When you’re buying a home, securing insurance isn’t just another box to check on the to-do list. It’s an essential item for closing on a mortgage and helping to protect your investment. In today’s market, where coverage is harder to find and costs are climbing, the right insurance partner can make the difference between a smooth closing and a delayed, or even canceled, deal.
Up to 18% of deals were canceled in markets like New Orleans in early-2025 due to lack of insurance. MarketWatch
Why lenders require homeowner’s insurance
Homeowner’s insurance protects the property that serves as collateral for a mortgage loan. If a fire, windstorm, or another covered event damages the home, insurance helps pay to repair or rebuild it, preserving the property’s value and securing the lender’s financial interest. Without adequate coverage, the lender’s investment could be jeopardized by costly damages or destruction, which is why they require policies tailored to cover common risks such as fire, hail, lightning, and wind.
Additionally, lenders require a mortgagee clause, which lists them as a beneficiary on the homeowner’s policy. This clause ensures the lender receives updates regarding the policy’s status and can confirm repairs are completed following a major loss, reducing any potential risks to their collateral. Beyond this, major mortgage investors like Fannie Mae, Freddie Mac, and HUD mandate that lenders verify sufficient replacement-cost coverage to ensure the home can be fully rebuilt in case of destruction.
Why homeowners need insurance
For homeowners, insurance serves as a financial safety net to help:
- Pay to repair or rebuild a home after a covered loss
- Replace belongings after theft, fire, or another covered event
- Cover liability if someone gets injured on the property
- Pay for temporary housing if the home becomes unhabitable during repairs
However, standard homeowner’s policies do not cover floods or earthquakes. In FEMA-designated flood zones, or coastal areas where windstorm coverage is required, separate policies are mandatory for mortgage approval. These additional costs can significantly affect a borrower’s debt-to-income (DTI) ratio, which lenders use to assess the ability to repay the loan. Planning for these requirements upfront in the home-buying process is essential to avoid delays or unexpected affordability issues.
Tips for buying homeowner’s insurance
- Start early – In catastrophe-prone states like Florida, Texas, and California, just to name a few, insurers often require home improvements, such as roof replacements or electrical upgrades, before issuing a policy. When buying a home, address these factors early in the process to avoid closing delays, or cancellation.
- Shop smart – Compare quotes from several insurance companies to get the best coverage at the best price for your needs and confirm they meet lender requirements.
- Bundle for savings – Combining home, auto, and flood coverage could significantly lower premiums compared to a monoline policy that only covers your home. For example, bundling with the right insurance company can result in a more attractive combined premium versus keeping separate policies with different insurers.
- Prioritize replacement-cost coverage – Make sure your policy covers the full cost to rebuild your home, not just its current market value. Market value reflects what someone might pay for the home today, but rebuilding costs include materials, labor, and code upgrades, which can be much higher. If a policy only covers market value, you could be left paying a significant amount out of pocket after a major loss.
How The Baldwin Group can help
For us, it’s not just about transactions – it’s about building lasting relationships. By understanding your unique needs, we tailor our services and coverage recommendations to provide solutions that evolve with you.
- Free quotes and expert guidance in one place – We compare top insurers to find the best coverage for your needs – quick, easy, and hassle-free.
- More options – We partner with top-rated insurers to bring you a variety of coverage options at competitive rates.
- Tailored experience -Insurance isn’t one-size-fits-all. We take the time to understand your needs and find coverage that fits your lifestyle.
- Unwavering support – From home to auto and beyond, we’re here to help. Get expert guidance and support whenever you need it.
Let’s talk about how we can help keep closings on track and simplify buying home insurance.
This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The content of this document is made available on an “as is” basis, without warranty of any kind. The Baldwin Insurance Group Holdings, LLC (“The Baldwin Group”), its affiliates, and subsidiaries do not guarantee that this information is, or can be relied on for, compliance with any law or regulation, assurance against preventable losses, or freedom from legal liability. This publication is not intended to be legal, underwriting, or any other type of professional advice. The Baldwin Group does not guarantee any particular outcome and makes no commitment to update any information herein or remove any items that are no longer accurate or complete. Furthermore, The Baldwin Group does not assume any liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. Persons requiring advice should always consult an independent adviser.
