Mortgage insurance and homeowners insurance are often confused, but they serve very different purposes. One generally protects the lender, while the other helps protect the property and homeowner.
What is mortgage insurance?
Mortgage insurance may be required on certain loans when the borrower makes a smaller down payment or chooses a specific loan program. It protects the lender if the borrower defaults.
What is homeowners insurance?
Homeowners insurance helps protect the home and belongings from certain covered events, such as fire, theft, wind, or other risks listed in the policy. Lenders usually require homeowners insurance when a property is financed.
Key differences
- Mortgage insurance protects the lender
- Homeowners insurance protects the property and homeowner interests
- Mortgage insurance may depend on down payment, loan type, or LTV
- Homeowners insurance depends on property, coverage, carrier, and location
- Both can affect monthly housing costs
Want to estimate a full mortgage payment?
Can both be required?
Yes. A borrower may have both homeowners insurance and mortgage insurance. For example, a buyer using a conventional loan with less than 20% down may have homeowners insurance and PMI.
Why this matters for affordability
Both insurance costs can affect your total monthly payment. When estimating affordability, buyers should consider principal, interest, taxes, homeowners insurance, mortgage insurance, and HOA dues where applicable.