Homeowners Insurance Requirements
Every mortgage requires homeowners insurance in place at closing. Here is how much coverage a lender looks for, how deductibles and flood zones factor in, and what condos need.
What your policy has to cover
The coverage a lender checks for
- Dwelling coverage equal to the replacement cost of the home
- A deductible within the program’s maximum limit
- A mortgagee clause naming your lender
- Flood insurance when the home sits in a flood zone
- A master policy for a condo or co-op project
- An HO-6 walls-in policy for a condo unit
Coverage equals replacement cost
Your home stays protected
Deductibles have limits
Condos use an HO-6 policy
The lender is on the policy
Flood zones need flood coverage
What Homeowners Insurance Covers
The protection your lender requires
Homeowners insurance, sometimes called hazard insurance, protects the home that secures your loan. Because the lender has a stake in the property, a policy must be in force at closing and kept active for the life of the loan, usually paid through an escrow account.
Lenders look at three things: the amount of coverage, the deductible, and who is named on the policy. Coverage is generally set to the replacement cost of the home, the deductible must stay within a set limit, and your lender is listed through a mortgagee clause.
Some properties need more. A home in a flood zone requires separate flood insurance, and a condo needs both the project’s master policy and an HO-6 walls-in policy for the unit itself. Windstorm coverage can carry its own deductible in some areas.
Why insurance is part of your loan
Insurance protects both you and the lender if the home is damaged. Here is what a lender checks before closing.
Required Before You Close
A homeowners policy must be active on the day you close and stay in force for the life of the loan. Most lenders collect the premium through an escrow account so the coverage never lapses.
Coverage Meets Replacement Cost
Your policy generally needs to cover the full replacement cost of the home, so the structure could be rebuilt after a total loss. Coverage is measured against the cost to rebuild, not the price you paid.
Deductibles Have A Ceiling
A higher deductible lowers a premium, but programs cap how high it can go. The deductible on required perils typically cannot exceed a set percentage of the coverage amount.
The Lender Is Listed
Your policy must include a mortgagee clause that names the lender. This is how the lender is notified of coverage and protected if a claim is paid on the home.
Condos Need Two Layers
A condo project carries a master policy that covers the building, while the unit owner adds an HO-6 policy for the interior. Both are reviewed so there are no gaps in coverage.
Flood Zones Need More
If the home sits in a designated flood zone, separate flood insurance is required, often through the National Flood Insurance Program. Certain coastal areas require it no matter what.
Hear From Homeowners Like You
Frequently Asked Questions
Common questions about homeowners insurance and your mortgage.
Yes. A policy must be active at closing and kept in force for the life of the loan, because the home secures the loan.
Coverage is generally set to the replacement cost of the home, so it could be rebuilt after a total loss, rather than to the purchase price.
Yes. Programs cap the deductible on required perils, typically at a set percentage of the coverage amount. A very high deductible may not be accepted.
It is a line on your policy that names your lender, so the lender is notified about the coverage and protected if a claim is paid.
Only if the home is in a designated flood zone. Certain coastal and protected areas require flood insurance regardless of the standard flood maps.
A condo relies on the project’s master policy for the building, and the unit owner adds an HO-6 walls-in policy for the interior.
Sometimes, depending on the program and your file. Many loans collect the premium through escrow so the coverage never lapses.
Find out what you qualify for
Not sure your policy meets a lender’s requirements? We can review the coverage before you get to closing.
Get Pre-Qualified- Fannie Mae, Selling Guide B7-3-02, property insurance requirements for one- to four-unit properties
- Consumer Financial Protection Bureau, what is homeowner’s insurance and why is it required?
- Consumer Financial Protection Bureau, what is an escrow or impound account?
Insurance requirements, rates, terms, and program eligibility are subject to credit approval and to property and program review. Required coverage amounts, deductibles, and flood determinations depend on the property and the specific program. This page is informational and is not a commitment to lend. Not all applicants will qualify.