Homeowner's Insurance vs. Mortgage Insurance

If you’re purchasing a home, you probably have concerns about the many types of insurance you’ll need. One of the questions we often get asked is whether you need homeowners insurance or mortgage insurance. The answer to this boils down to what’s getting protected.

What Is Mortgage Insurance?

Mortgage insurance is a policy that some lenders may need to protect their funds should you default on your mortgage loan. This insurance doesn’t cover your home as the homebuyer. Instead, it protects the mortgage lender if you cannot make more payments.

When Is Mortgage Insurance Required?

You must get mortgage insurance if your down payment is less than 20 percent when you take out a mortgage. The requirement to have this coverage varies by lender, your circumstances, and your loan type. Therefore, you must consider asking your lender if you need mortgage insurance.

What Is Homeowners Insurance?

Homeowners insurance protects you in case your home is vandalized. Unlike the requirement to purchase mortgage insurance, the need to buy homeowners insurance is not associated with the down payment you make. Instead, it is tied to your property value.

When Is Homeowners Insurance Required?

Every homebuyer that takes out a mortgage loan to buy a home needs homeowners insurance. So even if you have a significant down payment, some mortgage lenders may require you to get homeowners insurance in case your home is destroyed or damaged, and you cannot afford to repay your mortgage debt.

Do I Need Both?

Whether or not you need both insurance policies will depend on your lender and personal financial circumstances. However, most homeowners would benefit from either of the insurance policies. So, take the time to know the difference between the two to ensure you’ve got the coverage you need.