What is homeowner's insurance? Why is homeowner's insurance required?

Standard homeowner’s insurance doesn’t cover damage from earthquakes or floods, but it may be possible to add this coverage. Homeowner's insurance is also sometimes referred to as "hazard insurance".

Many homeowners pay for their homeowner’s insurance through an escrow account as part of their monthly mortgage payment. You make the payments to the lender, and the lender holds the part of the payment that is for insurance in an escrow account. Then, when the bill for the insurance is due, the lender pays it from the escrow account.

The cost of your homeowner’s insurance, as well as any similar insurance to protect the property, is listed on page one of your Loan Estimate, in the “Projected Payments” section. However, it’s usually a good idea to do your own research about how much homeowner’s insurance costs. You can shop separately for homeowner’s insurance and choose the provider and plan that is right for you.

If you don’t have insurance, your lender is allowed to buy it for you and charge you for it—but your lender must give you advance notice. If your lender buys insurance on your home because you did not keep up your homeowner’s insurance, that insurance may only cover the lender, and not you. It also may be more expensive than what you could buy on your own.

Homeowner’s insurance protects your property. Homeowner’s insurance is not the same as mortgage insurance.

Note: You will not receive a Loan Estimate or Closing Disclosure if you are shopping for:

• A reverse mortgage
• A home equity line of credit (HELOC)
• A manufactured housing or mobile home loan not secured by real estate
• A subordinate loan through certain types of homebuyer assistance programs

For these kinds of loans, you should receive Truth-in-Lending disclosures. If you are shopping for a reverse mortgage, you will also receive a Good Faith Estimate (GFE) and a HUD-1 or HUD-1A Settlement Statement. Information about the cost of homeowner’s insurance can be found in Block 11 of your GFE.

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