Nobody purchases a home anticipating a break-in, a fire, or flooding. These unforeseen incidents frequently result in significant damage, which can quickly deplete a homeowner’s savings. For this reason, home insurance is often required by mortgage lenders before closing on a new home. In most circumstances, homes insurance is necessary, to put it briefly. What you need to know is as follows:
What is homeowners Insurance?
Your lender probably asked you to show proof of homeowners insurance before the closing when you bought your home. Usually, the cost of the insurance is included in your monthly mortgage payment along with your property taxes and mortgage insurance in the escrow (a separate account that pays your property taxes and insurance).
This kind of insurance covers both the inside and exterior of your property as well as the contents of your home. Your insurance company issues you a check for the damage after a covered occurrence, such as falling objects, fire, lightning, or civil unrest, so you can get it fixed. If the property is completely destroyed, the insurance company might even cover the cost of rebuilding the house and replacing any damaged possessions.
Why do lenders require home insurance
When a bank lends you money to buy a home, it is investing in the property of your choice. If all goes well, they will repay the entire mortgage plus interest, which is a profit for them. However, if you default on your mortgage, your home becomes collateral for the bank to recover the loan.
Mortgage lenders have a vested interest in making sure your property maintains its value even after unforeseen events occur. If your home is significantly damaged or destroyed, it will affect your ability to repay your lender. To reduce the risk of losing money while protecting you from the same unexpected events, you need home insurance.

Which is better, home insurance or mortgage insurance?
Your monthly mortgage payment includes both house and mortgage insurance. Despite having similar sounds, they don’t offer the same coverage. Private mortgage insurance, also known as PMI, is probably required by your lender if you have less than a 20% down payment on a conventional mortgage. If you cease making mortgage payments, this simply safeguards your lender; it does not safeguard you. You and your lender are both protected by home insurance.
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- Dwellings (physical home structure)
- Personal belongings
- Liability
- Additional living expenses