The hunt for a new home is such an exciting time, but it is also a lot to take in! The initial loan approval, inspections, and negotiations can make anyone’s head spin. In addition to all of the tasks included in purchasing a house, the financial piece also takes work.
As you navigate your mortgage agreement and see the numbers add up, you might wonder, “Is homeowners insurance included in mortgage payments?”
The answer to that is yes, but only if you have an escrow account. Investing in the help of a trusted mortgage broker in Houston, TX, is a great way to pay for both your mortgage and your homeowners insurance at the same time.
What Is an Escrow Account?
When you own a home, there are multiple different payments that you are responsible for every month. To keep all of these payments organized and sent out on time, mortgage lenders often offer escrow accounts. An escrow account is essentially a savings account that stores the money for all of these payments.
The payment you make each month to your mortgage company has the funds necessary to pay your property taxes and homeowners insurance throughout the year, and your lender will pay for them on your behalf. Pretty handy, right?
It’s important to remember that your mortgage lender does not “own” this money. They are simply making the payments for you so you don’t have to.
A typical escrow account funds these payments:
- Principal and interest on your mortgage
- Property taxes
- Homeowners Insurance
- Private Mortgage Insurance (if applicable)
What If Insurance Premiums Change?
As you make upgrades to your home or if the value of your home changes over the years, your insurance policy will likely change. While this may be frustrating, it’s important to remember that homeowners insurance exists to protect your investment!
If it does go up, you might wonder, “Is homeowners insurance included in mortgage payments even if my insurance goes up?” Yes, but if your insurance premium goes up and your escrow account will not not have enough money to cover the expense, you will get a notice that you have an escrow shortage.
It’s not your fault, but you will have to make a decision. Most lenders will offer payment for the full shortage upfront or will give you the option to pay the shortage over the course of a year in your regular monthly payments.
An escrow shortage is also possible if your property taxes go up regularly as well. Staying on top of these shortage payments is crucial to avoid further issues with your mortgage company, your city, and your insurance provider.
Can You Pay Homeowners Insurance on Your Own?
Depending on the type of loan you obtain, it is possible to waive an escrow account and simply take care of the payments by yourself. However, doing so requires more discipline to remember the payments every month. Not having an escrow account also sets you up for potential sticker shock when your large homeowner’s insurance bill and property tax bill come in the mail.
If you haven’t been careful to set aside the money to pay these bills, you might find yourself in a bit of a financial strain. A simple escrow account prevents all this from happening.
In conclusion, is homeowners insurance included in mortgage payments? Yes, if you have an escrow account set up through a trusted mortgage lender.
Ready to jump into the world of homeownership? Contact Champions Mortgage at (281) 727-2500 to run your FICO score and start the loan approval process.
