Why Mortgage Lenders Often Require Home Insurance

Owning a home is a dream come true for many. Yet owning a home also means taking on many responsibilities. Many homeowners will have to take out a mortgage from a lender, such as a bank or credit union. Typically, lenders will require that the home also be insured. Contact The Sirover Agency LLC, serving Wayne, PA and other communities, to explore home insurance options.

Here’s Why Lenders Require Home Insurance

Mortgages are typically among the more affordable loans that a person can take out. That’s due, in part, to the fact that the loan is “secured.” A secured loan is backed by collateral, meaning if the borrower stops making payments, the lender can take possession of the home.

This reduces risks for lenders. If a bank extends a mortgage loan, they know that they’ll likely be able to take control of the home. The bank will then be able to sell the home and pocket the money. The amount received could cover the balance of the loan, if not more.

Secured loans are generally less risky for lenders than unsecured loans. However, this security is heavily dependent on the value of the collateral. If an uninsured home burns down or is destroyed by a natural disaster, among other things, the property will frequently lose much of its value.

If the loan is insured, however, damages are often covered by the insurer. This protects not just the homeowner but also the bank (and their collateral). 

Further, if a property is destroyed and there’s no way for the homeowner to recoup their losses, they might stop making payments on the property. After all, who wants to continue making mortgage payments for a home that is no longer inhabitable, and that is now suddenly worth a lot less?

Ultimately, insurance protects lenders and their investments. As such, many banks require that homes be insured.

Contact Us Today

Get in touch with The Sirover Agency LLC to discuss your insurance options. We gladly serve Wayne, PA and surrounding communities.