Even when you have an experienced and knowledgeable home lending team on your side, navigating the home loan process can be complicated. Fortunately for you, the Lake Region Bank lending team loves educating home buyers on what they can expect, from pre-approval to close. Here’s a look at how escrow works and how home insurance works.
How Escrow Works
During the closing process, your mortgage lender may set up an escrow account to pay for your homeowner’s insurance, property taxes, and private mortgage insurance. Every month, your lender will deposit money into the account to cover these costs. You pay your lender back for these contributions in your monthly mortgage payment.
Using an escrow account ensures that you’ll never miss a payment to your insurance company or the government. When your lender manages these expenses for you, they are on the hook if they are late on a payment or miss one altogether. Without an escrow account, you would need to manage these payments yourself in addition to your monthly mortgage payment. Many lenders require you to use an escrow account, especially if you put less than 20 percent down for your home. FHA loans, VA loans, and USDA loans also require escrow accounts.
How Homeowner’s Insurance Works
Most likely, your mortgage lender will require you to purchase homeowner’s insurance for your new home. Homeowner’s insurance covers the costs of damage to your home, from structural damage due to fire, wind, or snow to whole-home reconstruction in the event of a total loss. This coverage is important to both you and your lender. Homeowner’s insurance protects you from paying for these losses out of pocket. It also protects your lender’s investment in you and your property.
Generally, homeowner’s insurance covers the cost to repair or replace your home’s structure and your belongings in the event of a disaster. It also covers temporary relocation costs and your personal liability if you are responsible for damage or injury to someone else. Most homeowner’s insurance policies will cover damage from fire, wind, hail, and snow. Homeowners can choose to purchase additional insurance against damage from flooding or earthquakes.
Not all homeowner’s insurance policies are the same, which is why it is usually a good idea to work with an experienced insurance agent to put together your coverage. They will be able to explain all of the coverages available to you and your property and recommend coverage amounts that will adequately protect you and your property.
The Lake Region Bank insurance team can help you protect what you hold most dear. Our team of experienced agents can design a comprehensive homeowner’s insurance policy for you and your property. If you require coverage for vehicles and other property, they can help with that, too.
Still have questions about how escrow works or how homeowner’s insurance works? Get in touch with the Lake Region Bank team. Our friendly team members are ready to help you understand what to expect on your home buying journey.