Can You Have a Mortgage without Homeowners Insurance?

You need homeowners insurance in order to get a mortgage. Read this article to learn why, how much coverage you should have, and what happens if you don't have coverage.
Written by Marisol Pereira
Reviewed by Carrie Adkins
When you get a mortgage, a bank or lender is paying for your house by lending you money. Because of this, they have a vested interest in your home, and they want it to be insured. Since they provided a loan, banks and lenders can require homeowners insurance.
You may have had excellent luck in the past managing to escape any setbacks or unforeseeable events, and therefore you may not be interested in homeowners insurance.
But, you've heard most lenders require it. Do you
legally need homeowners insurance
to get a mortgage? The short answer is "yes."
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Banks can require homeowners insurance when you get a mortgage

Mortgage companies take a significant risk when lending you the money you need to buy a house, which is why they look to lower that risk by accepting your home as leverage.
Should anything go wrong, they can always take it and sell it to get back some of their investment. It's for this reason that it's in their best interest that the house be protected. If disaster strikes the house and you're unable to make your payments, the bank will have lost a lot of money. 
A homeowners insurance protects the bank against this risk, and it's why they make it a prerequisite for you to be granted a mortgage in the first place.
Generally, it's not enough for you to simply purchase any policy you want, either; the bank usually has some requirements regarding this as well.
MORE: 6 home improvement projects that will save you money on home insurance

How much coverage should you have?

The specifics will vary depending on the entity that's offering the mortgage, and they can also vary by state. You should be able to find these requirements in your lenders' "scope of coverage" statement.
However, most will require you to insure the home for the entirety of its replacement cost so that if the house gets completely destroyed, the insurance company will cover the costs of getting it rebuilt.
Depending on the house's location, the bank can also require you to add additional insurance features such as
flood insurance
or even earthquake insurance if you live in areas prone to these events. 

What happens if you lose coverage?

Since having an insurance policy is part of the mortgage agreement, going without coverage is seen as a loan default; this means you're in a violation of the contract. 
A default gives the mortgage company legal grounds to take serious actions to seize the property or demand to be paid in full. However, most companies don't go for these actions from the get-go. There are some other steps they usually take beforehand. 
One of the most common procedures is to enforce an insurance policy onto you. As soon as the mortgage company is alerted of your lack of coverage, they proceed to purchase a policy for you. The price of this new policy will be included in your monthly payments, which, of course, will result in higher monthly bills.
You may be thinking, "Well, that doesn't sound too bad. It saves me the trouble of looking up and researching insurance companies."
It's not as nice as it sounds. You see, mortgage companies are not necessarily interested in getting the best insurance rate for you. And when they're the ones purchasing the policies, you might end up paying premiums that are up to five times more expensive than if you were to choose a policy yourself. This is called "forced-place insurance."

FAQs

Can you own a house without insurance?

If you own the house and paid for it in full, yes, you can own a house without insurance. However, paying in full is usually too expensive, and most people get mortgages. If you have a mortgage, you will need to get insurance.
Even if you do own the home in full, it's not a good idea to own a house without insurance. You could be in financial ruin if something were to happen to your home.

Is homeowners insurance included in the mortgage?

No, homeowners insurance is not included in your mortgage. Even if you make a single payment for both your insurance and your mortgage, the money is going to two separate places–the homeowners insurance premium goes to your home insurance company, and the mortgage payment goes to your lender.
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