Excuse my ignorance, but reviewing some loan documents. I notice under prepaid costs, it is a full years premium for my homeowners insurance. Then under initial escrow payments, it has 3 months of that premium being paid as well. So my question is why am I paying a full years premium up front, in addition to 3 months in advance, in addition to monthly payments which also includes insurance factored in? Thanks!

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Posted by RaginCajunz

Member since Mar 2009

6549 posts

Posted on 5/15/24 at 2:35 pm to Question

Does the full year cover you from day 1 for the full year of insurance? Thereby draining the escrow to zero? If so, the 3 months is likely the minimum required balance in the escrow account.

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Posted by Teddy1388

I-10

Member since Aug 2017

739 posts

Posted on 5/15/24 at 2:38 pm to Question

They always collect 15 months of insurance for some fluff in your escrow. You will still be short in a year when youre insurance renews and goes up 50%

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Posted by Question

Member since May 2020

296 posts

Posted on 5/15/24 at 2:48 pm to Teddy1388

So does the amount being paid monthly once the mortgage payments start is that just for next year (in theory)?

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Posted by RaginCajunz

Member since Mar 2009

6549 posts

Posted on 5/15/24 at 3:01 pm to Question

quote:
So does the amount being paid monthly once the mortgage payments start is that just for next year (in theory)?

yes. The homeowners is paid for a full year on day 1. (so covering you day one of closing through day 365)

The escrow collected is to pay for a full year of homeowners on day 366. There is a minimum balance they require in the escrow account. That is what the additional 3 months covers.

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