Couple standing in a yard, looking at a new home.

Is Homeowners Included in a Mortgage?

Updated May 2, 2024 . AmFam Team

Whether you’re a first-time or experienced home buyer, the process of finding, exploring and negotiating your new home is exciting. But once you’ve found a new place, you’ll have some paperwork to manage.


Navigating the paperwork and requirements during a home sale can be confusing, especially regarding your mortgage (Opens in a new tab) and homeowners insurance (Opens in a new tab). But don’t worry — your mortgage lender and American Family Insurance agent (Opens in a new tab) (Opens in a new tab) are on your side to answer a wide range of questions. Let’s break down the basics.

Real estate agent showing a home to a couple.

What is homeowners insurance?

When you buy a home, two types of insurance come into play: homeowners insurance and private mortgage insurance (PMI). We’ll define both to give you a clearer picture of your insurance obligations as a homeowner. Let’s start with homeowner’s insurance:


Homeowners insurance is the insurance policy you will rely on if something happens to your home, your personal property and/or guests on your property. Your mortgage lender will require homeowners insurance because they want to know that their investment is protected.


But the main purpose of your homeowners insurance is to meet your specific, unique needs. Of course, it offers the property and liability protection you’d expect from a top-notch policy — but at American Family, you can customize your policy with a wide variety of add-on coverages. Ask your American Family agent about insurance endorsements and saving money by bundling and taking advantage of discounts.

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What is private mortgage insurance?

Private mortgage insurance (PMI) is not meant for home buyers and owners. Instead, PMI is how mortgage lenders protect themselves from borrowers who stop paying, default and foreclose on their homes.

PMI is typically required for borrowers who can’t make a down payment of 20% or more. But after you’ve paid down at least 20% of your mortgage’s principal, you may want to ask your lender to remove the PMI.

Happy family moving into a new home.

Homeowners Insurance, Your Mortgage and Escrow

Now that we’ve explained the difference between PMI and homeowners insurance let’s get back to the question of the latter being included in your mortgage. You have an escrow if you pay for your homeowners insurance as part of your mortgage.

An escrow is a separate account where your lender will take your payments for homeowners insurance (and sometimes property taxes), which is built into your mortgage, and makes the payments for you. This method benefits both you and your lender. You don’t have to worry about keeping track of one or two more bills, and they’re assured that you’re staying current on those financial obligations.

Some borrowers will be required to escrow their insurance and property taxes into their mortgage payments, and some won’t. Like your PMI, if you haven’t paid a 20% or more down payment on the home, your lender may require it.

If you’ve made a down payment of 20% or more, you can usually choose whether or not you want to pay your insurance with your mortgage. Those who decline to pay via escrow generally prefer to pay their insurance in one lump sum or have more control over when payments are made.

Happy family working in the yard together.

Have more questions about what you need to get a mortgage, the steps necessary to buy a home or how big of a home loan you can afford? Get started with the mortgage basics.

Whether you’re going to have your homeowners insurance rolled into your mortgage payments or not, it’s best to talk to your American Family Insurance agent long before you sign the lender’s paperwork. That way, your new homeowners insurance policy can be ready and waiting when you walk through your front door.

This article is for informational purposes only and based on information that is widely available from sources not associated with American Family Mutual Insurance Company, S.I. nor its Operating Companies. While we do our best to provide helpful resources, we make no guarantees or promises about the reliability, accuracy, or any potential outcomes. This information does not, and is not intended to, constitute legal or financial advice. You should contact an appropriate professional for advice specific to your situation.

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