When mortgage financing is involved, paying your homeowners’ insurance policy at closing is necessary. Your lender requires you to secure and prepay a premium that fits its minimum standards for coverage. Hence, the exact amount owed at closing depends on your particular loan. However, prepaying your homeowners’ insurance guarantees coverage for the first year of homeownership. You can pay the homeowners’ insurance premium beforehand and out of escrow or at closing in addition to your other settlement fees. Nevertheless, paying homeowners insurance at closing demands you use only certified funds; that is, money that comes directly from your bank account, while a cashier’s check guarantees the funds are your own and not borrowed. However, the advantage of paying through closing is that you can negotiate to have the seller pay a portion of your closing costs. Seller concessions are a sale condition that must be written into a contract.
Homeowners insurance premium at closing
Certain homeowner's insurance costs can only be paid at closing, hence, a loan that involves less than a 20 percent down payment usually requires the lender to impound, or escrow, property taxes and homeowners’ insurance. The lender determines how many months of homeowners’ insurance payments you must deposit at closing to establish escrow impound reserves. The lender uses the reserves to pay the insurance provider in case you miss payments. The lender also proportionally divides your homeowners’ insurance payment for the month in which you close another fee that can only be paid at closing. The disadvantage of impounding homeowners’ insurance fees is that it adds several months of insurance payments to your closing costs. However, it’s important to have an accurate idea of how much you can expect to pay for your premium. Averagely, a one-year home insurance binder for closing will cost around $1,200 for a $200,000 home.
Is Homeowners Insurance Included in Closing Costs?
It can be hard to lock down a hard and fast answer on whether homeowners’ insurance is factored into closing fees because each deal is slightly different. In some cases, they’re paid at closing, and this cost may be included in a “cash to close” a statement provided by the lender. However, some buyers afford to have the seller cover their premium and other expenses at closing, which may be included in closing costs, but the responsible party can shift. Although, if you’re not buying a home with cash, your lender will require you to pay the premium for one year’s worth of homeowners’ insurance before or at closing. Despite being produced simultaneously as closing, prepaid costs like your homeowners’ premium are not the same as closing costs. Some lenders require that these fees be deposited into a specific “prepaid escrow account,” which is different than the escrow accounts that distribute funds between the buyer and seller.
About Homeowners Insurance Premiums and Closing Costs
There are lots to consider when choosing a homeowner's policy, especially when you're trying to factor in all the other expenses you'll be covering at closing. In a buyer's market, where inventory on homes for sale is high, you may be able to persuade the seller to cover some of your prepaid fees. Hence, you're to ask your real estate agent about how they would approach seller concessions while you're building your offer to purchase. The homeowners' insurance payment will typically fall into the prepaid costs category of your closing costs. However, prepaid items are not directly related to the home's purchase. Still, they are usually a requirement of the group funding the loan and must be paid in advance.