Last updated: October 5, 2026
Homeowners insurance protects your home and belongings, and it protects your lender’s collateral, which is why every mortgage requires it. Insurance premiums have risen sharply in some states, making this one of the fastest-growing parts of many mortgage payments.
What lenders require
- Dwelling coverage high enough to rebuild the home, as defined by the lender’s guidelines.
- The lender named as mortgagee on the policy.
- Proof of coverage before closing and continuous coverage for the life of the loan.
- Flood insurance if the home is in a Special Flood Hazard Area and the loan is federally backed or from a federally regulated lender.
What a standard policy covers
- Dwelling: the structure of the home.
- Other structures: fences, sheds, detached garages.
- Personal property: your belongings.
- Loss of use: extra living costs if you must move out during repairs.
- Liability: injuries or damage you are legally responsible for.
Common exclusions include flood, earthquake and wear and tear. Read your policy’s declarations page to see exactly what is covered.
How insurance affects your monthly payment
Most borrowers pay insurance through escrow: one-twelfth of the annual premium is added to each payment. If your premium rises from $1,800 to $2,700 a year, your payment rises by $75 a month, even on a fixed-rate loan. Include insurance when deciding how much house you can afford; get a quote before you make an offer, especially in coastal, wildfire or hail-prone areas.
Avoid force-placed insurance
If your policy lapses, your servicer can buy coverage for you and add the cost to your payment, after sending required notices. Force-placed insurance is typically far more expensive and may not cover your belongings or liability. Watch for cancellation and renewal notices, and send proof of new coverage to your servicer immediately if you switch insurers.
Ways to save
- Compare quotes from several insurers every year or two.
- Choose a higher deductible if you have an emergency fund to cover it.
- Bundle home and auto policies.
- Ask about discounts for new roofs, storm shutters, alarms and updated wiring.
- Review coverage so you are not over- or under-insured.
Estimate your full payment including insurance in our mortgage calculator.
Frequently asked questions
Is homeowners insurance required for a mortgage?
Lenders require homeowners (hazard) insurance for the life of the loan to protect the home that secures it. The policy must meet the lender’s coverage requirements.
Does homeowners insurance cover floods?
Standard homeowners policies do not cover flood damage. If the home is in a high-risk flood zone and has a federally backed or regulated loan, flood insurance is required; elsewhere it is optional but worth considering.
What is force-placed insurance?
If your coverage lapses, your servicer can buy insurance for the home and charge you for it, after sending required notices. Force-placed policies are usually much more expensive and often protect only the lender.
How can I lower my homeowners insurance cost?
Shop several insurers before renewal, raise your deductible if you have savings, bundle with auto insurance, improve home safety and ask about discounts for features such as new roofs or alarm systems.
Sources: CFPB: What is homeowners insurance?; FEMA: National Flood Insurance Program. Example calculations by ToolStackIA.
This article is for educational purposes only and is not financial advice. Loan programs, rates and rules change; confirm details with your lender or a HUD-approved housing counselor.