How homeowner’s insurance works when you have a mortgage

When you buy a home, your lender will require a homeowner’s insurance policy to protect both you and the property.

In this guide, you’ll learn how to choose the right coverage, meet your lender's requirements, and keep your monthly payment as low as possible. 

How do I get homeowner's insurance when purchasing a home?

You get homeowner’s insurance by choosing an insurance provider, getting a quote for your new property, and paying the first year’s premium before closing.

Most lenders require proof of insurance before issuing final loan approval, so start early.

Here’s how the process works:

1. Shop for insurance once you’re under contract. With a property address, you can compare quotes from different insurance companies.
2. Send your quote to the lender. Your lender will review the coverage and contact your insurance company for proof of insurance before approving your loan.
3. Pay the first year’s premium about a week before closing. Send the lender a copy of the paid receipt to confirm coverage.

Check today's mortgage rates, payments, and closing costs in real time. 

How much does homeowner's insurance cost? 

Homeowner’s insurance typically costs between $1,200 and $3,000 per year, depending on your home, location, and coverage.

The exact premium varies based on several factors, including:

• Property type:  Single-family, condo, or multi-unit homes each have different risk levels.
• Rebuild cost:  How much it would cost to rebuild your home if it were destroyed.
• Coverage amount:  Higher coverage limits result in higher premiums.
• Insurance provider:  Each company sets its own rates and offers its own discounts.

At a minimum, your policy must cover either:

1. 100% of the home’s replacement cost value, or
2. The unpaid loan balance, as long as it’s at least 80% of the replacement cost.

Your lender reviews your policy to ensure it meets these requirements. If coverage falls short, you’ll need to increase it before closing.

If your new home is in a flood zone, you’ll also need a separate flood insurance policy, which increases the overall cost.

• View our Loan Estimate Explainer 

What is the maximum deductible for homeowner's insurance? 

The maximum deductible for homeowner’s insurance on a conventional mortgage is 5% of the total coverage amount.

Your deductible is what you pay out of pocket before your insurance company covers any damages or losses. A higher deductible typically means a lower premium, as you’re assuming a greater portion of the risk yourself.

Lenders limit deductibles to 5% of the coverage amount to ensure you can afford the payment if you ever file a claim. This protects both you and the lender from financial hardship in the event of a loss.

What are the property insurance requirements for FHA loans?

FHA loans require homeowners to carry enough insurance to protect the property against loss or damage. The policy must cover at least the lesser of:

• 100% of the home’s insurable value, or

• The unpaid loan balance, with a replacement cost endorsement that covers the full cost to rebuild.

Deductible limits for FHA loans:

1. The maximum deductible for standard homeowner’s or flood insurance is the greater of $1,000 or 1% of the dwelling coverage amount.
2. For wind or hurricane coverage, the deductible may not exceed the greater of $2,000 or 2% of the dwelling coverage amount.

Your lender will review your insurance policy before closing to confirm that both the coverage and deductible meet FHA guidelines.

What type of homeowner's insurance do I need for a condo?

If you buy a condo, your lender will require an HO-6 homeowner’s insurance policy, also called “walls-in” coverage.

This policy protects your personal belongings, liability, and any interior improvements or upgrades inside your unit.

Condo insurance typically costs about half as much as a standard homeowner’s policy because it covers only your unit’s interior - not the building itself.

Your insurance provider will help you determine the right amount of coverage, but most lenders require:

1. Coverage equal to at least 20% of your condo’s appraised value, and
2. A deductible no higher than 5% of the insured coverage amount.

Your condo association carries a master insurance policy that protects the building’s structure and shared areas. However, it does not cover your personal property or liability inside your unit. That’s why you need an HO-6 policy to make sure you’re fully protected.