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Old 05-14-2009, 12:23 AM
 
220 posts, read 953,835 times
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I heard I need to buy insurance for one year in advance and bring proof to closing? Then if I use escrow, I will pay for next years insurance as monthly installments that are included in my mortgage payment.

If I use my insurance company, will the escrow company use the same company and policy when renewing for the next year? or will they use another company and policy?

What about what the policy covers, will the escrow company give me options to choose from? They seem to already have an estimate of $60 a month, but State Farm says it will cost me almost $900 for one year.
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Old 05-14-2009, 04:31 AM
 
Location: North Beach, MD on the Chesapeake
32,106 posts, read 39,155,933 times
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1) you have to bring a Homeowner's Insurance binder to closing.
2) your escrow holder will renew your choice yearly, my company sends the bill directly to my mortgage holder.
3) your options will be what deductible, the mortgage holder will require coverage for it's potential loss.
4) neither number quoted is out of line. State Farm, if your choice, will probably be fine.
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Old 05-14-2009, 05:47 AM
 
10,869 posts, read 41,128,193 times
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You don't need the insurance coverage to begin before the closing when you buy the property.

You'll do best to obtain the insurance from your own insurance agent who is working on your behalf to obtain quotes and coverage suited to your needs. Buying insurance through a third party is a profit center for them on "one size fits all" coverages, which is oriented to protecting the third party's interests, not yours ... it's typically more expensive with less coverage than you might want for your needs.

Get quotes from several companies in addition to your present insurance agent. Shop the market with a eye toward your needs, a deductible that you're comfortable with, and liability coverage that makes sense for you.

It's impossible to know if the numbers quoted you at this point are good or bad ... without knowing the loss coverages you're buying or the other coverages/deductibles that the policy gives you for your dollars, or the area that you're in. You may need more coverages than the escrow company's general policy provides ... or less, where they may have "income interruption" type coverages and such others that are high cost/low benefit to you (such as a death pay-off ... this isn't a good place to be buying life insurance). So, shop the market and let the agents know what you believe is prudent and proper coverage for your needs, then choose. A binder shouldn't be a problem for them to provide for your closing day.

Typically, you will receive an advisory notice of the annual insurance premium after that and your mortgage holder will receive the actual bill. You pay your mortgage holder the next year's estimated premium amount in your montly installments, so the escrow account has the money in hand to pay the bill when it comes due each year. If you pay for the first year directly to the insurance company, then the escrow company has no reason to collect a year's premium at the closing, although they may try to do this. Check your good faith closing doc's for these types of escrow deposits.

Other thoughts ... watch you escrow account each year. It's your money, not the escrow holders. Little gimmicks they do to maximize their profits/cash flow work against your interests ... such as not making timely payments for the insurance renewal, or "estimating" a far higher annual escrow amount than actually is needed to make the insurance purchase or property tax payment each year. When you see an overage in the account, they are required to refund that money and adjust your payment. Many ... in spite of laws addressing this practice ... will simply not refund your excess collected money unless you speak up for it. Remember that the escrow holder is "estimating" the amount to be collected montly so that when the bills are due, the money is there on account ... and they will favor collecting more than needed to avoid a shortage in the account. Of course, they are entitled to adjust your payment schedule if there is a shortage in the escrow account.
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Old 05-14-2009, 05:49 AM
 
28,383 posts, read 67,903,744 times
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NBP has things down correctly, though the "options" are wider than suggested and the escrow is really just an ongoing pass-through.

You can (and probably should) get quotes from several insurance companines / agents. Some places will give a large discount for having auto & home owners together -- might drop the $900 by almost half. You can choose the least expensive policy you want, so long as it covers the mortgage company's likely loss should something horrible happen (fire / flood, earthquake that sort of thing...). If you also want coverage for loss due to theft of contents and some sort of personal liability umbrella policy your insurance people can give all kinds of coverage.

The escrow service will generally not screw-up insurance as often as they do taxes, because the rates for insurance generally do not change very much UNLESS you make a claim / there is some sort of disaster in your region. That said, I still recommend getting the escrow people OUT of the deal as quickly as the lender will allow. It allows you to keep your money in the bank until you need to pay the insurance AND makes it easier to shop insurance on a regular basis -- companies adjust their rates downward, especially for good risks that they want to retain as customers...
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Old 05-14-2009, 12:09 PM
 
Location: Castle Hills
1,129 posts, read 2,284,142 times
Reputation: 605
Quote:
Originally Posted by sunsprit View Post
You don't need the insurance coverage to begin before the closing when you buy the property.

You'll do best to obtain the insurance from your own insurance agent who is working on your behalf to obtain quotes and coverage suited to your needs. Buying insurance through a third party is a profit center for them on "one size fits all" coverages, which is oriented to protecting the third party's interests, not yours ... it's typically more expensive with less coverage than you might want for your needs.

Get quotes from several companies in addition to your present insurance agent. Shop the market with a eye toward your needs, a deductible that you're comfortable with, and liability coverage that makes sense for you.

It's impossible to know if the numbers quoted you at this point are good or bad ... without knowing the loss coverages you're buying or the other coverages/deductibles that the policy gives you for your dollars, or the area that you're in. You may need more coverages than the escrow company's general policy provides ... or less, where they may have "income interruption" type coverages and such others that are high cost/low benefit to you (such as a death pay-off ... this isn't a good place to be buying life insurance). So, shop the market and let the agents know what you believe is prudent and proper coverage for your needs, then choose. A binder shouldn't be a problem for them to provide for your closing day.

Typically, you will receive an advisory notice of the annual insurance premium after that and your mortgage holder will receive the actual bill. You pay your mortgage holder the next year's estimated premium amount in your montly installments, so the escrow account has the money in hand to pay the bill when it comes due each year. If you pay for the first year directly to the insurance company, then the escrow company has no reason to collect a year's premium at the closing, although they may try to do this. Check your good faith closing doc's for these types of escrow deposits.

Other thoughts ... watch you escrow account each year. It's your money, not the escrow holders. Little gimmicks they do to maximize their profits/cash flow work against your interests ... such as not making timely payments for the insurance renewal, or "estimating" a far higher annual escrow amount than actually is needed to make the insurance purchase or property tax payment each year. When you see an overage in the account, they are required to refund that money and adjust your payment. Many ... in spite of laws addressing this practice ... will simply not refund your excess collected money unless you speak up for it. Remember that the escrow holder is "estimating" the amount to be collected montly so that when the bills are due, the money is there on account ... and they will favor collecting more than needed to avoid a shortage in the account. Of course, they are entitled to adjust your payment schedule if there is a shortage in the escrow account.
Agree 100%. Listen to this guy.
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Old 05-15-2009, 12:39 AM
 
220 posts, read 953,835 times
Reputation: 170
Thanks for the responses. I'll get some more insurance quotes. State Farm said I can pay monthly after the first year, so paying escrow is like paying twice for the first year. I am putting 20% down and my broker told me early on that I can pay my own taxes and insurance if I choose, but all the GFE's have the escrow charges and payments in them. Is it going to cause delays if I ask to not use escrow now? I just got the GFE from the lender yesterday (got a GFE from the broker two weeks ago) and might be closing next week.
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Old 05-15-2009, 07:59 AM
 
983 posts, read 3,483,144 times
Reputation: 357
glenn,

If you can budget the property tax and HOI premium, then opt out of escrow account. I don't think it will cause any delay as long as you are putting 20% down. It should not affect the terms of your loan, either. But talk to the loan officer and make sure there's no problem especially when closing is next week.

Or, you can start with escrow account and request to delete it after closing. Most lenders will allow it, if you qualify. I just deleted mine and got an overage refund check.
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Old 05-15-2009, 08:44 AM
 
220 posts, read 953,835 times
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Did they charge you a fee to delete it? I thought maybe it would be easiest to not start it all. I noticed there is a "1101 Closing/Escrow Fee $900" in the closing costs, will this fee be eliminated?
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Old 05-15-2009, 09:37 AM
 
983 posts, read 3,483,144 times
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1101 is not for mortgage escrow fee. It's for the closing agent, typically your attorney.

When I deleted the escrow account, my lender didn't charge anything. They said I was qualified but didn't say what that means.
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Old 05-16-2009, 08:25 AM
 
220 posts, read 953,835 times
Reputation: 170
Was wondering about that since it was listed as "Closing/Escrow Fee". Are there any upfront fees directly related to setting up an escrow?
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