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I am getting an FHA home loan. My mortgage company sent me a good faith estimate stating that my hazard insurance premium will be included in closing costs, but that I will also be paying a monthly hazard insurance payment, the same goes for the mortgage insurance. They are also wanting us to put $ 591 into hazard insurance reserves. What is this all about? Is this normal? I was pretty positive that when you got insurance you just paid your premium monthly, not up front and then monthly also?

Help me understand what is going on here.

6 Thoughts on Mortgage Company Wants Us to Pay Hazard Insurance Premium Up Front?
  1. Reply
    Common Sense
    April 28, 2012 at 1:18 pm

    Very normal.

  2. Reply
    falsi fiable
    April 28, 2012 at 1:28 pm

    It is very normal. The lender wants assurances that the hazard insurance policy is paid. Many borrowers would otherwise lie, imagine that! Your lender gives you a 1/8 to 1/4% rate discount for setting up an escrow account to cover insurance and taxes.

  3. Reply
    April 28, 2012 at 2:14 pm

    If your loan payment will have taxes and insurance included this is normal. If you’re paying the homeowner premiums separately then you will only need to pay the annual cost up front.

    On an impounded account, you pay it up front to cover the first year. the amount the lender collects over the next 12 months will pay next years premium.

  4. Reply
    April 28, 2012 at 2:53 pm

    It is standard for a new home loan to have money in escrow. Without knowing more details, I would suggest you double check with the reputation of the processing company; and read every last detail. Is your closing attorney helping you understand this at all?
    Congratulations on your new home!!!

  5. Reply
    Nancy Kay
    April 28, 2012 at 3:04 pm

    Totally normal. All lenders will require a full one-year paid insurance policy at the time you close your purchase. Then, if they are requiring monthly impounds, which is frequently the case, they will take that premium, adjust a bit for inflation, divide by 12 and collect at least 2 months of it through your closing, and add it to your monthly payment so that when the next renewal premium comes around, they have sufficient funds in the account to pay the bill in full.

  6. Reply
    April 28, 2012 at 3:35 pm

    Yes. That’s how it works. You pay the first year of taxes and insurance, up front, at the closing. Then during the year, you pay 1/12 of that every month, to pay NEXT year’s taxes and insurance.

    They don’t “front” the money for your taxes and insurance.

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