Paying Homeowners Insurance Upfront or at Closing
When you’re buying a home, mortgage lenders require you pre-pay your first year’s homeowner’s insurance policy premium. But you still have a choice either paying homeowners insurance upfront or at closing when you pay the other fees you’ve settled on in the sale.
Part of your mortgage agreement is the requirement that you maintain a homeowner’s insurance policy paid in full, usually a year at a time. If you don’t keep the proper coverage, terms of your mortgage allow the lender to obtain a policy for you, but at a cost two to three times what you’d pay if you secured it yourself.
Paying the Premium Upfront
The significant plus of an upfront payment is it locks in the homeowner’s insurance rate for a full year, so you don’t receive unexpected rate increases the first year.
Paying a lump sum up front can be a hardship on top of paying the other fees involved in buying a home. It can be paid with a credit card but be sure that the amount causes your loan’s debt-to-income ratios to exceed your lender’s requirements. Lender’s typically recheck your credit just prior to closing.
Paying the Premium at Closing
When you pay at closing you can negotiate and put a condition into your contract that the seller pays a portion of the cost, typically 3% to 6%.
When paying at closing you have to use certified funds, which is money that comes directly from your bank accounts via wire or cashier’s check.
Know Your Policy
Be sure to understand your homeowner’s insurance policy. Most policies have exclusions like natural disasters, including hurricanes, flooding and earthquakes, as well as acts of terror and war. Have you insured for cash value or for replacement? Do you have all the discounts you qualify for and add-on riders you need?
It’s a good idea to get out your policy at least once a year and see if you can get a better deal. Use the EINSURANCE online quote tool to compare policies from a variety of homeowner’s insurance companies.