Which Insurance Do You Need When Buying A Home?
February 18, 2025
Key Differences
Homeowner's Insurance: Protects against property damage, liability, and loss of use. For the borrower.
- Required by most lenders regardless of loan type.
- Premiums are paid annually.
- Renewable annually.
- Required for FHA loans with low down payments.
- Premiums are paid upfront and annually.
- May be cancellable after a certain period, depending on loan terms.
Homeowner's insurance is a policy that protects physical property and provides liability coverage. It is for the borrower, protecting your investment.
A standard homeowner's insurance policy typically covers the following:
- Dwelling: This covers the physical structure of your home and may include attached structures like a garage or deck. If your home is damaged or destroyed by a covered peril, the insurance will help cover the costs of rebuilding or repairing it.
- Personal Property: This covers your belongings inside the home, such as furniture, appliances, clothing, and electronics. Coverage extends to damage or loss from covered perils, even if the items are outside the home. Some policies may offer replacement cost coverage, which pays the current cost of replacing the item, while others offer actual cash value, which factors in depreciation.
- Other Structures: This is for detached structures on your property, such as sheds, fences, detached garages, etc..
- Loss of Use: If your home becomes uninhabitable because of a problem covered in your policy, this coverage may help with additional living expenses, including temporary housing, meals, and other related costs, while your home is being repaired or rebuilt.
- Liability Protection: This covers you if you're held responsible for someone's injury or property damage on your property. For example, if someone slips and falls on your icy sidewalk, this coverage can help pay for medical bills and legal expenses.
- Medical Payments: This covers medical expenses for guests injured on your property, regardless of who is at fault. It's often referred to as "guest medical" coverage.
While comprehensive, homeowner's insurance policies typically exclude certain events and damages, including:
- Earthquakes and Floods: These natural disasters usually require separate insurance policies or clauses.
- Wear and Tear: Gradual deterioration of your property due to age or neglect is not covered.
- Pest Infestations: Damage caused by termites, rodents, or other pests is generally not covered.
- Intentional Acts: Damage caused intentionally by the homeowner is excluded.
When applying for an FHA loan, you must demonstrate proof of adequate homeowner's insurance. Lenders typically require coverage that meets or exceeds the loan amount.
Mortgage insurance is a type of insurance that protects the lender. It is not meant to protect the FHA borrower. Lenders use this insurance to protect them in case of loan default. Typical FHA loan transactions will require mortgage insurance.
Homeowner's insurance protects you, but FHA mortgage insurance mitigates the lender's risk associated with lending to borrowers with lower equity in the property.
Types of Mortgage Insurance for FHA Loans
FHA loans have two mortgage insurance premiums (MIP):
- Upfront Mortgage Insurance Premium (UFMIP): This is a one-time premium paid at closing or rolled into the loan amount. The amount is typically a percentage of the base loan amount.
- Annual Mortgage Insurance Premium (AMIP): This is an annual premium paid in monthly installments as part of your mortgage payment. The amount is calculated based on the loan amount, loan term, and loan-to-value (LTV) ratio.
When applying for an FHA loan, work closely with your lender to understand the specific requirements for both mortgage insurance and homeowner's insurance. Ask about the different types of mortgage insurance premiums, the duration of coverage, and the process for cancellation, if applicable.
FHA Loan Articles
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July 29, 2026When you buy a home with an FHA mortgage, you have an option to apply for a cash-out refinance to take equity in your home out in cash. These loans are offered to those with 80% equity in the home or better, and you can apply for this type of cash-out refinancing once you hit that 80% mark. Many choose to wait until their equity is much higher to achieve the best results, and it pays to factor in your closing expenses and lender fees when running the numbers to assess how affordable this option is given your budget and financial goals.
July 28, 2026FHA loan rules require escrow, and the funds used to fund escrow must come from approved sources. FHA loan rules require the lender to verify funds for earnest money or closing costs and will not allow sources such as payday loans, credit card cash advances, or non-collateralized loans. If you have never opened an escrow account before, there are some important details to know before you start.
July 20, 2026Escrow accounts play a central role in managing property taxes and insurance for FHA mortgages. Understanding escrow accounts is an important part of being a new home owner, especially if you have plans to refinance the property at some point and want to know your options to get out of escrow. We examine some key points here about revising and canceling escrow on an FHA mortgage.
July 18, 2026Many home purchasers hold incorrect assumptions about FHA mortgage rules and restrictions. These loans are not limited to first-time buyers, for example, and there is no age limit for FHA loans. FHA borrowers may apply for more than one FHA mortgage, but these loans are for owner-occupied residences only. We examine some important points on these issues, including when you can and cannot have more than one FHA loan at a time.
