Should You Pay For Homeowners Insurance Up-Front or at Closing?

If you’re financing the purchase of your home through a mortgage, you are required to pay your homeowners insurance premium for the first year of homeownership by closing. This means you can either pay at closing time or up-front, prior to closing. So which is the best choice to make? Each has its own pros and cons, and your decision will depend on your individual situation. In this week’s blog, we’ll talk about these pros and cons in order to help you make an informed decision on the purchase of your homeowner’s insurance.

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Homeowners Insurance: Up-Front or at Closing?

Up-Front

You’ll already be dealing with your homeowners insurance prior to closing, because you’ll order the policy before closing time. You also have the option to pay the premium up front.

Pros

The pros of paying your premium up-front include:

  • You exclude the premium from your closing costs.
  • You can pay the premium with your bank funds or a credit card. Paying with a credit card lets you spread out repayment over a longer period of time, as opposed to closing where you have to pay it all at once.

Cons

  • If you pay with a credit card, you might actually hurt your loan. This is because the debt you take could cause the loan’s debt-to-income ratio to exceed the parameters set by the lender. The lender will pull your credit prior to closing to make sure you haven’t taken on any substantial debt since you applied for the mortgage.

At Closing

It’s important to remember that if your down payment is less than 20% of the total cost of the home, you will most likely have to pay for your homeowners insurance at closing regardless. If your down payment is 20% or greater, here are some factors to consider.

Pros

  • You can negotiate at closing to have the seller pay a percentage of your closing costs, usually between 3-6 percent. Your homeowners insurance is included in these costs, so if you wait until closing, you essentially get a little discount on the premium because the seller will pay a small percentage of it.

Cons

  • You can only pay with funds you have on hand. Funds cannot be borrowed to pay for homeowners insurance at closing.

Real Estate Closing Services from Colony Title Associates

Colony Title has been in business since 1995 and handles more than 2,000 real estate closings per year. If you have any questions or would like to speak to a representative about closing, please give us a call at 410-884-1160 or visit our website for more information.

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