on.
that's the simplest method by which i can answer your question, jennifer. however, i surmise that insurance agencies would much prefer that you purchase the first year in advance as well, to cut down their costs, etc.
once your account is established, as noted above by others, you'll pay 1/12 of the annual insurance cost into your escrow account, so that sufficient funds will accumulate to allow the lender to pay the next bill that comes due, in a year. this will continue until the loan is paid in full.
what you want to avoid is forcing the lender to purchase a policy on your behalf. since "forced insurance" is just that, there is a much larger expense (and you'll have to pay it) involved.
that's the simplest method by which i can answer your question, jennifer. however, i surmise that insurance agencies would much prefer that you purchase the first year in advance as well, to cut down their costs, etc.
once your account is established, as noted above by others, you'll pay 1/12 of the annual insurance cost into your escrow account, so that sufficient funds will accumulate to allow the lender to pay the next bill that comes due, in a year. this will continue until the loan is paid in full.
what you want to avoid is forcing the lender to purchase a policy on your behalf. since "forced insurance" is just that, there is a much larger expense (and you'll have to pay it) involved.
