Homeowners Insurance and Your Mortgage: What Lenders Require
Homeowners insurance is required by virtually all mortgage lenders as a condition of the loan — not optional, the way some other insurance products might be. The requirement exists to protect the lender's collateral (the home) against damage, the same underlying logic behind requiring an appraisal before closing. Why lenders require it, specifically If a home is damaged or destroyed, the lender's collateral loses value, regardless of what caused the damage. Requiring insurance coverage at least equal to the loan amount (often the full replacement cost of the home) protects the lender's financial interest, separate from and in addition to protecting the homeowner. What's typically required vs. optional Typically required: dwelling coverage sufficient to rebuild the home, and coverage naming the lender as an additional interested party (sometimes called a "mortgagee clause") so the lender is notified of policy changes or cancellations. Often optional ...