Pros and Cons of Paying Homeowners Insurance Upfront or at Closing

Paying Homeowners Insurance Upfront or at Closing

When you’re buying a home, mortgage lenders require you to pre-pay your first year’s homeowner’s insurance policy premium. But you still have a choice of 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. If you’re looking for better coverage and rates, we recommend getting a new homeowners insurance quote for your property.

Paying the Premium Upfront

Pros

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 homeowners insurance upfront can be a big saving for you.

Cons

Paying a lump sum up front can be burdensome when layered 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 does not cause your loan’s debt-to-income ratio to exceed your lender’s requirements. Lender’s typically recheck your credit just prior to closing.

Paying the Premium at Closing

Pros

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%. Homeowners insurance premiums at closing requires you to stay alert and make sure everything is in place before you make your final decision and pay.

Cons

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

To better understand your policy, make sure to learn how homeowner’s insurance costs are calculated. 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 the add-on riders you need?

It’s a good idea to review your policy at least once a year and see if you can get a better deal. Use the EINSURANCE online home insurance quote tool to compare policies from a variety of homeowner’s insurance companies.