What is homeowner's insurance? Why is it required?
Homeowner’s insurance pays for losses and damage to your property if something bad happens, like a fire or burglary. Standard homeowner’s insurance doesn’t cover damage from earthquakes or floods, but it may be possible to add this coverage.
When you have a mortgage, your lender wants to make sure your property is protected by insurance. That’s why you’re generally required to have homeowner’s insurance, and prove to your lender that you have it. 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 the lender has bought homeowner’s insurance for you, the cost is usually part of your monthly payment. You pay for the insurance as part of your monthly payment, a little at a time, and the money goes into 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, will be listed in Block 11 of your Good Faith Estimate (GFE) and on Line 903 of your settlement statement. The cost could change between your GFE and closing.
Homeowner’s insurance protects your property. Private mortgage insurance is different—it protects the lender if you stop making payments on your loan.