Homeowners insurance pays to repair or rebuild your house when it's damaged by a covered event, such as fire, windstorm, hail or a burst pipe. Lenders require it on every FHA, VA, USDA and Conventional loan, because the house is the security for the loan. In Florida, the policy is also where hurricane coverage lives, which makes it one of the biggest lines in a monthly payment.
How much coverage the lender requires
Lenders look at the dwelling coverage, the part of the policy that rebuilds the structure. Land doesn't burn or blow away, so the test is tied to the cost to rebuild the house itself.
- Conventional (Fannie Mae): the policy has to settle losses on a replacement cost basis, meaning it pays what it costs to rebuild without subtracting for age. Roofs are the one exception and may be covered at depreciated value. The policy must cover windstorm, including named storms.
- FHA: coverage of at least the lesser of the insurable value of the improvements, as set by the insurer, or the loan balance.
- VA and USDA: also require hazard insurance for as long as the loan is open, and the lender checks the coverage amount before closing.
The lender is listed on the policy as mortgagee, so a claim check for major damage is made out to both you and the lender.
Hurricane deductibles in Florida
Most Florida policies carry two deductibles: a flat amount for everyday claims and a separate hurricane deductible figured as a percentage of the dwelling coverage. Section 627.701 of the Florida Statutes requires insurers to offer hurricane deductible choices, including 2%, 5% and 10% of the dwelling limit, and to print the deductible's dollar value on the declarations page. The hurricane deductible applies once per calendar year, so a second storm in the same year doesn't start a new full deductible. Fannie Mae caps deductibles on a Conventional loan at 5% of the coverage amount, and a separate wind or hurricane deductible is held to that same 5%.
A worked example
A buyer purchases a $340,000 single-family home with a Conventional loan at 3% down, so the loan is $329,800. The insurer estimates the cost to rebuild the house at $265,000 and writes the dwelling coverage at that amount on a replacement cost basis. The coverage sits below the loan because the land under the house isn't insured.
| Hurricane deductible | Math | Dollar amount | Within the 5% cap? |
|---|---|---|---|
| 2% | $265,000 × 0.02 | $5,300 | Yes |
| 5% | $265,000 × 0.05 | $13,250 | Yes |
| 10% | $265,000 × 0.10 | $26,500 | No |
A 10% hurricane deductible would lower the premium, but it doesn't meet the Conventional cap, so this buyer picks 2% or 5%. The choice is a trade between the monthly premium and the cash you'd cover after a storm.
What you can do to keep the premium down
The premium is part of your monthly payment and counts in your debt-to-income ratio, so a lower quote can raise the price you qualify for. Ask for the seller's wind mitigation inspection, since hurricane straps, a secondary water barrier and impact openings earn credits. On older homes, a four-point inspection that shows an updated roof, panel and plumbing widens the list of insurers who'll quote. Get two or three quotes during your inspection period, and compare the same deductible on each. The first year's premium is collected with your prepaids, and after that it's paid from your escrow account.
Put an insurance quote into the mortgage payment calculator to see your full payment with taxes and insurance included. Once you have a quote on a specific house, call AAA Capital Funding at 888-601-8344 and we'll run your approval with that premium in it.