If you have a mortgage in Texas, your lender requires homeowners insurance that protects the house itself, names the lender in a mortgagee clause, and is in place on the day you close. You choose the insurer and the policy, as long as it meets the loan program's minimums, like Fannie Mae's rule that the policy cover the home on a replacement cost basis with no deductible above 5 percent of the coverage amount. Most Texas buyers pay the first year's premium at or before closing, and after that the premium is usually collected monthly through escrow. Your insurance cost also counts in the payment the lender uses to qualify you, so it's worth quoting early.
Why the lender requires it
The house is the lender's collateral. If it burns or a storm destroys the roof, the insurance money rebuilds the home that secures the loan. Your loan documents require you to keep coverage for the life of the loan, and the servicer checks every year. If coverage lapses, the servicer can buy a policy for you, called force-placed insurance, which is usually more expensive and protects mainly the lender. Federal rules in 12 CFR 1024.37 require written notices before a servicer can charge you for it.
Homeowners insurance is different from mortgage insurance. Homeowners insurance protects the house. Mortgage insurance (FHA MIP or conventional PMI) protects the lender if the loan defaults. You can need both. See mortgage insurance for that side.
What kind of policy you need
- A single-family home you'll live in: a homeowners policy, often written on an HO-3 style or broader form, covering the dwelling, other structures, personal property, and liability.
- A condo unit: usually an HO-6 unit owner's policy. The association's master policy covers the building as the declaration describes; your policy covers your interior, belongings, and liability as needed.
- A rental or investment property: a landlord or dwelling fire policy, not an owner-occupant policy. Occupancy has to match the policy, or a claim can be denied.
- A manufactured home: a policy written for manufactured housing.
Texas insurers sell several policy forms with different coverage, and the Texas Department of Insurance (TDI) publishes a home insurance guide that compares them. Read the form, not just the price.
The lender's requirements by layer
Conventional (Fannie Mae)
Fannie Mae's Selling Guide B7-3-02 (updated Aug 5, 2026) sets the minimums for one- to four-unit homes:
- Perils: the policy should be written on a "Special" coverage form or equivalent and cover at least fire or lightning, explosion, windstorm (including named storms), hail, smoke, aircraft, vehicles, and riot or civil commotion. If wind or hail is excluded or limited, you need a separate policy that covers it.
- Coverage sufficiency: coverage must be on a replacement cost basis. Roofs must be insured but don't have to be on a replacement cost basis. This replaced the older dollar-amount test (lesser of replacement cost or loan balance) that many articles still quote.
- Deductible: no more than 5 percent of the coverage amount, and each separate deductible, like a wind and hail deductible, must also be no more than 5 percent.
- Mortgagee clause: B7-3-08 requires a standard mortgagee clause naming the lender or servicer, followed by "its successors and/or assigns," with the servicer's mailing address. A loss payable clause instead of a mortgagee clause isn't acceptable.
Freddie Mac sets its own insurance requirements in its Guide, which wasn't accessible online to check for this update.
FHA, VA, and USDA
FHA requires evidence of hazard insurance in the loan file before the loan is insured (HUD 4000.1 endorsement checklist), and FHA loans escrow for insurance. If the home is in a FEMA special flood hazard area, HUD requires flood insurance for the life of the loan in at least the lowest of the replacement cost of the improvements, the maximum NFIP coverage available, or the loan balance. VA and USDA also require hazard insurance and follow their own handbooks and the lender's instructions. Your approval will list exactly what the underwriter needs.
Lender and investor requirements
Beyond the agency minimum, the closing instructions list the exact mortgagee clause, the loan number, and the effective date. I don't add extra insurance requirements beyond what the program and investor require, but those details have to match exactly, or the title company can't close.
Texas notes: wind, hail, and roofs
North Texas is hail country. Many Texas policies have a separate wind and hail deductible written as a percentage of the dwelling coverage, not a flat dollar amount, so a 2 percent deductible on a higher coverage amount is a lot more out of pocket than it sounds. On a Fannie Mae loan, that deductible can't be more than 5 percent of coverage. Roof age, roof material, and hail history affect both the price and whether a carrier will write the policy at all, and some policies pay roof claims on an actual cash value basis instead of replacement cost. Read that part closely. See wind and hail coverage.
Flood is excluded from standard homeowners policies. Parts of Tarrant County sit in FEMA flood zones, and you can check a specific address on FEMA's flood maps. If the lender's flood certification shows the home is in a special flood hazard area, flood insurance is required. Even outside those zones, it may be worth a quote. See when flood insurance is required.
How insurance flows through your loan
- Quote early. Start during your option period, once you have an accepted contract, so you can compare deductibles and roof terms and still back out if insurance is a problem.
- Bind the policy. Choose a carrier and give them the lender's mortgagee clause and the loan number, which I'll send you.
- Send the declarations page. It shows the named insured, property address, dwelling coverage, deductibles, effective date, and the mortgagee clause.
- Pay the first year. The first year's premium is usually paid at or before closing and shows on your Closing Disclosure as a prepaid item.
- Escrow from then on. If you escrow, your monthly payment includes one-twelfth of the premium, and federal escrow rules in 12 CFR 1024.17 require the servicer to pay the renewal on time from the account. When the premium goes up at renewal, the next escrow analysis catches the difference.
Because the premium is part of your housing payment, it affects your debt-to-income ratio. A high premium can change how much house fits your budget.
Fictional example
This example is made up to show the timeline.
Marcus has a home under contract in Fort Worth with a 20-year-old roof. He waits until the week of closing to get insurance. The first carrier won't write the policy because of the roof's age, and the second binds a policy with a wind and hail deductible above the 5 percent limit on his conventional loan, with the mortgagee clause left blank. Clear to close waits on a corrected declarations page. The fix is a revised policy with an acceptable deductible and the right mortgagee clause, not a new loan, but it costs him two days. On his next purchase, he'd start quotes during the option period, when there's still time to negotiate a roof repair or credit with the seller.
Common mistakes and myths
- "Insurance just has to equal my loan amount." Fannie Mae now looks at replacement cost loss settlement terms, not a dollar match to the loan.
- "The lowest premium is the best policy." A low premium can hide a high wind and hail deductible or actual cash value roof coverage.
- "My escrow covers mortgage insurance and homeowners insurance the same way." They're different coverages that protect different people.
- "The HOA master policy covers my condo." It covers what the declaration says. Your unit's interior and your liability usually need your own policy.
- "A quote from a nearby ZIP code is close enough." Premiums depend on the specific house, roof, and claims history.
- "Flood is part of homeowners insurance." It isn't. It's a separate policy.
What to have ready
- The property address, year built, square footage, and roof age (from the listing, seller's disclosure, or inspection).
- Your inspection report, especially roof, plumbing, and electrical notes.
- The lender's mortgagee clause and loan number.
- Your agent's contact info so the agent and insurer can coordinate the closing date.
Next step
Under contract, or about to be? I'll send you the exact mortgagee clause and coverage requirements for your loan so you can quote insurance during the option period and avoid a late surprise. Schedule a call, or when you're ready, start an application.
Related questions
Sources
Links checked Oct 21, 2026.
- Fannie Mae Selling Guide B7-3-02, Property Insurance Requirements for One- to Four-Unit Properties (08/05/2026): https://selling-guide.fanniemae.com/sel/b7-3-02/property-insurance-requirements-one-four-unit-properties
- Fannie Mae Selling Guide B7-3-08, Mortgagee Clause, Named Insured, and Notice of Cancellation Requirements (12/14/2022): https://selling-guide.fanniemae.com/sel/b7-3-08/mortgagee-clause-named-insured-and-notice-cancellation-requirements
- HUD Handbook 4000.1, endorsement checklist (Evidence of Hazard Insurance) and Required Flood Insurance Coverage (Update 17, issued Nov 26, 2025, the version in effect today; Update 18, issued Aug 12, 2026, may be adopted now and must be used by Nov 10, 2026, and does not change the rules cited here): https://www.hud.gov/sites/default/files/OCHCO/documents/40001-hsgh-Update-17.pdf
- 12 CFR 1024.17(k), Regulation X timely payment of escrowed insurance (eCFR, current): https://www.ecfr.gov/current/title-12/chapter-X/part-1024/subpart-B/section-1024.17
- 12 CFR 1024.37, Regulation X force-placed insurance (eCFR, current): https://www.ecfr.gov/current/title-12/chapter-X/part-1024/subpart-C/section-1024.37
- Texas Department of Insurance, Home insurance guide: https://www.tdi.texas.gov/pubs/consumer/cb025.html
About the author: McKade Lively, NMLS 2704474, American Pacific Mortgage Corporation dba True North Home Loans, NMLS 1850.
Equal Housing Opportunity.
Last reviewed: Oct 2026