Homeowners Insurance Before Closing: What Buyers Should Check Early

Homeowners insurance should be checked early in the homebuying process, not treated as a last-minute closing task.

For many buyers, insurance affects more than paperwork. It can change the monthly payment, cash needed at closing and even whether a lender is comfortable moving forward. In some markets, the cost and availability of coverage have become a major affordability issue.

CFPB says lenders typically require buyers to have homeowners insurance as a condition of the loan, and buyers can choose their insurance company. CFPB also tells buyers to contact several companies for written quotes, compare cost and coverage, and ask their loan officer whether the quotes meet lender requirements.

Key takeaways

Lenders typically require homeowners insurance before closing.
Buyers should get written insurance quotes early.
Insurance cost appears in the Loan Estimate’s projected payments.
Coverage availability can vary by property, location and risk.
Standard homeowners insurance typically does not cover flood damage.
Buyers should compare deductible, coverage amount and exclusions.
A high insurance premium can change affordability.

Why insurance matters before closing

Homeowners insurance protects the property from certain covered losses, such as fire, burglary or accidental damage. It also protects the lender’s collateral.

CFPB says when a buyer has a mortgage, the lender generally requires proof that the property is protected by homeowners insurance. CFPB also notes that homeowners insurance is sometimes called hazard insurance.

That means buyers should not wait until the final week before closing. If insurance is expensive, unavailable or requires additional coverage, the buyer needs time to respond.

Where insurance appears in mortgage documents

Insurance affects the monthly payment.

CFPB says the cost of homeowners insurance, and similar insurance to protect the property, is listed on page one of the Loan Estimate in the “Projected Payments” section. CFPB also recommends buyers do their own research on insurance costs and shop separately for the provider and plan that is right for them.

That matters because estimated insurance costs can change between early loan discussions and final underwriting. If the actual premium is much higher than expected, the buyer’s monthly payment and debt-to-income ratio can change.

What buyers should ask insurers

Buyers should request written quotes and ask:

What perils are covered?
What is excluded?
What is the dwelling coverage limit?
What deductible applies?
Are there separate wind, hail or hurricane deductibles?
Is personal property covered?
Is loss-of-use coverage included?
Is replacement cost or actual cash value used?
Are there prior claims on the property?
Are roof age, electrical system or plumbing issues affecting eligibility?
Is flood insurance needed separately?

The goal is not just to get the cheapest quote. It is to understand whether the policy actually fits the property and lender requirements.

Insurance costs are rising in many markets

Insurance has become a bigger national affordability factor.

The U.S. Treasury’s Federal Insurance Office reported that average homeowners insurance premiums per policy rose 8.7% faster than inflation from 2018 to 2022. Treasury also reported that homeowners in the highest-risk 20% of ZIP codes paid average premiums of $2,321, 82% more than homeowners in the lowest-risk ZIP codes.

That does not mean every buyer will face a high premium. But it does mean insurance deserves attention before the buyer removes contingencies or gets too close to closing.

Flood insurance is separate

One of the biggest mistakes buyers make is assuming homeowners insurance covers flooding.

CFPB says homeowners insurance typically does not cover flood damage and that buyers need a separate flood insurance policy if flood risk applies. FloodSmart, the National Flood Insurance Program website, also says most homeowners insurance does not cover flood damage and that flood insurance is specific to flooding.

A buyer should check flood risk early, especially if a lender may require flood insurance.

What this means

Homeowners insurance is now part of the affordability due-diligence process.

Buyers should shop early, send quotes to the lender, confirm lender requirements, understand exclusions and check whether separate flood insurance is needed. Sellers and agents should also expect more insurance-related questions, especially for older homes or properties in higher-risk areas.

A buyer should not find out two days before closing that the home is much more expensive to insure than expected.

FAQ

Do buyers need homeowners insurance before closing?

Yes, if they are using a mortgage. CFPB says lenders typically require homeowners insurance as a condition of the loan.

When should buyers shop for homeowners insurance?

Buyers should start once they are under contract, and ideally before key contingency deadlines expire.

Does homeowners insurance affect mortgage approval?

It can. Insurance affects the monthly payment and may affect lender requirements.

Does homeowners insurance cover flood damage?

Typically no. CFPB says homeowners insurance typically does not cover flood damage, and separate flood insurance may be needed.

What should buyers compare in insurance quotes?

Compare premium, deductible, coverage limits, exclusions, replacement cost terms, special deductibles and lender requirements.

What happens if a buyer does not maintain insurance?

CFPB says if a borrower does not have insurance, the lender may buy insurance and charge the borrower, and that coverage may only protect the lender and may be more expensive.

Sources with clickable URLs

[CFPB — Shop for Homeowner’s Insurance](https://www.consumerfinance.gov/owning-a-home/close/shop-for-homeowners-insurance/)
[CFPB — What Is Homeowner’s Insurance?](https://www.consumerfinance.gov/ask-cfpb/what-is-homeowners-insurance-why-is-homeowners-insurance-required-en-162/)
[U.S. Treasury/Federal Insurance Office — Homeowners Insurance Costs and Availability Report](https://home.treasury.gov/news/press-releases/jy2791)
[FloodSmart/NFIP — Flood Insurance Basics](https://www.floodsmart.gov/)
[CFPB — Closing Disclosure Explainer](https://www.consumerfinance.gov/owning-a-home/closing-disclosure/)

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