When you buy a home, your upfront costs will include more than just a down payment. You’ll have to pay closing costs, and you might also have to pay your homeowners insurance premiums in advance before you can move in.
Are Homeowners Insurance Premiums Included in Closing Costs?
Closing costs are generally fees for services that are related to obtaining a mortgage and purchasing a house. Prepaid expenses are different. Those are costs, such as homeowners insurance and property taxes, that you will have to cover whether you take out a mortgage or not. Prepaid costs must be paid at closing, but they’re not considered closing costs.
Will You Be Required to Pay Insurance Premiums When You Close?
If you take out a mortgage to buy a house, the lender might require you to pay a year’s worth of homeowners insurance premiums at closing. This is commonly required to protect the lender’s financial investment and to ensure that the company will be compensated if the house gets damaged or destroyed.
Money for homeowners insurance might be put into an escrow account so the lender can pay the bills when the premiums are due. If you don’t have funds for insurance premiums deposited into an escrow account, you’ll have to provide the lender with proof that you have paid the premiums before you can close on the house.
In some cases, you might not have to cover prepaid costs yourself. A seller who is eager to move out and hasn’t gotten another offer might be willing to cover some or all of your prepaid costs to move the deal along.
If you don’t take out a mortgage, there won’t be a lender requiring you to pay a year’s worth of homeowners insurance premiums up front. In that case, you’ll pay the premiums yourself. Your insurance company might require monthly payments, or you might be able to pay on a different schedule.
What about Homeowners Insurance Premiums after Closing?
If you have an escrow account, your monthly mortgage payment will cover a portion of your principal and interest, plus a portion of your homeowners insurance premiums and property taxes. If you pay a year’s worth of homeowners insurance premiums at closing, you’ll have to start paying for the following year’s premiums right after you buy the house. That way, a year after you move into your new home, there will be enough money available in the escrow account to cover the next year’s worth of premiums.
