Hi, we just bought a new manufactured home. We were going to pay our home owners insurance for a year directly to our private insurance company but was told it had to be in escrow. The mortgage company didn't ask for any cash up front for the escrow account.

The finance manager said they would pay the first year payment to our insurance company and we would make the monthly payments in our mortgage payments. My insurance company received a check for the full amount of a years insurance.

Ok, now what happens next year when my insurance renews. I will have depleted the funds in the escrow account for this year that they paid already but I understand there is supposed to be extra money in the escrow account - is that correct?

I am really confused. Next year where does our insurance escrow come from? Thanks.

Normally the payments you make to the lender, if it includes the escrow , the payments this year go toward next year payments.

You need to talk to your lender on what they require.

Thank you for responding. We waived their company insurance and wanted to use our own company, so they offered to pay it up front for us when we had the money to do so but they mentioned the escrow thing.

They paid my insurance company direct for this year, they must have financed it, do you think?

We had the durn cash to pay it all up front to our insurance company or we would have sent it to the mortgage company for escrow. There were no closing or down-payment costs on our deal. Sorry for the confusion, we are first time buyers.

I am calling them next week, it has just been bothering me about what happens next December when it comes due again. Thanks again Chuck.

I work for a manufactured home dealer and we do closings all the time for the homes in our office. I am very surprised that the lender insisted they have the insurance money escrowed with them. The lenders we deal with just want to see that yes, you do have proof of homeowner's insurance on your new home paid in full for the first year. I would imagine that for the second year you can insure with your own insurance company and bypass theirs altogether. Also, be sure that you have adequate replacement coverage on your home. A lot of insurance companies do not offer this type of coverage that will pay to have your home totally replaced should something happen and your home is totally destroyed for whatever reason. And sometimes this can take several months to do considering the home has to be built and transported to the site and properly set up and utilities connected and you and your family will have to live elsewhere. There is coverage available for the "live elsewhere" while the home is being rebuilt. Look into that also. For instance, one insurance company will cover the home exactly what you paid for it and not a penny more. Another insurance company will pay replacement value that is much higher than what you actually paid for the home. Shop around and get the best coverage you can... just in case.

Thank you very much Twinkie, we do have full coverage + a little extra on our home. We are moved in completely. We just used our own insurance instead of the company that the home dealer suggested through the mortgage company.

We were going to pay our first years insurance in full to our agent but the dealer said the mortgage company would "finance" it and pay it in full instead because of the escrow account. My agent received a check from them and now it is included in our house payment monthly.

What I don't understand is that payment for next year or this years current insurance? In other words, what happens next year when we renew.

Thanks again and Merry Christmas!

What the lender is doing is making money off your using their insurance escrow account. You need to tell them that you would rather pay your own insurance yourself. If you do this on your own you are eliminating the "finance" charge that goes with adding this into your monthly payments. Not a good idea to do. Best to get your own insurance and pay it yourself. Come renewal time next year, inform the lender that you don't wish to use their "escrow service" any longer.

It's best to review all your documents with this lender and see if you are allowed to pay for your own insurance yourself or are you "forced" to have this amount in their hands for the escrow account.

You didn't answer my question about having full replacement insurance on your home and furnishings. As I said before, this is crucial to have so you will get a comparable home should something happen to your home. Check your policy very carefully for this as well. Also, you might want to check out what the lower deductible is versus having say a $500 deductible, ask how much more a lower deductible of say $250 is. You'll be pleasantly surprised that the $250 is only a few dollars a month more. Having the lower deductible really makes a huge difference in the end.

I'm not sure if the rules for a manufactured home are any different. But at a closing the lender generally wants to make sure that insurance and taxes are paid to protect their security. So at the closing an amount is paid into an escrow account to cover the amount of payments coming due. The amount of your monthly payment that goes into escrow is calculated so that the escrow account never goes below 2 monhts of payment. Each year the escrow payment is recalculated to maintain this threshold.

Many times the mortgage is written to require the escrow account. But some lenders will not require it. If the lender will let you manage your own escrow then do so, but you MUST manage it. You have to recalculate each year to make sure you are putting enough into escrow. You don't have to use the 2 month threshold, but you need to make sure you always have enough to cover your payements. Remember you will have to estimate increases in taxes and insurance.