If you have a mortgage, you will almost always need homeowners insurance. Lenders generally ask for proof of coverage because the home is the collateral for the loan, according to the Consumer Financial Protection Bureau (CFPB). Most borrowers pay the premium through their monthly mortgage payment, and the lender then pays the insurer from an escrow account. This guide explains what the lender expects, what it costs, how it differs from mortgage insurance, and what happens if coverage lapses.
TL;DR
- Lenders generally require homeowners insurance on a mortgaged home. Many borrowers pay it monthly through escrow, folded into the mortgage payment.
- Homeowners insurance protects the home and you. Mortgage insurance (PMI or FHA/USDA mortgage insurance) protects the lender. They are different products.
- Set your coverage amount by the cost to rebuild, not by the purchase price. Get several written quotes and ask your loan officer whether each one meets the lender’s requirements.
- Never let the policy lapse. Lender-placed (force-placed) coverage usually costs more and may protect only the lender.
Table of Contents
- Do you have to have homeowners insurance with a mortgage?
- Homeowners insurance vs. mortgage insurance
- How homeowners insurance is paid: escrow explained
- What your lender will want from the policy
- How much does homeowners insurance cost with a mortgage?
- Ways to lower the premium without losing required coverage
- What happens if your homeowners insurance lapses
- When you refinance or switch lenders
- See the full monthly payment before you buy or refinance
- FAQ
- Sources
Do you have to have homeowners insurance with a mortgage?
In practice, yes. No law in most places forces a homeowner to buy it. Massachusetts’ official consumer guidance, for example, says no law generally requires homeowners insurance, but a lender may require it as a condition of the mortgage. The requirement comes from your loan agreement.
The reasoning is simple. Until the loan is repaid, the lender has a financial stake in the house. If a fire or storm destroyed it and there was no coverage, the collateral would be gone and you would still owe the loan. Insurance protects both of you.
Two details from that same Massachusetts guidance apply broadly to how lenders behave:
- A lender cannot require you to buy from a particular insurer.
- A lender cannot require coverage that exceeds the replacement cost of the dwelling.
Once your mortgage is paid off, the lender’s requirement ends. Coverage still matters, because without it you carry the full cost of any loss yourself.
Homeowners insurance vs. mortgage insurance
The two names sound alike, which is why so many people search for them together. They protect different people.
| Homeowners insurance | Mortgage insurance | |
|---|---|---|
| Who it protects | You and the home (and the lender’s interest in it) | The lender |
| What triggers a payout | Covered damage or loss, such as fire or wind | The borrower falling behind on payments |
| Who requires it | The lender, as a loan condition | Typically the lender, based on loan type and down payment |
| Who pays | You | You |
| Does it end? | You keep it as long as you own the home | It can end under certain conditions |
The CFPB explains that mortgage insurance protects the lender if the borrower falls behind on payments. It lowers the lender’s risk and can help a borrower qualify, but it increases the borrower’s loan cost. The CFPB says it is typically required when the down payment is below 20 percent, and typically on FHA and USDA loans. You can pay it monthly, at closing, or both.
Two of the questions people ask most often are answered by that distinction:
- Is mortgage insurance the same as homeowners insurance? No. Mortgage insurance never pays to repair your roof or replace your belongings.
- Do FHA loans have mortgage insurance? Yes, FHA loans typically carry it. You can read how the program works on our FHA loans page.
On a conventional loan, private mortgage insurance (PMI) is the version tied to a smaller down payment. The federal Homeowners Protection Act sets rules for canceling PMI, so ask your servicer when yours can come off. Homeowners insurance has no such cancellation path while the loan is open.
How homeowners insurance is paid: escrow explained
Most lenders collect the insurance premium with your monthly payment. Freddie Mac describes it this way: your payment includes one-twelfth of your annual premium, which goes into an escrow account. The lender then pays the insurer when the bill is due.
The CFPB describes an escrow or impound account as one that receives part of each monthly payment and is used by the servicer to pay property taxes and insurance. It may be required by the lender or, in some circumstances, by law. Its practical purpose is to spread large annual or semiannual bills across the year.
Freddie Mac adds that regular escrow payments can remove the surprise of a large annual bill for taxes and insurance.
What this means for your monthly payment
Your mortgage payment is often described as PITI: principal, interest, taxes and insurance. If you have escrow, the “I” is your homeowners insurance. When you compare loan offers, look at the Loan Estimate. The CFPB notes that insurance and similar property-protection costs appear on page one, in the Projected Payments section.
Two practical points:
- Your payment can change even on a fixed-rate loan. The principal and interest portion of a fixed-rate loan stays the same, but taxes and insurance can rise, so the escrow portion can rise with them.
- Not every loan uses escrow. If yours does not, you pay the insurer directly, usually once a year. Budget for it so the bill does not catch you off guard.
What your lender will want from the policy
Lenders set their own minimums, so there is no single universal standard. The CFPB’s advice is to show your quotes to your loan officer and ask whether they meet the lender’s requirements. Do this before you buy, not after.
The items that usually matter:
- Dwelling coverage amount. The National Association of Insurance Commissioners (NAIC) says limits should be based on the estimated cost to rebuild, not the purchase price or market value, and that mortgage lenders want at least enough insurance to pay off the loan. Market value includes the land, which is not what burns down.
- Deductible. The CFPB suggests seeing how the premium changes if you raise or lower it.
- Home and location risk. The CFPB says to weigh the cost to rebuild, the property’s disaster risk and characteristics, the deductible and claims history.
- Mortgagee clause. Your policy names the lender, so it is notified of renewals, changes and cancellations.
Floods and earthquakes
Standard homeowners insurance generally does not cover floods or earthquakes. The CFPB notes that you need separate or added coverage for them. If your home is in a higher-risk area, ask your insurance agent about this and ask your loan officer whether the lender requires it for your property.
How much does homeowners insurance cost with a mortgage?
It depends heavily on where you live, the age and construction of the home, and the coverage you choose. Some national reference points:
- Freddie Mac estimated an average annual premium of $1,522 in 2023 for its borrowers with a single-family, owner-occupied home and a conventional 30-year fixed-rate mortgage. That was up 10.8% from 2022 and 40.8% from 2018.
- The U.S. Census Bureau reported that the median annual property-insurance cost for mortgaged homes in 2023 was highest in Florida at $2,273, followed by Louisiana at $2,140 and Oklahoma at $2,041. These are state medians, not national averages.
- The same Census report found more than 5.3 million households paid over $4,000 a year for property insurance in 2023.
The lesson for buyers: build a realistic insurance estimate into your budget before you settle on a price range. A premium that is a few hundred dollars higher than you assumed changes your monthly payment as surely as a quarter-point change in rate. Our rent vs. buy calculator can help you test a full monthly housing budget.
Ways to lower the premium without losing required coverage
Cutting the premium is fine. Cutting the coverage your lender requires is not. These steps do the first without the second:
- Get written quotes from several companies. The CFPB recommends comparing cost and coverage amounts, then asking your loan officer whether each quote meets lender requirements.
- Test deductibles. See how the premium moves when you raise or lower the deductible. Fannie Mae’s insurance coverage guide warns that a higher deductible increases your out-of-pocket exposure, so choose an amount you could pay on short notice.
- Ask about discounts and bundling. The same guide lists discounts, eligible organization-based savings and bundled policies as ways to reduce premiums.
- Do not trim coverage to save money. Reduced coverage can leave you responsible for uncovered repairs.
- Re-shop at renewal. Premiums have risen in recent years, so a yearly comparison is worth the hour it takes.
What happens if your homeowners insurance lapses
This is the mistake that costs borrowers the most. If your policy lapses, is canceled or is deemed insufficient, your servicer may require a new policy or reinstatement of the old one. It may also charge you for force-placed insurance, which is usually more expensive and may protect only the lender.
The NAIC explains that lender-placed insurance is typically more expensive and generally does not cover your personal belongings or your liability as owner. So you pay more and get less.
The rules on notice matter too. The CFPB says the lender may buy coverage and charge you only after advance notice. The Office of the Comptroller of the Currency says that, depending on the loan contract and escrow status, a bank may force-place insurance only after required notices. With escrow, the bank generally must advance a hazard-insurance premium when the loan is not more than 30 days delinquent, subject to exceptions.
If you receive a notice:
- Read it the day it arrives and note the deadline.
- Contact your insurer and ask for proof of current coverage, or buy a new policy.
- Send the proof to your servicer in writing and keep a copy.
- If you were charged for coverage you did not need, ask your servicer to remove it and refund the charge.
When you refinance or switch lenders
A new loan usually means a new lender listed on your policy. When you refinance, give your insurer the new lender’s name and mortgagee clause so there is no gap. Your escrow account will also be set up again, and your first payment may look different from the old one.
Refinancing is also a good moment to re-shop your insurance, since the lender will ask for proof of coverage anyway. If you want to see how a lower rate could change your monthly payment, try our refinance calculator.
Our perspective
We see the insurance question trip up first-time buyers more than almost any other part of the process. People focus on the rate and the down payment, then discover late in the process that the policy and the escrow account change their monthly payment.
Our advice is to treat insurance as part of the loan, not an afterthought. Get quotes early, ask your loan officer whether each one meets the lender’s requirements, and look at the projected payment with insurance included before you commit to a price range.
That is why we pair personalized consultations with expert rate comparison across lenders and affordability and refinance calculators. We want you to see the full monthly picture, with the loan type that fits you, whether that is a 30-year fixed, a 15-year fixed, an ARM, FHA or VA, so there are no surprises at closing.
David Mordue
See the full monthly payment before you buy or refinance
Insurance is only one piece of what you will pay each month. Our fully online application lets you move quickly, and our approach is designed to get many loans funded in less than 21 days. We compare rates across lenders for you and walk you through the numbers with a personalized consultation, including estimated taxes and insurance.
Ready to see where you stand? Start your pre-approval or refinance today, or visit our home purchase and refinance page to learn more.
FAQ
Is homeowners insurance included in my mortgage payment?
Often, yes. If your loan has an escrow account, your payment includes one-twelfth of the annual premium, and the servicer pays the insurer when it is due. If you do not have escrow, you pay the insurer yourself. Ask your loan officer which applies to your loan.
Is mortgage insurance the same as homeowners insurance?
No. Homeowners insurance covers damage to your home and protects you. Mortgage insurance protects the lender if you fall behind on payments. It is typically required with a down payment below 20 percent and on FHA and USDA loans.
How much coverage does my lender require?
Requirements vary by lender, so send your quotes to your loan officer and ask. As a benchmark, the NAIC says limits should be based on the cost to rebuild, and that lenders want at least enough to pay off the loan.
Can I choose my own insurance company?
Generally yes. Official guidance in Massachusetts, for example, says a lender cannot require a particular insurer. You can shop freely as long as the policy meets the lender’s coverage requirements.
What if I let my homeowners insurance lapse?
Your servicer may require a new policy and may buy lender-placed coverage and bill you for it after notice. That coverage is usually more expensive and may protect only the lender, so replace a lapsed policy right away.
Sources
- CFPB: What is homeowner’s insurance? Why is it required?
- Mass.gov: Understanding Home Insurance
- CFPB: What is mortgage insurance and how does it work?
- CFPB: Homeowners Protection Act (PMI cancellation) procedures
- Freddie Mac: What Is Escrow?
- CFPB: What is an escrow or impound account?
- CFPB: Shop for homeowner’s insurance
- NAIC: A Shopping Tool for Homeowners Insurance
- Freddie Mac: The Cost of Homeowners’ Insurance
- U.S. Census Bureau: Property insurance costs
- Fannie Mae: Insurance coverage guide
- CFPB: Force-placed homeowner’s insurance charges
- NAIC: Lender-placed insurance
- OCC HelpWithMyBank: Can the bank make me buy more expensive insurance?