From: "Chris Marksberry" 
Newsgroups: misc.consumers.house
Subject: Re: Homeowners Insurance up front and rolled into the first year?
Date: Thu, 7 Jun 2007 17:28:53 -0500

>>
>> > We are in the process of purchasing our first home, we were told by
>> > our Realtor that we would have to pay for insurance up front for the
>> > first year and it would also be included in the mortgage. Our broker
>> > worked out our mortgage with the insurance included  - even in the
>> > first year. I do not understand why we would pay double? The house is
>> > in Ohio. Any helpful comments?
>>
>> > Thanks,
>>
>> > Chad
>>
>> You pay up front for the first year at closing.  Then every month you
>> pay 1/12th of the annual premium and it is held in an escrow account
>> so that when the premium for the second year is due, the money is
>> available and waiting in the account, and the mortgage company sends
>> it to the insurer.  It works just like the property tax money placed
>> into the escrow account.  They are simply collecting it ahead of time
>> so you don't have to pay it all at once.
>
> Depending on your circumstances, the mortgage holder, etc. there is
> another alternative.
> Don't escrow the money.  Save it up on your own and earn interest.
> Pay your own taxes and insurance.
> If you are not the type of person to diligently save, this option is
> not for you.  Also, some mortgage companies charge an extra fraction
> of a percent if you do this.  This "compensates" them for the loss of
> the free money to earn interest for themselves.
>

We live in Texas and we pay for own property taxes and insurance.  I believe 
though that there is a requirement for making at least a 20% down payment 
(and I think, but I'm not 100% sure) a very good credit rating.  Putting 20% 
down in most cases (I believe FHA loans require a 22% down payment) will 
also eliminate PMI requirements.

I've been told by mortgage companies that they are not allowed to make 
interest on escrow accounts, but I do not pay any extra fee for handling my 
own escrow account.

Chris in Pearland, TX