Can You Get a Mortgage Without Home Insurance?

When you get a mortgage, you'll have to complete a few tasks so a lender is comfortable providing you with a loan. You'll need to make a down payment with most loans, undergo a credit check, and provide financial details about your income and debt. 

There may also be one other task to check off your to-do list: Purchasing homeowners insurance. 

Homeowners typically must have the required minimum homeowners insurance coverage in place prior to closing on a loan. Here's what homeowners need to know about this essential coverage. 

Mortgage lenders require proof of insurance to give you a loan

Mortgage lenders want to make sure they have collateral for the loan. This is why lenders typically require homes to be appraised, and why lenders will not loan out more than a certain percentage of a home's value. The goal is to make sure they could foreclose and sell the house for enough to get their money back if a homeowner stops paying on the loan. 

Since the house is collateral for the mortgage loan, lenders require homeowners to have sufficient insurance coverage on the property before they will agree to provide funds to buy it. Most lenders require proof of insurance when a home closes, so the house is protected right away.

If lenders didn't require insurance and a disaster happened, like the home burning down, most people wouldn't be able to just afford to rebuild the property without insurance coverage. Homeowners could abandon the burned down home, the lender could be left unable to sell it to get its money back, and the lender would be out the funds (or would have to try to pursue court action to get the money back through a lawsuit, which might not be successful). 

To make sure this doesn't happen, lenders typically require an insurance policy that would cover the full replacement value of the property. This way, there's money to rebuild if a fire or other calamity befalls the property. 

You'll need to maintain coverage for the life of the loan

Not only do mortgage lenders typically require homeowners insurance before they close on a property, but they also want to make sure the house is insured for the entire duration of the outstanding loan balance.

If a homeowner lets coverage lapse, the lender can get something called force-placed insurance. This would essentially mean the lender would put a policy into effect on the home -- usually a very expensive one. The policy would protect the collateral, but the homeowner would have to pay for it. And, it usually wouldn't have any additional insurance coverages a homeowner might need, such as coverage for personal property kept inside of the home. 

To avoid potentially having to pay a lot more for inadequate coverage, homeowners should keep required home insurance policies in effect. Even after a loan is repaid, it's a good idea to keep this coverage because a home is a valuable asset that would simply not be easy to replace from savings if something went wrong.