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What type of home insurance is required for a mortgage?
My partner and I are looking to purchase a house this year and we’re a little stumped on the home insurance portion. What type of home insurance is required for a mortgage?
Chloe Jenkins · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Getting familiar with the home buying process can take some time and lots of research. The type of
home insurance
required for your mortgage depends on your lender’s specifications and the risk levels of your home. Your lender will usually specify what coverage level you need in order to take out a mortgage with them. Other than that, you should research the common risks of homeowners in your state to decide which situations your insurance needs to cover.
You’ll likely be required to purchase an insurance policy that covers at least 80% of the
replacement cost
of damaged or lost property. (Contrast this with an actual cash value
policy, which only pays out the amount your property was worth at the time of the damage or loss.) Since lenders act as investors in your home, they will want to have that investment protected as much as possible. This is why most lenders will insist that your home is insured for its replacement value if it needs to be rebuilt.
You may need to purchase additional or separate policies depending on your property’s needs. For example, if you live in an area prone to flooding, you will need to purchase flood insurance, which is not included in a standard home insurance policy.
View full answer
- Gregory R.
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