Why Does the VA Require Home Owners Insurance?

By Fortress VA Loans
Homeowner Education

Although first-time home buyers may not realize it at first, any reputable mortgage lender will require them to take out a home owner’ insurance policy (sometimes also known as hazard insurance) on their new home. All VA-approved lenders enforce this requirement. Although it may seem like you’re already having to pay a bundle for the principal and interest on your home, and insurance is just adding insult to injury, there are solid, logical reasons for the home insurance requirement.

Home owners insurance may not seem very important when you’re not using it, but if disaster strikes and causes major damage, you’ll certain see its value then. Imagine a huge fire starting in your new home and damaging a large portion of the structure and your possessions inside. If you didn’t have insurance, you would simply have lost the many hundreds or thousands of dollars you had invested in all of those belongings. And since your lender technically owns at least a portion of your home until you’ve completely paid off your mortgage, they would also have seen a large investment go up in smoke – literally. However, with an insurance policy in place, you’ll be reimbursed for at least part of the cost of everything that was damaged, and your lender will be compensated for their loss as well.

So what does home owners insurance cover? Plans can range from simple to complicated and general to specific, but they will nearly always include:

  • The structure of the home – If a fire, tornado, or hurricane (or other disasters spelled out in your policy) strike your home, your insurance company will pay for your home to be repaired or even rebuilt. The actual dollar amount of guaranteed coverage will depend on how much your home is worth – so if your home is worth $250,000, your insurance company (logically) won’t pay more than that for repairs.
  • Your personal belongings – Most of your possessions, including furniture, clothes, electronics, and appliances, will be covered in the event of one of the above-named disasters. However, most policies only insure belongings for 50% to 70% of the amount insured for the structure. So if you have $250,000 of coverage for the structure of your home, the amount you receive to repair or replace the stuff in the home will not exceed $175,000 for 70% insurance.
  • Additional living expenses – If you have to live away from home during repairs from a covered disaster, your insurance policy will cover certain associated expenses, such as hotel rooms and restaurant meals. There is no set amount for this coverage; it varies from policy to policy.
  • Personal liability – If you, a family member covered on your policy, or your pet injures someone else or damages their property, their legal and/or medical expenses will be covered by your home owners policy. Generally, about $100,000 is alotted for this coverage, but you can purchase more if you choose.

The breadth of your coverage can be affected by whether your policy covers only the depreciated cost of your home and possessions, their full replacement cost, or the full replacement cost of your home with added protections against inflation. If you live in an area that’s likely to be affected by flooding or earthquakes, you’ll probably also be required to purchase flood or earthquake insurance, because these disasters are not covered under regular home insurance policies. Depending on your circumstances, you may need to purchase additional coverage as a requirement for a VA mortgage if you’re going to be absent from your home for a while due to deployment or other military service. Many home owners policies include a “vacancy clause” stating that insurance coverage does not apply if the home has been vacant for a certain length of time (sixty days or more, perhaps), so you might need an endorsement to counteract such a clause.

When it’s time to purchase a home insurance policy, your lender can suggest a list of companies that cover property in your area, or you can do your own research. In any case, it’s best to shop around. Get quotes from several insurance companies, and pay close attention to the specific situations each policy will and will not cover. Also be sure to look at customer reviews for each company to get a sense of their reputations and what their processes are for dealing with emergency situations. Once you’ve secured an insurance policy, you’ll need to show proof to your lender so the loan process can keep moving.

The family of VA loan specialists and lenders at Fortress VA Loans knows that home owners’ insurance is just one of the many topics our clients may have questions about. Whatever questions or concerns you have about obtaining a VA loan, we’ll be glad to discuss them with you. Contact us right away – don’t delay!

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