Getting familiar with everything you need to know about buying a home can be a bit overwhelming. New terminology, all the various closing costs and the task of pulling the money together to make the purchase can be a lot to handle.
If you’re a first time homeowner, you may have a lot of questions. Do you know if money is due on your homeowners insurance premium at closing? If so, how much? You can use a mortgage calculator with PMI, taxes, insurance and closing costs to help you get answers you need, but most of those numbers are only valid after closing.
To help you navigate your way through the finances of the closing process, we’ve got some helpful homeowners insurance closing details to share with you. We’ll explore what you should expect at closing, and the various ways you can deal with the payment of your homeowners insurance premium. For instance, if you pay the premium in advance, you can offset the amount due when it’s time to sign on the dotted line.
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Is homeowners insurance included in closing costs?
Because each deal is a little bit different, it can be hard to lock down a hard and fast answer on whether or not homeowners insurance is factored into closing fees. In some cases, they’re paid at closing and this cost may be included in a “cash to close” statement provided by the lender.
Some buyers angle to have the seller cover their premium and other expenses at closing. They may be included in closing costs, but the responsible party can shift.
Usually, if you’re not buying a home with cash, your lender will require you to pay the premium for one year’s worth of homeowners insurance prior to or at closing.
Although paid at the same time as closing, prepaid costs like your homeowners premium are not the same as closing costs. Some lenders will require that these fees be deposited into a specific “prepaid escrow account,” which is different than the escrow accounts that distribute funds between the buyer and seller.
How much is a homeowners insurance premium?
It’s important to have an accurate idea of how much you can expect to pay for your premium. On average, a one-year home insurance binder for closing will cost around $1,200 for a $200,000 home. But like other insurance products, depending on the deductible you select and the amount of coverage you take on, the amount due on your premium depends on the coverage you choose.
At American Family, we’re dedicated to getting you an easy-to-understand homeowners policy — customized to meet the needs of your home and your budget. And the good news is that we also offer a variety of ways to save on a home insurance premium.
About Homeowners Insurance Premiums and Closing Costs
Your homeowners insurance payment will typically fall into the prepaid costs category of your closing costs. Prepaid items are not directly related to the purchase of the home but are usually a requirement of the group funding the loan and need to be paid in advance.
If you put down less than 20 percent as a down payment, you’re likely going to find another prepaid line item: your private mortgage insurance premium (PMI). And depending on the physical location of your home, you may be required to pick up additional insurance policies in order for underwriting to green light your loan.
Prepaid costs are usually consistent — regardless of the lender you decide to go with. Here’s a list of typical prepaid items that you’ll find in a “cash to close” statement from your lender, and their average costs:
Item | Average Cost at Closing |
|---|---|
Tax Reserves | $500 - $5,000 |
Homeowners insurance | $800 - $1,200 |
Flood insurance | $300 - $1,000 |
Private mortgage insurance | $100 -$700 |
Prepaid daily interest charges | $100 - $2,000 |
There’s a lot to consider when choosing a homeowners policy, especially when you’re trying to factor in all the other expenses you’ll be covering at closing. In a buyer’s market, where inventory on homes for sale are high, you may be able to persuade the seller to cover some of your prepaid fees. So, ask your real estate agent about how they would approach seller concessions while you’re building your offer to purchase. You may be in for a pleasant surprise!
As you consider your closing cost finances while shopping for homes, remember to check in early with your American Family Insurance agent. They’ll help you get optimal coverage for your new home and will work with you, so you understand how the insurance you’ve selected protects your big investment.
This article is for informational purposes only and based on information that is widely available. We do not make any guarantees or promise any results based on this information. This information does not, and is not intended to, constitute legal or financial advice. You should contact a professional for advice specific to your situation.
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