Homeowners insurance is one of the many things to consider when buying a home. As a homeowner, while you may know that you must buy homeowners insurance, there needs to be clarification among many buyers about whether it is included in the closing costs.
This blog will discuss whether or not homeowners insurance is included in the closing costs.
Does The Purchase Price Include Homeowners Insurance?
Homeowners insurance is a separate expense paid separately from the home’s purchase price.
However, if the purchase of your new home is being financed, your lender may insist on your buying homeowners insurance for the entire year before or during the closing.
You will likely be required to pay for homeowners insurance as part of the closing costs by your lender to protect his financial investments. If there is damage to your new home while you are uninsured, the risk of your unable to settle the loan is higher. Whereas, if you buy homeowners insurance, the financial loss caused by the damage to the property will be reimbursed by your insurance provider. In most instances, the reimbursed amount is paid directly to the lender as they still own your home.
Also, usually, homeowners insurance premiums are paid monthly, while buying a new home, you may have to pay the entire amount. This is done to ensure that your lender can avoid loss due to your inability to pay your monthly premiums.
Do You Need to Show Proof of Homeowners Insurance at Closing?
Most lenders will require you to purchase homeowners insurance before you close on your home so that you can provide the lender with proof of insurance at the time of closing. Lenders want to make sure that their investment is protected in the event of damage to their new home.
The closing fees typically include application, realtor, attorney, and title costs. These expenses are fees that you must pay to get your mortgage loan. Property taxes and homeowners insurance costs are expenses that all new homeowners need to pay, even if your purchase isn’t financed. If you have an escrow account, you need to deposit the amount there instead of paying the lump sum of your homeowners insurance to your insurer. This lets the lender pay your monthly premiums from the said escrow account.
Homeowners Insurance Payment Options During Home Purchase
At closing, you either show proof of the homeowners insurance policy you bought for the year or deposit the amount in an escrow account. The cost of the policy will vary depending on the amount of coverage you purchase and the type of coverage you select.
In addition to the lump sum, you may be required to make monthly payments for your homeowners insurance policy to your escrow account to ensure that you’ll have ample funds to cover the coming year’s insurance.
Homeowners insurance is an important part of buying a home, and it’s essential to understand how it works. Though it is not typically included in the purchase price of a home, you may be required by your lender to have a fully paid homeowners insurance policy at the time of closing.