Homeowner’s insurance for a home financed with a VA loan isn’t just a good idea. It’s a rule that must be followed by VA lenders. If not, the loan does not meet VA eligibility requirements. Not just that, but the VA lender’s collateral, the home being financed, is left unprotected. A veteran won’t get very far in the approval process without a proper homeowner’s policy and even if there is a policy in place and the policy lapses, the VA lender is notified and the VA lender will “force place” an insurance policy on the home without any permission needed from the borrower. A force placed policy is extremely expensive and rarely used. Yet just the existence of such a policy only fortifies the need for insurance.
An insurance policy must be written and apply on the date of the closing and the policy must protect against hazards such as fire, wind or rain. There are varying degrees of coverage but the lender will require at least coverage for such environmental hazards. Individual states may also have unique insurance requirements.
Properties that are along or near a coastline may also have a rider that protects against fierce winds and rain from a hurricane if the property is located in a specific zone. It’s also important to note that floods are not covered by a standard hazard insurance policy and must be purchased separately. When a lender evaluates a VA loan application the lender also orders a Flood Certificate containing data gathered by FEMA, the Federal Emergency Management Agency. If the report indicates part or all of the property is in a flood zone, the VA lender may require a flood policy if the lender discovers that part of the structure in indeed in a flood area.