What your property or belongings are worth today, after depreciation. If your 10-year-old roof is destroyed, ACV pays what a 10-year-old roof is worth, not what a new one costs. Compare to Replacement Cost Value. More on ACV vs. replacement cost.
Coverage that pays for temporary housing and related costs if your home becomes uninhabitable after a covered loss. Hotel bills, restaurant meals, and storage fees may qualify depending on your policy.
A mortgage where the interest rate changes periodically based on a market index. ARMs typically start with a fixed rate for a set period (3, 5, or 7 years), then adjust annually. Monthly payments can go up or down when the rate adjusts.
An insurance company licensed and regulated by the state where you live. Admitted carriers are backed by state guaranty funds, which provide a safety net if the carrier becomes insolvent.
The process of paying off a loan through scheduled payments over time. Early payments go mostly toward interest. Later payments shift toward principal. A 30-year mortgage amortizes over 360 monthly payments.
An independent estimate of a property's market value, ordered by the lender before closing. Lenders use appraisals to confirm the home is worth at least as much as the loan amount.
A temporary proof of insurance issued by your insurer before your policy is finalized. Lenders often require a binder at closing to confirm coverage is in place before the loan funds.
A single policy limit that covers multiple properties or items under one umbrella. Common in commercial real estate and some condo associations.
The insurance company that underwrites and issues your policy. Not to be confused with an agent or broker, who sells on behalf of one or multiple carriers.
A refinance where you borrow more than you owe on your current mortgage and receive the difference in cash. The new loan replaces the old one. Lenders will require updated proof of homeowners insurance.
A document summarizing your coverage details. Lenders, landlords, and contractors often request a COI to verify that active coverage is in place.
The federal agency that regulates consumer financial products and services, including mortgages. The CFPB sets rules around how servicers must handle insurance lapses, escrow accounts, and force-placed insurance notices.
A formal request to your insurance company to pay for a covered loss. Filing a claim triggers an investigation by the carrier, and payouts are subject to your deductible and policy limits. How claims affect your rates.
The person assigned by your insurer to investigate a claim, assess damage, and determine the payout. Some adjusters are staff employees. Others are independent contractors.
The point at which the underwriter has reviewed and approved all outstanding conditions on a loan file. Once issued, the loan can move to closing. Receiving a clear to close means no further documentation or verifications are required.
The final step in a home purchase or refinance where documents are signed, funds are transferred, and ownership (or new loan terms) become official. Insurance coverage must be active at closing.
Fees and expenses paid at closing, separate from the down payment. These may include origination fees, title insurance, appraisal costs, prepaid insurance premiums, and escrow setup funds.
The final, binding document provided to a borrower at least three business days before closing. It itemizes all loan terms, closing costs, and escrow setup amounts in their final form. Supersedes the Loan Estimate. Required under TRID. CFPB Closing Disclosure explainer.
A database report that shows the insurance claims history of a property or individual over the past seven years. Carriers pull a CLUE report when underwriting a new policy. A home with prior water damage, fire, or frequent claims can be more difficult or expensive to insure, which directly affects a buyer's ability to obtain coverage and close on a loan.
A provision that requires you to insure your property for at least a minimum percentage of its value (typically 80%). If you're underinsured and file a claim, the carrier may only pay a proportional share of the loss.
A formal written approval from the lender confirming that the loan has been conditionally or fully approved and the lender agrees to fund it. May be issued with remaining conditions. Different from a pre-approval, which is issued earlier in the process before full underwriting review.
Outstanding items required by the underwriter before issuing final loan approval. May include updated insurance documentation, letters of explanation, additional bank statements, or corrected appraisal items. A loan is not clear to close until all conditions are satisfied.
A mortgage that meets the guidelines set by Fannie Mae and Freddie Mac, including loan limits and underwriting standards. Most conventional loans are conforming.
A mortgage not backed by a government agency. Conventional loans follow Fannie Mae or Freddie Mac guidelines and typically require PMI if the down payment is below 20%.
A period when a property has no active insurance. Even a one-day gap can expose the borrower to out-of-pocket losses and trigger lender-placed insurance.
Your total monthly debt payments divided by your gross monthly income. Lenders use DTI to evaluate whether you can afford the loan. Rising insurance premiums can increase DTI and affect qualification.
The summary page of your insurance policy. It lists your name, property address, policy number, coverage amounts, deductible, premium, and policy dates. Lenders request the dec page to verify coverage.
The amount you pay out of pocket before insurance kicks in. A $2,500 deductible means you cover the first $2,500 of any claim. Higher deductibles lower your premium but increase your exposure on claims.
A legal document used in some states instead of a mortgage. It transfers the property title to a neutral third party (trustee) until the loan is repaid. Functions similarly to a traditional mortgage for insurance purposes.
Failure to meet the terms of a loan agreement, most commonly by missing payments. Defaulted loans trigger servicer obligations, including monitoring hazard insurance status.
The reduction in value of property or belongings over time due to age and wear. Insurance carriers use depreciation schedules when calculating ACV payouts.
The most limited dwelling fire policy. Covers a narrow set of named perils, primarily fire, lightning, and internal explosion. Pays claims on an actual cash value (ACV) basis. Often used for vacant homes, properties in poor condition, or risks that don't qualify for standard coverage.
A mid-tier dwelling fire policy with a broader named-perils list than DP-1. Adds coverage for windstorm, hail, smoke, vandalism, falling objects, weight of ice and snow, and certain plumbing-related water damage. Pays claims on a replacement cost basis.
The most comprehensive dwelling fire policy and the most commonly used form for active rental properties. Covers the dwelling on an open-perils basis. Pays replacement cost. Typically includes loss of rental income coverage, which reimburses the landlord for rent lost while the property is uninhabitable following a covered loss. DP-1 vs. DP-2 vs. DP-3.
The portion of your homeowners policy that covers the structure of your home. Lenders require dwelling coverage at a minimum. Coverage should reflect the cost to rebuild, not the market value.
The category of insurance used for non-owner-occupied residential properties, most commonly rental homes. Unlike a standard homeowners policy, a dwelling fire policy is designed for landlords and does not cover tenants' personal belongings. See also DP-1, DP-2, DP-3, and Landlord Insurance.
The date your insurance coverage begins. Lenders require coverage to be active on or before the closing date. There is no grace period.
Insurance products integrated directly into a mortgage or lending workflow. Instead of the borrower sourcing coverage independently, embedded insurance allows them to get quoted and bind coverage within the lender's platform or process. What is embedded insurance.
An amendment to a standard insurance policy that adds, removes, or changes coverage. Also called a rider. Common endorsements include water backup coverage, scheduled personal property, and ordinance or law coverage.
An account managed by your loan servicer that holds funds for property taxes and insurance. A portion of your monthly mortgage payment goes into escrow, and the servicer pays your insurance premium directly to the carrier when it comes due.
An annual review your servicer conducts to reconcile your escrow account. If insurance premiums or taxes increased, your monthly payment adjusts to cover the shortfall. Why your mortgage payment went up.
When your escrow account doesn't have enough to cover upcoming insurance or tax payments. Servicers notify you when a shortage is identified and typically spread the catch-up amount over 12 months.
Documentation proving active insurance coverage. Lenders may request an EOI at origination, closing, renewal, or any time the servicer suspects a lapse.
A peril or situation specifically not covered by your policy. Common exclusions include flood damage, earthquake damage, and normal wear and tear. You may be able to buy separate coverage for excluded risks.
An endorsement that increases your coverage limit beyond the stated dwelling amount, typically by 20 to 50 percent, if rebuilding costs exceed your policy limit after a covered loss. Provides a buffer against construction cost spikes that occur when demand surges after a widespread disaster.
A mortgage backed by the Federal Housing Administration. FHA loans allow lower credit scores and smaller down payments but require mortgage insurance premiums (MIP) regardless of the loan-to-value ratio.
A mortgage where the interest rate stays the same for the life of the loan. Monthly principal and interest payments never change, though escrow payments can shift if insurance premiums or taxes change.
A separate policy required in designated high-risk flood zones. Standard homeowners policies don't cover flood damage. Coverage may be purchased through the NFIP or private carriers. Do I need flood insurance?.
A temporary arrangement where the servicer allows a borrower to reduce or pause payments. Servicers still monitor insurance status during forbearance periods.
See Lender-Placed Insurance (LPI). What is lender-placed insurance.
The legal process by which a lender takes possession of a property after a borrower defaults. Insurance obligations don't disappear during foreclosure. The servicer typically maintains coverage on the property through the process.
A state-run fund that protects policyholders if their admitted carrier becomes insolvent. Coverage limits vary by state. Non-admitted (surplus lines) carriers are not covered by guaranty funds.
The term lenders use for homeowners insurance. It refers specifically to the coverage protecting the physical structure of the home against damage. Lenders require hazard insurance as a condition of the loan.
A revolving credit line secured by your home's equity. HELOCs are second liens, and lenders typically require active homeowners insurance throughout the draw and repayment periods.
The most common homeowners insurance policy type. Covers the structure on an open-perils basis (everything except exclusions) and personal property on a named-perils basis.
The standard renters insurance policy. Covers a tenant's personal property and personal liability but not the structure of the building. Landlords often require tenants to carry HO-4 coverage. Does not satisfy lender hazard insurance requirements, which apply to the property owner. Landlord vs. renters insurance.
A premium homeowners policy that covers both the dwelling and personal property on an open-perils basis. More comprehensive than an HO-3, which covers personal property on a named-perils basis only. Pays replacement cost on both the structure and contents.
A condo unit owners policy. Covers the interior of the unit and personal property. Works alongside the HOA Master Policy, covering what the master policy doesn't.
A policy designed for older homes where the replacement cost significantly exceeds the market value. Pays claims on a modified replacement cost or ACV basis.
The insurance policy purchased by a homeowners association to cover common areas and sometimes the building structure. Condo buyers need to understand what the master policy covers before buying their own policy.
The legal requirement that a policyholder must have a financial stake in the property being insured. That means they would suffer a direct financial loss if the property were damaged or destroyed. Lenders and borrowers both have insurable interests in a mortgaged property, which is why both are named on the policy.
A credit-based score used by carriers to estimate risk and set premiums. Not the same as a credit score, but similar data is used. A lower score typically means higher premiums.
The process servicers use to monitor active hazard insurance on every loan in their portfolio. When coverage lapses, servicers are required to notify the borrower and, if coverage isn't restored, place lender-placed insurance.
The ratio of your dwelling coverage limit to the estimated replacement cost. Lenders and carriers want this ratio close to 100%. Being underinsured at the time of a loss can result in a reduced payout.
A mortgage that exceeds conforming loan limits set by Fannie Mae and Freddie Mac. Jumbo loans have stricter underwriting requirements and sometimes require higher dwelling coverage minimums.
A policy designed for owners of non-owner-occupied residential rental properties, also referred to as a dwelling fire policy. Covers the structure, landlord-owned appliances and fixtures, personal liability, and typically loss of rental income if the property becomes uninhabitable after a covered loss. Does not cover tenants' personal belongings. Tenants must carry their own renters (HO-4) policy. Lenders require landlord insurance on investment property loans. See also DP-1, DP-2, DP-3. What landlord insurance covers.
Also called force-placed insurance. Coverage a servicer purchases on a borrower's behalf when the borrower's policy lapses or falls below required limits. LPI protects the lender's interest only, not the borrower's personal property. It's significantly more expensive than standard coverage. Why lender-placed insurance matters.
The portion of your homeowners policy that covers legal costs and damages if someone is injured on your property or if you accidentally damage someone else's property.
A standardized form lenders provide within three business days of a mortgage application. It includes estimated closing costs, monthly payment breakdowns, and escrow projections, including insurance. CFPB Loan Estimate explainer.
A permanent change to the terms of an existing loan, typically used to make payments more manageable after a hardship. Insurance requirements remain in place during and after a modification.
The licensed mortgage professional who takes a borrower's application, advises on loan products, and guides the file through the origination process. Also called a Mortgage Loan Originator (MLO). Loan officers must hold an active NMLS license in the states where they originate.
The person who collects and organizes a borrower's documentation, orders the appraisal and title, and prepares the complete loan file for underwriting review. Serves as the operational link between the loan officer and the underwriter.
The ratio of the loan balance to the property's appraised value. A $200,000 loan on a $250,000 home is an 80% LTV. LTV affects PMI requirements and sometimes insurance minimums.
The range of options a servicer offers to help a borrower avoid foreclosure. Includes repayment plans, modifications, and forbearance. Insurance status is monitored throughout.
Coverage included in most DP-3 and landlord insurance policies that reimburses a property owner for rent they cannot collect while the property is uninhabitable following a covered loss. The investment property equivalent of Additional Living Expenses (ALE).
A party listed on an insurance policy who receives claim payments in the event of a covered loss. Your mortgage lender is typically listed as a loss payee on your homeowners policy.
A licensed intermediary who shops multiple lenders on a borrower's behalf to find the best available loan product. Unlike a loan officer at a bank or lender, a broker does not fund loans directly. Compensation must be disclosed and is typically paid by the lender, the borrower, or both.
Insurance that protects the lender if you default. This is different from homeowners insurance. It doesn't cover your home or belongings.
The legal document you sign promising to repay the loan. It outlines the interest rate, repayment schedule, and consequences of default.
The lender. When you take out a mortgage, the lender is the mortgagee and you are the mortgagor.
A provision in your homeowners policy that names your lender and directs claim payments to them as their interest appears. Required by all mortgage lenders. Must be updated if you refinance or change servicers.
A policy structure that only covers damage caused by perils specifically listed in the policy. If the cause of damage isn't on the list, it's not covered.
The federal program administered by FEMA that provides flood insurance in participating communities. Many lenders require NFIP coverage for properties in designated Special Flood Hazard Areas.
The federal registry where mortgage loan originators, brokers, and companies are licensed, registered, and tracked. Borrowers can search the NMLS to verify a loan officer's license status and review any disciplinary history.
An insurer not licensed in the state but legally allowed to write coverage for risks that admitted carriers won't take. Also called surplus lines. Not backed by state guaranty funds.
A policy structure that covers all causes of loss except those explicitly excluded. Also called all-risk coverage. HO-3 policies use open perils for dwelling coverage.
An endorsement that pays the additional cost to bring your home up to current building codes after a covered loss. Older homes often need this because modern codes require upgrades that go beyond simple repairs.
The process of creating a new mortgage loan, from application through closing. Insurance verification is part of the origination checklist.
A specific risk or cause of loss, such as fire, windstorm, hail, or theft. Your policy lists which perils are covered and which are excluded.
The portion of your homeowners policy that covers your belongings, such as furniture, clothing, and electronics. This does not cover the structure of the home.
Insurance required on conventional loans when the down payment is below 20%. PMI protects the lender if you default. It's separate from homeowners insurance. PMI automatically cancels when the loan balance reaches 78% of the original purchase price, or 22% equity. The borrower can request cancellation at 20% equity.
Prepaid interest paid at closing to lower your mortgage rate. One point equals 1% of the loan amount. Points don't affect your insurance requirements.
The maximum amount your insurer will pay for a covered loss. Dwelling coverage limits should reflect full replacement cost, not market value.
The dates your coverage is active. Most homeowners policies run for 12 months. Lenders monitor renewal dates to ensure continuous coverage.
A more rigorous evaluation than pre-qualification. The lender has verified the borrower's income, assets, and credit and issued a conditional commitment to lend up to a specified amount. Pre-approval carries more weight with sellers and is typically required before a purchase offer is taken seriously.
An informal estimate of how much a borrower may be able to borrow, based on self-reported financial information without formal verification. Less reliable than a pre-approval and generally does not involve a credit pull or document review.
The original loan amount, or the remaining balance owed on a loan. Monthly mortgage payments reduce principal over time.
A formal, sworn statement that a policyholder submits to the insurance carrier documenting the details of a claim: what was damaged, how it occurred, and the estimated value of the loss. Required by most policies within a specified time frame. Failing to submit proof of loss can delay or jeopardize a claim payout.
A lender commitment to hold a specific interest rate for a set period while the loan closes. Rate locks typically last 30 to 60 days. Insurance requirements don't change during a rate lock period.
Replacing an existing mortgage with a new one, typically to get a lower rate, change the loan term, or access equity. Lenders require a new evidence of insurance at closing on a refinance, and the mortgagee clause must be updated.
What it costs to rebuild or replace damaged property with new materials at current prices, without deducting for depreciation. Most lenders require dwelling coverage at or near full replacement cost. Replacement cost vs. ACV.
Federal law that governs mortgage origination and servicing, including how escrow accounts must be managed and disclosed. RESPA requires servicers to notify borrowers before making escrow adjustments.
See Endorsement.
A carrier's depreciation or eligibility schedule based on a roof's age and material. Many insurers will not write a new policy, or will limit coverage to actual cash value, on homes with roofs older than 15 to 20 years. Roof condition is one of the most common underwriting barriers in today's market and directly affects a buyer's ability to obtain coverage at closing.
An endorsement or separate floater that covers specific high-value items, such as jewelry, fine art, musical instruments, or camera equipment, for their individually appraised or agreed value. Standard personal property coverage often carries sublimits that are insufficient for these items.
The company that manages your mortgage after it closes. Servicers collect payments, manage escrow accounts, monitor insurance, and handle delinquencies. The servicer may be different from the lender who originated your loan.
A sale where the property is sold for less than the outstanding loan balance, with lender approval. Insurance must remain active through the closing of a short sale.
A federally designated high-risk flood zone. Lenders are required by law to mandate flood insurance for properties in SFHAs. Check your flood zone (FEMA).
The right of your insurance company to pursue the party responsible for your loss after paying your claim. If someone else caused the damage, your insurer can seek reimbursement from that party.
See Non-Admitted Carrier.
Insurance that protects against defects in the title to a property, such as unpaid liens or ownership disputes. Lenders require a lender's title policy. This is separate from homeowners insurance and covers legal title issues, not physical damage.
A determination by the insurer that the cost to repair a structure equals or exceeds its insured value, or meets a state-defined threshold. Results in a full payout of the dwelling coverage limit rather than a repair settlement. When a total loss occurs on a mortgaged property, lenders have specific procedures governing how claim proceeds are applied to the loan balance.
Federal rules that govern the Loan Estimate and Closing Disclosure forms. TRID standardizes how lenders present costs, including escrow estimates for insurance and taxes.
A policy that provides additional liability coverage above the limits of your homeowners or auto policy. It kicks in when a claim exceeds those underlying limits. Who needs umbrella insurance.
When your coverage limits are lower than what it would actually cost to rebuild or replace your property. Being underinsured means you bear the gap out of pocket when a major claim hits.
The individual at the lending institution who reviews the complete loan file and makes the final credit decision. Evaluates the borrower's income, assets, credit history, the property appraisal, title, and insurance documentation. Issues approvals, denials, or conditional approvals listing items that must be resolved before closing. Distinct from an insurance underwriter, who evaluates risk on behalf of a carrier.
The process by which an insurer evaluates risk and decides whether to issue a policy and at what premium. Mortgage underwriting is a separate process evaluating borrower creditworthiness.
A mortgage backed by the Department of Veterans Affairs, available to eligible veterans, active-duty service members, and surviving spouses. VA loans don't require PMI, but standard homeowners insurance is still required.
A specified period during which a newly purchased policy is not yet active and no claims can be filed. The NFIP flood program has a standard 30-day waiting period. Borrowers who discover a flood insurance requirement close to closing must account for this delay. Private flood carriers sometimes offer shorter or no waiting periods.
A separate, percentage-based deductible that applies specifically to losses caused by wind or hail. Common in coastal and storm-prone states such as Texas, Florida, and the Carolinas. Calculated as a percentage of the dwelling coverage amount, typically 1 to 5 percent, rather than a flat dollar amount. Borrowers in affected areas often carry a much higher effective deductible than they realize.
A type of seller financing where the buyer makes payments to the seller, who continues to pay the original mortgage. Insurance requirements remain tied to the original lender's terms.
Covered is a licensed insurance agency. Not all carriers or products are available through Covered. Availability varies by state. Compensation may be received from carriers.
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“Quotes are presented solely for your convenience. Savings may vary. Rates are subject to change based upon the specific coverage you select and other factors that apply to your situation. CA License #0M81402, doing business as Cubbard Insurance Solutions in California.”