The American property market took a hard hit following the global economic recession back in 2008. House prices plummeted and homeowners suffered great losses when they put their houses back on the market. Fortunately, the housing market has since recovered, with house prices rising more than 17 percent in the last few years.
Data released by the National Association of Realtors revealed the median price for a house on the market is $188,900. For this same price, you could only get a 450 square-foot space in North Manhattan or a small bungalow in Ft Lauderdale. Neither of these spaces would be adequate for the nuclear American family. That’s why owning your own home is such a powerful American Dream: you want to provide the best for your family.
The high prices in the housing market make purchasing a home a big investment for most people. Many aren’t able to afford the purchase of a home with cash. They need to pay for them in installments and use mortgage from a lender to make this possible.
Lenders often have requirements when lending money. This is in an effort to protect their interests. Many lenders will require you to set up an escrow account. On top of that, most lenders will require that you also have homeowners insurance.
Why You Should Maintain Your Homeowners Insurance
Many homeowners are tempted to stop keeping up payments for their home owners insurance premiums when their houses are in escrow. Because, they’ll be moving out soon, holding a policy on a house that won’t be theirs for much longer seems like a waste of money, but it isn’t.
It is important to maintain your home owners insurance for two reasons:
- Lenders require it
Lenders have an interest in your home. If you fail to make payments on your home and they take possession of it, they will want it in the best condition in order to recover their money. Homeowners insurance ensures that they can still recover their investment even in case a disaster, such as a fire, destroys your home.
- To avoid liability
If your home is destroyed by some disaster, you will be held directly responsible for repairs to the property. This could cost you a lot of money and may even put your other assets at risk. Homeowners insurance will give you peace of mind.
What You Need to Know About Homeowners Insurance When Your House Is in Escrow
When your house is in escrow, you pay a lump sum into the escrow account every month. Your lender then pays the required amount to your insurance provider. Your lump sum payment, therefore includes the mortgage principal, insurance premium, property tax and interest. This is also known as PITI. This way of payment lets the lender know that the premiums are being paid.
You can easily reduce the amount of money you pay every month by reducing your insurance premium. This is possible by comparing homeowners insurance rates online and finding the best deal on insurance.
However, the fact that you have reduced your home owners’ insurance premium doesn’t automatically mean that your total monthly payment will go down. You will have to notify your lender of the change in order to experience the relief in monthly payments.
It’s also important to consider fluctuating taxes. Lower insurance premiums don’t necessarily mean lower taxes. Your taxes may increase and offset the lower premium rate. However, you will still have saved on your expenses as these fluctuations can still take place with high premium rates.
When you’ve paid off your mortgage, it is even more important to keep up with your home owners insurance policy. It will go a long way to protect your investment.