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Insurance

Homeowner's Insurance

Homeowner's insurance covers damage to your home and belongings from things like fire, storms, and theft, plus liability if someone is hurt on your property. Lenders require it because the home is their collateral too. The first year is often paid at closing, and future payments are usually collected monthly through escrow.

Your lender requires homeowner’s insurance because the house secures the loan, so they want it protected against fire, storms, and other damage. It also covers your belongings and gives you liability protection if someone is injured at your place. The Loan Estimate even has an Other Considerations note saying you can pick the insurer, as long as the lender finds them acceptable.

You usually pay the first full year upfront at closing, then your monthly payment includes a slice for next year’s premium, collected through escrow. Premiums can change year to year, which is one more reason your total payment can move over time.

Related terms

Escrow

Escrow has two meanings in a home purchase. Before closing, it's a neutral account that holds your earnest money and documents. After closing, an escrow account is where your lender collects part of your payment each month to pay property taxes and insurance for you when they come due.

Property Taxes

Property taxes are what your local government charges based on your home's assessed value, and they fund schools, roads, and services. Lenders often collect them monthly in an escrow account and pay the bill for you when it's due. Rates and amounts vary a lot by state and county, so the same priced home can cost very different amounts.

PITI (Principal, Interest, Taxes, Insurance)

PITI stands for the four parts of a typical mortgage payment: principal, interest, taxes, and insurance. Principal and interest pay back the loan, while taxes and insurance are often collected in an escrow account and paid for you. Lenders look at your full PITI, not just principal and interest, when they decide what you can afford.

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Last updated: June 13, 2026

This definition is educational and isn't an offer to lend or financial advice. Rates, programs, and guidelines may change without notice. All loans are subject to credit and property approval.

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