Last Updated April 2026
- Mortgage insurance can help protect your bank or other lender in case you miss mortgage payments or default on your home loan.
- Homeowners insurance can help you protect against losses in cases of covered damage to your home, theft and certain liability.
- Your mortgage lender may require one or both types of insurance to cover different risks to their investment in your home.
The key difference is that mortgage insurance applies to your loan while homeowners insurance applies to your home.
Many mortgage lenders require both because both can help protect the lender’s financial interest in your home. Mortgage insurance protects that interest directly by covering the loan itself. Homeowners insurance protects that interest indirectly by helping to maintain or restore the home’s value so the lender isn’t left holding a damaged property as loan collateral.
People often confuse them because both home and mortgage insurance can be paid through an escrow account as part of a mortgage payment.
What is mortgage insurance?
Mortgage insurance helps protect your lender from losses if you stop making payments and default on your loan. Mortgage insurance doesn’t protect your home itself or you as the homeowner.
These are the main types of mortgage insurance:
- Private mortgage insurance (PMI). Typically used for conventional loans, meaning mortgages issued by a private lender like a bank, when the down payment is less than 20%. Most commonly it’s paid monthly from an escrow account as part of your mortgage payment. Or, depending on the loan program, you might pay it all at once, either as an upfront charge at closing or rolled into your loan amount.
- Mortgage insurance premium (MIP). Required on many Federal Housing Administration (FHA) loans. Typically includes both a one-time, upfront premium that’s rolled into the loan or paid at closing and an annual premium, often paid monthly.
When is mortgage insurance required?
Mortgage insurance is typically required when your down payment is less than 20% of the home’s purchase price.
When you take out a home loan from a private lender like a bank, private mortgage insurance (PMI) is generally required when you’re borrowing more than an established percentage of the home’s value. (There may be exceptions, depending on your lender’s program.)
You can ask that your PMI requirement be removed once you’ve built your home equity to about 20%. That’s often around 80% loan-to-value, or LTV, meaning the amount you owe has fallen to 80% of your home’s value. Under federal law, lenders are generally required to automatically terminate PMI once your loan reaches 78% LTV, according to the Consumer Financial Protection Bureau. Rules can vary depending on your loan type, payment history and lender.
With FHA loans, you’ll usually be required to pay mortgage insurance premiums (MIP) even if you make a larger down payment. In many cases, MIP lasts 11 years when you put down 10% or more, and it can last for the life of the loan when you put down less than 10%, according to the U.S. Department of Housing and Urban Development.
Some government-backed loans, like those from the Department of Veterans Affairs (VA) and the U.S. Department of Agriculture (USDA), require home-loan fees that aren’t called mortgage insurance but function in a similar way.
What is homeowners insurance?
Homeowners insurance can help you protect yourself financially if certain sudden or unexpected events (such as fire, theft or windstorm) damage your home or belongings, or if you’re found legally responsible for someone else’s injury or property damage.
Depending on your policy and state, homeowners insurance typically includes these coverages:
- Dwelling
- Other structures
- Personal property
- Loss of use (additional living expenses)
- Personal liability
When is homeowners insurance required?
Homeowners insurance is not required by law. But if you have a mortgage, your lender will usually require you to keep homeowners insurance in place until the loan is paid off. That’s because the home is collateral for your mortgage. If a covered event damages your home, homeowners insurance can help pay for repairs, which can help protect your finances and your lender’s interest in the property.
Borrowers can often choose to pay their homeowners insurance premium through an escrow account as part of their monthly mortgage payment. That can make the homeowners policy seem as though it’s part of the mortgage, but it’s separate.
Even after your mortgage is paid off, many homeowners choose to keep homeowners insurance in place to help them protect their assets in case of damage or injuries.
Key differences between mortgage insurance and homeowners insurance
| Mortgage Insurance | Homeowners Insurance | |
|---|---|---|
|
Who it helps protect |
|
You and your home, as well as the lender’s interest in your home |
| What it helps cover | The lender’s losses if the borrower defaults | Costs related to sudden, unexpected damaging events and the owner’s liability if someone is injured on the property |
| When it’s required | Typically required on conventional loans when buyers put down less than 20% and on most FHA loans regardless of down payment | Typically required by the lender for the life of your loan |
| How long it lasts | It can be removed, typically when you reach about 20% equity in your home. Details vary (e.g., FHA mortgage insurance may last 11 years or for the life of the loan) | Generally for as long as you hold the mortgage |
| How it’s paid | Monthly or as an upfront charge either paid at closing or rolled into your loan amount | Premiums are paid to a private insurer, monthly or annually, either directly or through an escrow account |
Mortgage Insurance vs. Homeowners Insurance: When Could You Need Each?
| Mortgage insurance | Homeowners insurance |
|---|---|
|
|
Understanding the differences between mortgage insurance and homeowners insurance can help you plan for the true cost of buying and owning a home. A Farmers® agent can walk you through what your lender requires and what coverage choices may help in your situation.
The information contained in this page is provided for general informational purposes only. The information is provided by Farmers® and while we endeavor to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to this article or the information, products, services, or related graphics, if any, contained in this article for any purpose. The information is not meant as professional or expert advice, and any reliance you place on such information is therefore strictly at your own risk.
Related articles
Home Insurance Deductibles: What You Need to Know
Learn about home insurance deductibles, how they work, and how they impact your policy options and claims.
How Should I Prepare to Buy My First Home?
Check your credit, calculate how much you can afford, save for a down payment and closing costs, get a mortgage preapproval, research the housing market and find a good real estate agent.
What Are Some Things I Should Consider When Buying Home Insurance?
Start by thinking about what you stand to lose in a fire, tornado or some other catastrophic event. Your house, and personal property should be covered. Learn more.
