How Homeowner’s Insurance Is Paid With Your Mortgage

Many First Time Homebuyers in North Carolina get confused about Home Owners Insurance, and how it’s paid.   Homeowner’s Insurance is required to cover the property against fire and other “disasters.”  When you are getting quotes and getting pre-qualified,  we give you an estimate that has an escrow account.

The estimate shows that we are accumulating homeowner’s insurance on a monthly basis.  We also require a substantial deposit into that escrow account at closing.  This can be confusing, some first time home buyers think we are double charging them, so we know that they need more information about how Homeowner’s Insurance is paid with your mortgage payment.

It’s a fairly simple calculation, but it can be confusing, for especially First Time Homebuyers in NC.  It is also an explanation that we  usually end up giving again after the loan is approved, when we instruct the Borrower that they now need to go and get Homeowners Insurance.  At that point, we will remind you that the insurance company is going to ask for the first year’s premium up front.

Homeowners Insurance, like 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 collect through each monthly payment to pay for the second year’s premium.  This will be the cycle for the Escrow account, while you have your loan. Because we are establishing this escrow account, 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 Homebuyers in NC, 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.

Saving Money On Your Homeowner’s Insurance Policy

In general, it is cheaper to “bundle” your insurance, and have your car insurance and your home insurance with the same company.  Depending on where you are purchasing a home in NC, you might find that there’s a WIDE variance in policy charges.  That’s normally due to that fact that the Insurance Company had to “pay out” after a natural disaster.

Just like with any other insurance policy, the Riders that you carry,and the deductible that you set up will also help determine the policy premium.

If you have questions about purchasing a home in NC using a First Time Homebuyer Program, or you want to know more about closing costs for a first time home buyer program in NC please call Steve Thorne at 919-649-5058.  We do many NCFHA loans, we offer today’s lowest mortgage interest rates, we can help!