Why lenders require it
Your home secures your mortgage. If a fire or storm damages it, the lender wants to know the home can be repaired or rebuilt. That is why lenders require homeowners insurance before you close and expect you to keep it for the life of the loan. Once the loan is paid off, insurance is your choice, though it is still wise to keep it.
What lenders usually require
Exact rules depend on the lender and loan type. Most look for:
- Dwelling coverage at least equal to the lender's minimum, often the estimated cost to rebuild or the loan amount
- A deductible within the lender's limits
- The lender, or its servicer, named as mortgagee on the policy
- A policy term that starts on or before your closing date
- Flood insurance if the home is in a designated flood zone
Rebuild cost, not market value
Insure your home for what it would cost to rebuild, not what it would sell for. Market value includes the land, which doesn't burn down. Your agent can help estimate a rebuild cost that fits your home.
What your lender needs before closing
- Declarations page showing the dwelling limit and deductible
- Lender listed as mortgagee, with the correct loan number
- Proof the first year's premium is paid, or an invoice to be paid at closing
- Flood policy, if required
How escrow works
Many loans include an escrow account. Your servicer collects part of your insurance premium with your monthly payment, then pays your insurer when the bill is due. At the yearly escrow review, your payment can change if your premium went up or down. On a fixed-rate loan, your principal and interest stay the same; only the escrow part moves.
Switching carriers or renewing
You can shop your coverage. If you switch, make sure the new policy starts before the old one ends, and send the new declarations page to your servicer. That way the premium goes to the right insurer and you avoid a gap.
If coverage lapses
If your policy is canceled or not renewed and you don't replace it, your servicer may buy lender-placed insurance, also called force-placed insurance. It often costs more and may only protect the lender's interest, not your belongings or liability. Replace coverage quickly if you get a cancellation or non-renewal notice.
How CapCenter helps
Your lender needs proof of homeowners insurance before you close. CapCenter's insurance team works next to your loan consultant, so your policy and proof of insurance can be ready on time. Our in-house agency compares carriers, and you can also use your own agent.
