The Importance of Homeowners Insurance
in the Mortgage Process
Once they've signed a Contract for the purchase of their new Will County or Chicagoland home, I urge all my Borrowers to actively begin their search for Homeowners Insurance.
Getting comparison quotes is a great idea when shopping for Homeowners Insurance. Making a decision to secure a policy, no later than a week to 10 days prior to Mortgage Closing, is especially important. Waiting too long can cause issues and hold-ups with Underwriting and Closings.
Once a decision regarding Homeowners Insurance has been made, it's common practice in the Chicagoland area to pre-pay for the first FULL year of Homeowners Insurance coverage prior to or at Closing. The initial Annual Premium payment is paid directly to the selected Insurance Company. Proof of the Annual Premium having been paid is then provided to the Mortgage Lender.
The Homeowners Insurance Policy must contain a "Mortgagee Clause" that names the Mortgage Company as beneficiary of monies paid upon loss of property up to the amount of the Mortgage held. It also states that the notice of any cancellation on the Homeowners Insurance Policy must be made to the Mortgage Company. Other additional protections for the Mortgage Company also apply.
After the Mortgage closes, payment for future Homeowners Insurance Policy premiums is provided for by monthly installments made as part of an Escrow Account established for the Borrower. At the time future Homeowners Insurance Annual Premiums come due, the Mortgage Lender then pays the yearly premium from the funds collected in the Borrower's Escrow Account.
If the yearly premium cost of the Borrower's Homeowners Insurance changes, the monthly amount collected for the Insurance portion of the Borrower's Escrow is then increased or decreased accordingly. Escrow Payments must correctly reflect 1/12th of the yearly Insurance Premium in each monthly payment.
Borrowers must know that Real Estate Taxes and Homeowners Insurance are typically contained within a Borrower's Mortgage Payment and an Escrow Account will be established for them at the time of their Mortgage Closing. An Escrow Account must be established when their Loan-to-Value is greater than 80% (meaning they made a Down Payment on their home purchase of less than 20%).
Those that make a Down Payment of 20% or more can choose to pay Taxes and Homeowners Insurance on their own without the establishment of an Escrow Account. If this method of payment is chosen, proof of Real Estate Taxes and Homeowners Insurance payments must be provided to the Mortgage Lender.
Again, it is important to start your search for a Homeowners Policy in advance of your Mortgage Closing. In the Will County or Chicagoland area, should you be in need of a referral for a reputable Insurance Agent (or other real estate professionals) to help you, please contact me. I'll be happy to provide you with the names of many of our area's best professionals.
* Hoping to Buy, Refinance, or Construct a Home in New Lenox, another Lincoln-Way Community, Will County, or elsewhere in Chicagoland? Contact Me Today! I'll put my 36 years of Mortgage experience hard to work on your behalf.
I can be easily found at:
Cell or Text: 708.921.6331
Click HERE for a FREE Mortgage Consultation!
Ready to Apply for your Mortgage?