Why You Need Homeowners Insurance to Close on a Mortgage

What to Expect in This Blog Post

• Why homeowners insurance is required before closing
• What a homeowners insurance policy typically covers
• How insurance protects both you and your lender
• What happens if you don’t have insurance before closing
• How insurance premiums affect your monthly mortgage payment
• Tips for choosing the right homeowners insurance policy

 

TABLE OF CONTENTS:

• Why Homeowners Insurance is Required Before Closing
• Why Do Mortgage Lenders Require Homeowners Insurance?
• So … What Isn’t Covered By Homeowners Insurance?
• What Happens Before Closing
• How Homeowners Insurance Affects Your Monthly Mortgage Payment
• Shopping Around Can Save You Money
• Why You Can Trust Treadstone Funding + Neighborhood Loans
• FAQs

 

Why Homeowners Insurance is Required Before Closing

Buying a home comes with plenty of paperwork, but one requirement often catches first-time buyers by surprise: homeowners insurance.

Before your mortgage can close, your lender will require proof that the home is insured. It isn’t just another item on a closing checklist, it’s an important safeguard that protects both your investment and the lender’s.

Think about it this way: if a home were damaged by a fire, severe storm, or another covered event the day after closing, neither you nor your lender wants that investment to disappear overnight.

Fortunately, obtaining homeowners insurance is usually a straightforward part of the mortgage process, and your loan officer can help you understand what you’ll need before closing day.

Why Do Mortgage Lenders Require Homeowners Insurance?

When a lender finances your home purchase, they’re making a significant investment alongside you.

Until your mortgage is paid off, the lender has a financial interest in the property. Homeowners insurance helps protect that investment if the home is damaged by a covered event.

Without insurance, a major loss could leave both the homeowner and lender facing substantial financial hardship. That’s why nearly every mortgage requires proof of an active homeowners insurance policy before closing.

What Does Homeowners Insurance Typically Cover?

While every policy is different, most standard homeowners insurance policies provide protection for several important areas.

Coverage often includes:

• Damage to the home’s structure from covered events like fire, wind, or hail
• Personal belongings inside the home
• Personal liability if someone is injured on your property
• Additional living expenses if your home becomes temporarily uninhabitable after a covered loss

It’s important to review your policy carefully so you understand exactly what’s included … and what isn’t.

 

So … What Isn’t Covered By Homeowners Insurance?

One of the biggest misconceptions is that homeowners insurance covers every type of damage.

In reality, certain events often require separate coverage.

Depending on where you live, you may need additional policies for:

• Flood damage
• Earthquake damage
• Sewer backup
• Valuable jewelry or collectibles

Your insurance agent can help determine whether additional coverage makes sense based on your home’s location and your personal needs.

 

What Happens Before Closing

Well before closing day, your lender will ask for proof that homeowners insurance has been arranged.

Typically, you’ll work with an insurance company to:

• Select a policy
• Choose coverage limits
• Pay the first premium (or arrange for payment at closing)
• Provide an insurance binder to your lender

The lender uses this documentation to confirm the property will be insured as soon as ownership transfers.

Without it, your closing may be delayed.

 

How Homeowners Insurance Affects Your Monthly Mortgage Payment

Many buyers assume they’ll pay their insurance company separately every year.

For most homeowners, that’s not actually how it works.

Instead, homeowners insurance is often included as part of your monthly mortgage payment through an escrow account.

Each month, your payment may include:

• Principal
• Interest
• Property taxes
• Homeowners insurance

Your lender collects a portion of your annual insurance premium each month and pays the insurance company when the premium comes due.

This helps spread the cost throughout the year rather than requiring one large annual payment.

Shopping Around Can Save You Money

Not all homeowners insurance policies — or premiums — are the same.

Before choosing a policy, it’s worth comparing multiple insurance companies to evaluate:

• Coverage options
• Deductibles
• Premium costs
• Customer service reputation
• Claims experience

Many buyers also qualify for discounts by bundling homeowners insurance with auto insurance or installing security systems and other protective features.

Choosing the lowest premium isn’t always the best decision. The goal is finding coverage that adequately protects your home while fitting comfortably within your budget.

 

Why You Can Trust Treadstone Funding + Neighborhood Loans

Since 2003, Treadstone Funding + Neighborhood Loans has helped thousands of Michigan buyers navigate every step of the homebuying process—including the details that often surprise first-time homeowners.

Our Loan Officers work closely with buyers to explain how homeowners insurance, escrow accounts, property taxes, and closing costs all fit together so there are fewer surprises on closing day.

Because we’re focused on Michigan homebuyers, we understand the local housing market and know what it takes to help buyers move from pre-approval to closing with confidence.

Whether you’re buying your first home or your next one, we’re here to help make the process as smooth and understandable as possible.

FAQs

Is homeowners insurance required to get a mortgage?

Nearly all mortgage lenders require homeowners insurance before closing to protect both the borrower and the lender’s investment.

Do I need homeowners insurance before closing?

You’ll need to provide proof of an active homeowners insurance policy before your mortgage can close.

Is homeowners insurance included in my mortgage payment?

For many homeowners, yes. Insurance premiums are often paid through an escrow account as part of the monthly mortgage payment.

What’s the difference between homeowners insurance and mortgage insurance?

Homeowners insurance protects your home and belongings from covered losses. Mortgage insurance protects the lender if the borrower defaults on the loan. They serve entirely different purposes.

Can I choose my own homeowners insurance company?

Buyers are generally free to shop around and choose the insurance company and policy that best fits their needs, as long as it meets their lender’s coverage requirements.

Terms and qualifications are subject to underwriting approval and can change without notice. Not all borrowers may qualify. Credit score and down payment examples are for illustrative purposes.