Why Must I Pay For A Full Year Of Insurance Upfront If I Pay It Every Month?

This is a short explanation, but a very important and confusing one; especially for First Time Home buyers.  When you are purchasing a home, your Homeowner’s Insurance is included in your monthly mortgage payment.  When you get closer to the closing table, you will be told that you need to obtain your insurance and pay that premium upfront, too.  WHY? 

Homeowners Insurance, like any other insurance, is paid in advance.  Therefore, at the Closing there isn’t any money put aside (in an escrow account) to pay the first year’s premium.  So they ask for it upfront.

Then, a year from the Closing, enough money will have been collected through each monthly mortgage payment to pay for the second year’s premium, as well as every year thereafter, but the initial annual payment will have to be paid on or before the Closing.

As simple as that may seem for some, it tends to be a major source of confusion.

Be forthcoming with questions though, as homebuying costs are not always the easiest costs to understand.  Are there other costs that are or were confusing to you?

I hope this helps you in your next home purchase.

If you ever have any questions, please feel free to contact me anytime.

Keith Turner
(860)444-0650
keithT@mccuemortgage.com