Why do I have to pay first year homeowners insurance?
Thursday, January 26th, 2012 at
6:02 pm
I’m in the process of purchasing a home. I’m taking out a FHA loan and my broker stated that I would have to purchase first year homeowners insurance for a year. My question is my monthly taxes, PMI, and also home insurance is already infused in my monthly mortgage payment,so why is that I have to pay for a years worth of insurance when I’m making a monthly payment on it anyways? Will I being paying twice? Can someone please explain
Filed under: Home Security
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You are paying for two different things. You are not paying for the same thing twice.
PMI is insurance to protect the mortgage company in case you do not make your loan payments.
Homeowners insurance is in case there is a fire or something else happens to the house.
You buy it for the first year, then you will pay 1/12 of the amount into an escrow account each month and at the end of the year, all the premiums for the insurance will be in the escrow account along with the property taxes) and the lender will pay the premiums. Then you do it the next year the same way and so on. (At closing you may also have to pre-pay 2 months of premiums – this is to guard against the escrow account coming up short)
You are not paying twice.
Because the mortgage company requires it. WHY do they require it? Because your monthly tax, insurance, and PMI are all being collected and set aside to pay for NEXT year’s taxes and insurance. You don’t get free insurance the first year, or free taxes, either. You pay up front.