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Question for the Money Doctors

Question submitted on Aug 16, 2013.

Question

Hubby and I are both veterans, so we are using our benefits to purchase a brand new home. We qualify for zero down, and the builder is paying the closing costs. My question is...I'm a little confused on how the escrow works for homeowners insurance. Do I need to come to closing with the full premium amount that will be put in escrow and then paid by the escrow attorney''s to the lenders. I can't seem to get a good answer, and the insurance companies won't give me a quote yet because it''s still too far out (4 months) until the house is completed and we go through closing. I just want to be prepared on what we need to bring to the table when we close.

Answer

Each lender will have different requirements, however, generally you will pay the annual premium in advance at closing. Then you will begin making payments into the escrow account equal to one twelfth of the annual premium. This will enable the mortgage company to have the estimated annual premium paid before it is due a next year. Your escrow payment will also include real estate taxes as well as the payment for the homeowners'' insurance.

The lender should provide you with an estimate of what you will need at closing under the truth in lending laws.


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