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Do I ever have to buy property or flood insurance from my lender?

No. You may shop for property or flood insurance. But if you do not get homeowner’s insurance, or let your policy lapse, your lender may insure your property and charge you for it. 

This is called “force-placed” or “collateral protection” insurance. It is usually much more expensive than a regular policy. A lender may also buy “force-placed” flood insurance for homeowners in flood zones who do not have adequate flood insurance to meet the legal minimum required to protect the property.

If you can obtain your own insurance, it will generally be less expensive than the insurance bought by your lender for you. In some cases of force-placed insurance, the policy that the lender buys protects their interest but not your interest in the property. If you believe that any force-placed insurance was purchased in error, you should contact your lender immediately and give proof of your current insurance policy.

Tip: If you disagree with your lender’s determination that you need flood insurance, you can review the FEMA flood maps . If you think there has been an error, you can ask FEMA to issue a Letter of Map Amendment (LOMA), or a Letter of Map Revision Based on Fill (LOMR-F).

If your loan doesn’t include an escrow account, you will have to plan for potentially large property-related expenses, such as property taxes and homeowner’s insurance premiums. Be sure you budget for your monthly mortgage payments plus these extra costs and stay current on your taxes and insurance payments. If you fail to pay your property taxes, your state or local government may impose fines and penalties or place a tax lien on your home.

In addition, if you fail to pay any of your property-related costs, your lender may add the amounts to your loan balance, add an escrow account to your loan, or require you to pay for insurance on your home that your lenders buys on your behalf, which likely would be more expensive and provide fewer benefits than what you could obtain on your own.