Homeowners Insurance Premium at Closing: When and How to Pay It

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Updated: May 23, 2024

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Homeowners insurance premiums are paid upfront at closing to ensure you have coverage from the moment you take ownership of your new home. This upfront payment is a crucial part of the home-buying process, as lenders require proof of insurance to protect their investment. Additionally, you may need to prepay a few months of homeowners insurance premiums into an escrow account, which the lender manages to cover future payments. Understanding the process of paying for homeowners insurance at closing helps ensure a smooth transition into your new home.

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Key Takeaways

At closing, you must pay the first year's homeowners insurance premium upfront to ensure the policy is active from the moment you take ownership of a new home.

Securing homeowners insurance at least two to three weeks before closing is recommended.

Failing to pay the homeowners insurance premium at closing can result in the lender refusing to fund the mortgage, lack of coverage or higher costs due to force-placed insurance.

Do You Have to Pay Homeowners Insurance Premium at Closing?

At closing, you are typically required to pay your homeowners insurance premium upfront for the first year. Lenders require proof of homeowners insurance to protect their investment, and upfront payment ensures the policy is active when you take ownership of the home.

In addition to the initial premium, you might also prepay a few months of home insurance into an escrow account, which the lender will use to pay future premiums on your behalf. This helps ensure the policy remains active throughout the loan term.

How to Pay for Homeowners Insurance at Closing

You pay for homeowners insurance at closing by providing the first year's premium upfront through an escrow account or directly to the lender. However, there are some steps you'll need to take before that. Here’s how paying for homeowners insurance at closing works:

Choose an insurance provider

Before closing, research and select the best homeowners insurance provider for your needs.

Obtain a quote and purchase the policy

Once you've chosen a provider, request a quote and finalize the purchase of the policy. Ensure the coverage starts on the closing date.

Provide proof of insurance to your lender

Submit the insurance policy details and proof of purchase to your lender. This information is needed for the lender to approve the mortgage and proceed with closing.

Pay the first year’s premium

At closing, pay the entire first year's premium upfront. This payment is typically included in your closing costs and ensures your insurance coverage begins immediately. Depending on the lender's requirements, you can pay through an escrow account or directly to the lender.

Set up an escrow account (if required)

Your lender may require you to set up an escrow account. You will prepay a few months of insurance premiums into this account, which the lender will use to pay future premiums.

Review and sign documents

Carefully review and sign all closing documents, including those related to homeowners insurance. Ensure that all information is accurate and that your insurance coverage is in place.

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To get cheap home insurance, make sure to compare home insurance quotes between different providers. This way, you can find the best deal for your needs.

How Soon Before Closing to Get Homeowners Insurance

Obtaining homeowners insurance at least two to three weeks before your closing date is recommended. Securing a policy early ensures that you have sufficient time to compare quotes, select the best coverage and provide your lender with the necessary proof of insurance. The following is a more detailed timeline for getting home insurance before closing:

  • Four to six weeks before closing: Begin researching and comparing different homeowners insurance providers. Gather multiple quotes to find the best coverage at a competitive price.
  • Three to four weeks before closing: Finalize your choice of an insurance provider and initiate the process of purchasing the policy. Ensure that the policy start date aligns with your closing date.
  • Two to three weeks before closing: Provide your lender with proof of insurance, including details of the policy and coverage amounts. This allows the lender ample time to review and approve the insurance documents as part of the mortgage process.
  • One week before closing: Confirm with your lender that all insurance requirements are met and that the policy is in effect for the closing date. Double-check all details to avoid any last-minute issues.

Consequences of Not Paying Homeowners Insurance Premiums at Closing

If you don’t pay your homeowners insurance premiums at closing, it can lead to several complications, including your lender refusing to fund your mortgage. When purchasing a home, paying the homeowners insurance premium at closing is crucial for protecting your investment and securing your mortgage.

Below are the potential consequences if you don’t pay your homeowners insurance premiums at closing:

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    Lender refusal to fund the mortgage

    Lenders typically require proof of homeowners insurance before finalizing the mortgage. Without payment, the lender may refuse to fund the mortgage, delaying or even canceling the closing process.

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    Lack of coverage

    Without the initial premium payment, your homeowners insurance policy will not be active. This leaves your new home unprotected from risks such as theft, fire or other natural disasters. Without homeowners insurance, you are personally liable for any damage or loss to your property. This financial risk can be significant, especially in the event of a major incident.

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    Higher costs

    If you fail to pay the premium at closing, the lender may purchase a policy on your behalf, known as force-placed insurance. This type of insurance is usually more expensive and provides less coverage than a standard homeowners insurance policy. Violation of mortgage agreement: Not paying the homeowners insurance premium can be considered a breach of your mortgage agreement. If the issue is not resolved promptly, it can lead to penalties, additional fees or even foreclosure.

FAQ: Paying for Homeowners Insurance at Closing

When buying a home, finalizing all of the financial requirements can be overwhelming. Below are some frequently asked questions to help clarify how homeowners insurance fits into your closing costs and mortgage.

Do you have to pay homeowners insurance premium at closing?
Is homeowners insurance included in closing costs?
Is homeowners insurance included in a mortgage?

Read More About Homeowners Insurance

About Mark Fitzpatrick

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Mark Fitzpatrick has analyzed the property and casualty insurance market for over five years, conducting original research and creating personalized content for every kind of buyer. Currently, he leads P&C insurance content production at MoneyGeek. Fitzpatrick has been quoted in several insurance-related publications, including CNBC, NBC News and Mashable.

Fitzpatrick earned a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He is passionate about using his knowledge of economics and insurance to bring transparency around financial topics and help others feel confident in their money moves.