Why might a lender require homeowners insurance?

A lender requires homeowners insurance primarily to protect both the property itself and the lender's investment in the property. Homeowners insurance provides coverage against various risks that could potentially lead to financial loss, such as damage from fire, theft, or natural disasters. In the event that the property is damaged or destroyed, the insurance ensures that the lender can recover its investment, as the mortgage is secured by the property.

This coverage is crucial for lenders because if the home were to suffer significant damage and the homeowner could not afford repairs, the property could lose value, leading to a financial loss for the lender. Additionally, homeowners insurance typically includes liability coverage, protecting against claims that might arise from injuries occurring on the property, further safeguarding the lender's interests.

In contrast, while appreciating property value, covering renovation costs, and tax deductions are important considerations for homeowners, they do not directly address the lender's primary concern of safeguarding its investment and ensuring that the property remains a secure asset against potential risks.