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Do You Need Homeowners Insurance Before Closing On A House?

Do You Need Homeowners Insurance Before Closing On A House?

Posted by Heartland on 28th Nov 2022

Last year, first-time homebuyers made up 34% of total homebuyers. This year, the numbers dwindled to 26%.

Fewer first-time buyers are looking into the real estate market. If you are, however, you need to know about certain insurance requirements.

Do you need homeowners insurance before closing on a house? Keep reading to learn the answer.


Homeowners' insurance and title insurance aren't required by law, but most mortgage lenders require insurance to provide you with a home loan.

Once a policy is in place, you'll need to show proof of coverage to your mortgage lender before closing on a house.

You can use your home insurance binder as temporary evidence of coverage. If you have policy declarations on your closing date, this will also work as home insurance proof.


Mortgage lenders differ in their requirements of when you need to purchase homeowners insurance. Most lenders want to see proof of insurance anywhere from a few days to a few weeks before the closing date.

Start shopping for homeowners insurance and title insurance policies about a month from your closing date. Giving yourself enough time to look for the best policy will ensure you don't delay your closing date.

If you purchase insurance weeks in advance, you may be able to save on homeowners insurance premiums.

Some companies offer applicants an early bird discount for new coverage when they purchase before the policy's effective date.


After your mortgage gets approved, the lender will send you a notice requesting proof of home insurance. The notice will tell you the minimum requirements your policy must meet.

At a minimum, it's likely that a mortgage lender will require you to purchase a homeowners insurance policy that covers the perils of wind, theft, and fire. Most standard insurance policies for homes cover this.

You'll want enough homeowners insurance to cover all of your home's replacement value, also referred to as the cost to rebuild the home from the ground up.

Remember that this number won't be the same as the purchase price or the home's market value.

An insurance company can help you calculate replacement costs. If you want a more accurate estimate, you can opt for a cost appraisal for your home's replacement through a local contractor.

The policy you choose might need a mortgage clause as well. This provides assurance that your policy won't be canceled without 30 days' written notice given to the lender.


A mortgage lender might require homeowners to pay for a year's worth of homeowners insurance upfront. This could be completed before or during closing.

Homeowners insurance gets more expensive when you pay it monthly, so this requirement isn't always bad.

If you make less than a 20% down payment on your home, a lender may require that you pay your mortgage and other homeownership costs through an escrow account.

Escrow terms refer to adding the following to your mortgage payment:

  • Property taxes
  • Private mortgage insurance (PMI)
  • Homeowners insurance

PMI is not always required by a lender. If you take out a conventional loan and make a less than 20% down payment on your home, you won't need this type of coverage.


Many new homeowners confuse title insurance policies with homeowners insurance policies.

Homeowners' insurance coverage will protect your home from future problems, while title insurance protects you from unknown and hidden things.

These things can come up during the closing process, so it's not uncommon for a lender to ask for proof of title insurance as well.

Homeowners Insurance

Most people are familiar with homeowners insurance policies that can help repair or replace your home and its belongings. Coverage options typically include instances like:

  • Damage to the contents of your home
  • Living expenses if your home is uninhabitable
  • Personal liability for bodily injury or accidents to guests in the home
  • Theft of personal property in your home
  • Structural damage to your home or detached structures

States vary in homeowners insurance coverage caused by a natural disaster.

Title Insurance

Title insurance can protect yourself and your lender from financial loss and legal expenses if there is a property title defect.

If you have title insurance, a title examiner will review the history of your property and try to eliminate any title issues before the closing process. You'll pay a one-time premium at closing if you need title insurance.

Title insurance will cover the following:

  • A defect in the title caused by undisclosed liens or prior mortgage
  • A defect in the title caused by improper execution of documents
  • No right of access to and from the land
  • A defect in the title caused by improper document execution
  • A defect in the title caused by improper document filing
  • A defect in the title caused by fraud, forgery, duress, undue influence, or incompetency

There are standard and enhanced title insurance policies to choose from. The one you should choose will depend on your needs.

If you are purchasing a home with a lender's help, they will likely require you to purchase a lender's title insurance policy. However, you can also purchase an owner's policy.

You'll benefit from having both before closing on a house.

Lender's Policy vs. Owner's Policy

A lender's policy is what your lender requires you to purchase to protect themselves. This policy will protect lenders from valid claims on the property title. It will cover the lender for the amount of the mortgage loan.

You will not be protected by a lender's policy. If you want the same protections from valid title claims, you'll also need to purchase an owner's policy.


Homeowners insurance is necessary for homeowners that want to buy a home. If you are purchasing through a lender, you are likely to need a title insurance policy as well.

Use what you learned in this guide to get the right insurance to prepare for closing on a house. Contact us today to get a title insurance quote or to ask any questions you might have.