What is the requirement for homeowners insurance before closing?

Homeowners insurance is essential before closing on a property because it protects both the homeowner and the lender from potential financial loss due to hazards such as fire, theft, or natural disasters. The requirement that the insurance must be equal to the loan balance or the value of the home ensures that there is adequate coverage to replace or repair the property in the event of a loss.

By establishing this coverage standard, the lender is safeguarding its investment by ensuring that there is sufficient insurance in place to cover the costs associated with claims related to the home. This measure also provides peace of mind to the homeowner, knowing that their asset is protected.

While other options might present different ideas about the necessity of insurance, they do not fully encompass the primary focus of ensuring that the insurance is sufficient to cover the financial stakes involved in the property transaction. This requirement reflects a sound practice in real estate to minimize risks for all parties involved.