Posts Tagged ‘Home Buying’

Should Maine Homeowners Escrow Their Home Insurance?

Thursday, January 14th, 2010

As a Maine insurance agency, our clients often ask whether they should have their bank or mortgage company pay their homeowners insurance, or whether they should pay it themselves.

Often, lenders give you no choice; they insist on escrowing property taxes and insurance – especially if you’re a first-time homebuyer, or your credit rating is close to their eligibility threshold. The “golden rule” applies: the one with the gold makes the rules. If you want to borrow from them, you’ll escrow.

 But if you’re an established homeowner, have a very good credit score, or are an especially desirable credit risk, you can ask to pay your own insurance or taxes.

How Escrow Works
Lenders collect some money at closing to seed your escrow account – commonly, 3-4 months of taxes and insurance. That way, they always have YOUR money to pay the bills when they arrive, instead of theirs. Part of your monthly mortgage payment goes to your escrow account. You pay 1/12 of your property taxes and homeowners insurance premium each month.  By Maine Law, your lender must pay you interest on the balance in your escrow account.

Escrowing Your Insurance is a Good Idea if:

  • You’re not good at budgeting money for big payments.
  • You’re not good at paying bills on time.
  • You want to spread your payments over 12 months, without billing charges.
  • You don’t mind the bank holding onto hundreds to thousands of your dollars.
  • You don’t make lots of changes to your homeowners policy.

Problems with Escrow
Escrow works pretty well, as long as things don’t change. The most common problems occur when:

  • Your bank sells your mortgage, and no one tells your insurance company.
  • Your bank changes its address, and your policy is not updated.
  • Your bank loses/never gets/doesn’t pay your insurance premium, and your policy cancels.

To be fair, the first two would be problems even if you didn’t escrow. The bank wouldn’t get their copy of your policy, and soon you’d get a nasty note, saying that they need a copy of your insurance policy. But at least your policy would still be in force. That’s not the case if #3 happens.

The Bottom Line
If you’re financially disciplined and business-savvy – or just a control freak (you know who you are), you probably want to pay your own insurance premiums – unless your bank forces you to escrow. After all, once you pay off your mortgage – and you will someday – you’ll pay the premiums and taxes yourself anyway. Why not get used to it now?

If you have questions about escrowing or buying home insurance in southern Maine, call Noyes Hall & Allen Insurance at 207-799-5541.

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Posted in Condo Insurance, Finance, Home Buying, Homeowners Insurance, Personal Insurance | No Comments »

Top 5 Mistakes of Maine First-Time Homeowners

Sunday, October 18th, 2009

If you’ve made the decision to buy your first home or condo, congratulations! Although it’s a big, sometimes scary step, home ownership remains one of the smartest long-term decisions you can make if you plan to remain in the area for some time.

If you haven’t discovered it already, you’ll have a long “to-do” list prior to your closing, and plenty of advice from friends and strangers alike. Insuring your new home may merely be another item to check off your list. Unfortunately, that can lead to common mistakes which can easily be avoided. As a Maine insurance agency, we’ve seen most of them before:

1. Satisfying the Bank
Your lender requires proof of “hazard insurance” before closing to protect their asset – not yours. They’re happy as long as your insurance covers the amount of your mortgage. The problem is, you may be buying too much insurance – or not enough. A good insurance agent (may we suggest Noyes Hall & Allen?) will help you determine the amount of insurance necessary to rebuild your home, which is usually different than your mortgage amount.

2. Thinking Your Home is Your Largest Asset
You’re probably buying your home with a relatively small down-payment -likely less than 20% of the purchase price. You’ll make monthly payments over decades to repay your loan. Where will that money come from? Your future earnings, of course!

Your home isn’t your biggest asset; your future earnings are!  How do you protect those?

  • Liability insurance to protect your other assets – including future earnings – from judgement for legal damages, from someone slipping on the stairs to your dog biting a neighbor. Don’t cheap out on liability coverage when you buy your Maine homeowners insurance. It doesn’t cost much, but can make the difference between unfortunate occurrence and catastrophe.  Talk to an agent you trust, and listen to their advice.
  • Life insurance and disability insurance can replace your income if you or your co-borrower die or are unable to work prematurely. You don’t have to buy them before you buy your house, but most people either forget afterwards, or think that they can’t afford it later.

3. Thinking “Fire Insurance”
Fire isn’t the most common cause of damage to your home. Water is. We insure thousands of homes and condos. Fewer than 20 a year will experience a fire, but several dozen will experience water damage, theft or wind damage. An “off the shelf” homeowners policy doesn’t cover such common occurrences as water backup in the basement, a diamond falling out of its setting, or removal of fallen trees that don’t strike a building.

Don’t buy your insurance on price alone. Talk to an experienced local independent insurance agent about what’s covered – and what’s not.

4. Compartmentalizing
You have a lot on your plate when you’re buying a home, which can cause you to do the minimum amount of work to get each task done. That can cost you a lot of money.

Most insurance companies offer significant insurance discounts if they insure both your home and your car. This can save the average homeowner hundreds of dollars a year. Spend an extra 20 minutes to get a car insurance quote at the same time you get your home insurance.

Even better: contact a Trusted Choice® independent insurance agent, who represents several insurance companies. Let them do the shopping for you. If you’re in Southern Maine, Noyes Hall & Allen would be happy to provide this service.

5. Failing to Keep Up
Even if your insurance fits you like a glove when you buy your home, it can be like last year’s pants before you know it. Maybe you’ll acquire jewelry, expensive hobby or sports equipment, or start a small business from home. Maybe your kids will go off to college, or you’ll inherit something. All of these common life events can result in an uncovered insurance claim if you don’t have a regular conversation with your insurance agent.

All the more reason to buy your insurance locally from someone who’s likely to be there for the time you’ll own your home. Sound like anyone you know?

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Posted in Condo Insurance, Fire, General Insurance, Home Buying, Homeowners Insurance, Personal Insurance | No Comments »

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