Insurance that protects your home and belongings against damage, theft, and liability. Required by lenders — typically costs $1,200–$2,500/year and is paid through your escrow account.
Homeowners insurance is mandatory if you have a mortgage. The lender requires it because the home is their collateral — if it burns down without insurance, both you and the lender lose. Even if your home is paid off, going without insurance is a major financial risk.
A standard policy covers four things: dwelling (the structure itself), personal property (belongings inside), liability (someone injured on your property), and loss of use (hotel costs if your home is uninhabitable after a covered event).
Standard policies don't typically cover floods or earthquakes — you'd need separate policies for those. Floods are covered by the National Flood Insurance Program (or private flood insurance), required by lenders in FEMA flood zones.
Example
A $400K home in Texas might cost $2,000/year ($167/month) to insure with a basic policy: $400K dwelling coverage, $200K liability, $1,000 deductible. The annual premium gets paid through your escrow account.
Also known as
home insurance, hazard insurance, dwelling insurance, HO-3
Source:
CFPB