Prepaid Hazard Insurance

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Hello everyone, I have my first rental under contract. I have to prepay a year of hazard insurance at closing. I am a little confused about what is done with that money. Will it stay in escrow or will it be used to pay my hazard insurance until it’s gone?

Hi Kristen! 

Normally that will be used to start the policy at closing for the first 12 months. Each additional amount collected that goes into escrow would normally be a part of the following years premium (2022 in your case). They also might collect a little extra each month to account for rate increases over time. But overall it evens out over time and that money would be refunded to you if you ever sold or refinanced the property. Hopefully this helps!