Homeowners insurance is almost always required at closing.
When you’re taking out a mortgage to buy a home, the real estate serves as security for the loan. Since your lender is going to maintain an interest in that property, it wants its interests insured against damage or loss by fire, explosion, weather or the like. That’s why either prior to closing or at time of closing, you’re going to be required to show your lender that you’ve purchased homeowners insurance with an appropriate mortgagee’s clause designating the lender as an additional insured.
What you’ll need
Prior to every closing, the lender provides the closing agent or title company with a detailed set of instructions that must be fulfilled before it electronically funds the closing from bank to bank. Part of those instructions will require satisfactory proof of coverage from your insurer along with a paid receipt. Your Sendmeaquote insurance agent will know exactly what you need. Be sure to bring this proof of insurance to closing with you, even if you’re told they’re not needed.
The trend has been for homeowners and lenders to establish an escrow account at time of closing for purposes of paying annual insurance premiums. By paying your insurance premium one year in advance, you’ll build up that escrow account over the course of the year, and when your premium becomes due again, your insurer pays the premium to your insurer out of the escrow fund. That’s how your lender determines that its interests in the real estate are covered. You might want to put some extra money into your escrow account every month in case your premium increases from year to year.
If your lender doesn’t require an escrow
Some insurers might not require a homeowners insurance escrow. You’re still required to maintain coverage to protect the insurer’s interests though. If you don’t cover their interest, your mortgage provides that the lender can go out and obtain its own coverage and charge you for it. The insurer isn’t going to cover your interests though. If the house explodes from a gas leak and everything is lost, the insurer’s interests are still covered. Your interests aren’t, and you’ve lost everything.
The only way you won’t be required to cover a lender’s interest in real estate is if you pay cash for the property. Not many people can do that. Even if you can pay cash, you’ll still want both your home and personal property insured. Like most people, your home is most likely your biggest investment. Make sure it’s protected with proper homeowners insurance.
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