Lender Requirements for Homeowners Insurance
To meet your lender’s insurance requirements, make sure to:
- Carry enough dwelling coverage to rebuild your home
- Add protection for risks like floods or earthquakes, if needed
- Keep your policy active throughout your mortgage term
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How much insurance do you need for a new home?
If you’ve finally found your dream home, you’ve already tackled one of life’s biggest milestones. After all that paperwork and stress, the idea of sorting through insurance details probably isn’t exciting, but it’s worth it. Understanding your homeowners insurance now can save you time, money, and headaches later. Knowing what’s covered (and how much coverage you need) helps protect the place you’ve worked so hard for.
💡 A good rule of thumb is to make sure your policy can:
- Rebuild your home at today’s construction and material costs (not the original purchase price)
- Replace your belongings if they’re damaged or stolen
- Cover liability expenses if someone gets hurt on your property
- Pay for temporary living costs if your home becomes unlivable during repairs
- Include extra protection for high-value items like jewelry, art, or electronics
Why is homeowners insurance required by lenders?
Your mortgage lender has a financial stake in your home for as long as you’re making payments. Having homeowners insurance provides financial protection for both you and the lender in case of a loss. If a catastrophic event damages your home and you don’t have home insurance, you and your mortgage lender would be on the hook for an expense that could have been covered by a homeowners policy. Lenders require home insurance to protect the investment they’ve made so that they won’t lose money if something happens to your home.
Homeowners Insurance Policy Endorsements
Explore homeowners insurance policy endorsements to customize your coverage. Learn about add-ons like earthquake, sewer, and mold to protect your home.
How much homeowners insurance do mortgage lenders require?
Home insurance requirements set by mortgage lenders depend on a few factors: how much you paid as a down payment, the amount of your loan, and if the location of your home calls for additional coverage.
✅ Maintain the minimum required amount of coverage
Lenders will likely require that you carry enough insurance to cover the amount of your loan. For instance, if you bought your home for $300,000 with a $60,000 down payment, your lender will want you to have at least $240,000 worth of dwelling coverage. However, we always recommend insuring your home for its full replacement cost to ensure it can be replaced if it’s ever destroyed.
Let’s review some of the coverages your mortgage company could require for your homeowners insurance policy.
Dwelling coverage is the foundation of any homeowners policy — and the only type your mortgage lender requires. It protects the main structure of your home and any attached buildings.
Lenders often require this coverage to be based on replacement cost value, which ensures you can rebuild your home after a loss. While replacement cost policies are usually more expensive, they offer stronger protection than actual cash value coverage, which only pays what your house was worth at the time of damage, minus depreciation.
If you live in an area vulnerable to hurricanes, windstorms, and other natural disasters, the mortgage lender can require that you carry windstorm coverage. Keep in mind that some states impose separate hurricane deductibles for storm events, usually calculated as a percentage of your dwelling limit (1% to 10%).
Hurricane coverage only covers damage sustained from strong winds and hail. Flooding, a common occurrence with hurricanes, is not covered by a typical homeowners policy. Your lender could require that you purchase flood insurance if you live in a flood-prone location. Flood coverage is generally provided by the National Flood Insurance Program (NFIP) but there is a number of private insurance options as well.
Like flood insurance, earthquake insurance could be mandated by your lender if you live in a vulnerable area and can be bought as a separate policy or an endorsement depending on your insurance provider. Earthquake coverage can be purchased from state-run programs (like the California Earthquake Authority) or from some private insurance companies.
This is a less-common occurrence, but depending on the location of your home, your mortgage loan provider may require you to carry additional coverage through endorsements. For instance, water backup coverage would protect your home against water damage from broken sump pumps and overflowing water from sewer pipes.
If you’ve ever financed or leased a car, you probably listed your lender on your auto policy. Home insurance works the same way. Your mortgage lender must be listed as a loss payee, which means they’ll receive part of any payout if a covered loss affects the property they helped finance.
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Mortgage insurance vs. homeowners insurance
Unlike home insurance, mortgage insurance (often known as PMI, or private mortgage insurance) benefits only the mortgage lender, and in no way does it cover the homeowner and their property. While this is something the homeowner pays for if they do not meet the threshold down payment, it only benefits and protects their lender in case the homeowner ceases mortgage payments. PMI generally costs between 0.5% and 1% of the loan amount, which sounds low, but can quickly add up depending on how much funding you took out for a mortgage.
Hazard insurance vs. homeowners insurance
Like mortgage insurance, hazard insurance is often required by lenders. But unlike PMI, it isn’t a separate policy. It’s simply the part of your homeowners insurance that protects your home’s structure (your dwelling coverage) from risks like fire, wind, or lightning.
Because your lender has a financial stake in your home, they want to make sure it’s protected from significant damage or loss.
In-house experts, on your side.
Samantha McGee began her career at The Zebra in a non-licensed support role, where she quickly uncovered a passion for making insurance more accessib…
Credentials
- Licensed Insurance Agent — Property and Casualty
- 4+ years of experience in the insurance industry
Erica began at The Zebra in 2020 as a Licensed Service Agent, bringing six years of insurance experience from her career at Progressive where she spe…
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- 10+ years in the insurance industry
Johnny’s insurance experience began when he joined The Zebra in 2020 as a Customer Experience Agent, supporting the sales team by servicing policies …
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- 5 years experience in property & casualty insurance
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About The Zebra
The Zebra is not an insurance company. We publish data-backed, expert-reviewed resources to help consumers make more informed insurance decisions.
- The Zebra’s insurance content is written and reviewed for accuracy by licensed insurance agents.
- The Zebra’s insurance editorial content is not subject to review or alteration by insurance companies or partners.
- The Zebra’s editorial team operates independently of the company’s partnerships and commercialization interests, publishing unbiased information for consumer benefit.
- The auto insurance rates published on The Zebra’s pages are based on a comprehensive analysis of car insurance pricing data, evaluating more than 83 million insurance rates from across the United States.
