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Prepaid Homeowners Insurance at Closing: What You Need to Know

⚡ Quick Answer

At closing, you'll prepay the first full year of homeowners insurance ($800-$3,000+) plus 2-3 additional months for the escrow reserve. Your lender requires proof of paid-in-full insurance before closing. Shop around — rates can vary by 50%+ between companies.

🔑 Key Takeaways

  • First year of homeowners insurance is paid in full at closing
  • Additional 2-3 months are held in escrow as a reserve
  • Average annual premium: $1,200-$2,500 (varies widely by location)
  • You must choose and bind insurance before the closing date
  • Shop 3-5 insurance companies — rates vary significantly
  • Bundle home + auto insurance for 10-25% discounts
Homeowners insurance is a required prepaid item at closing. Here is how to handle it. ## What You Pay at Closing 1. **Full first year premium**: Paid directly to your insurance company before closing 2. **2-3 months escrow reserve**: Added to your escrow account for future payments ## Average Costs by Home Value | Home Value | Annual Premium Range | |---|---| | $200,000 | $800–$1,500 | | $400,000 | $1,200–$2,500 | | $600,000 | $1,800–$3,500 | ## Tips for Saving - Compare quotes from at least 5 insurance companies - Bundle home and auto for 10-25% discount - Raise your deductible to lower premiums - Ask about discounts (security systems, new roof, claims-free) ## Related Resources - [Property Tax Escrow](/blog/property-tax-escrow) — The other major prepaid cost - [Closing Costs by State](/blog/state-by-state-closing-costs) — Regional insurance cost differences - [Closing Cost Calculator](/#calculator) — Include insurance in your estimate

❓ Frequently Asked Questions

  • Can I choose my own homeowners insurance company?
    Yes. Your lender cannot require you to use a specific insurance company. You are free to shop around and choose the policy and provider that works best for you, as long as coverage meets the lender's minimum requirements.
  • What if I don't have insurance at closing?
    Closing cannot happen without proof of insurance. Your lender requires a paid-in-full policy and a certificate of insurance before funding the loan. Start shopping for insurance at least 3-4 weeks before your expected closing date.
  • Is homeowners insurance included in the mortgage payment?
    After the first year (paid at closing), yes. Your monthly mortgage payment includes 1/12th of the annual premium, which the lender holds in escrow and uses to renew your policy each year.

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