Is home insurance included in your mortgage in Texas?

If you have a mortgage on a Texas home, your insurance premium and your loan payment may leave your bank account as one monthly amount. This guide explains how the two are connected and where they stay separate.

The short version. In Texas, home insurance is a separate policy from your mortgage, and on loans with an escrow account its premium is collected with the mortgage payment, based on the Consumer Financial Protection Bureau's (CFPB) national guidance in What is homeowner's insurance?. The CFPB says there that many homeowners pay for it through an escrow account, and that you can shop for the policy separately.

Here's what we'll cover: what an escrow account does, why a monthly payment can change when the loan has not, what three insurance terms around a mortgage mean, what a lapse can lead to, the timing if you are buying a house, and where your mortgage company appears in a claim payment.

Escrow: the account in the middle

On loans that have an escrow account, that account is what connects a home insurance premium to a mortgage payment. The CFPB, a federal agency whose consumer pages are national and not specific to Texas, defines it in What is an escrow or impound account?: "An escrow account, sometimes called an impound account depending on where you live, is set up by your mortgage lender to pay certain property-related expenses."

According to that CFPB page, the money in the account comes from a portion of your monthly mortgage payment, many lenders require you to pay your taxes and insurance using escrow, and your mortgage servicer manages the account and pays these bills on your behalf. The Texas Department of Insurance (TDI) defines escrow in general terms in its Home insurance glossary as money placed in the hands of a third party until specified conditions are met.

For a loan that has an escrow account, the CFPB's description comes down to one monthly amount, part of which is set aside for the servicer to pay the insurance bill. Escrow covers how the bill gets paid, and the choice of policy stays with you. The CFPB's What is homeowner's insurance? says you can shop separately for homeowner's insurance and choose the provider and plan that is right for you.

Some loans have no escrow account. The CFPB's escrow page says that if your loan doesn't include one, you will have to plan to pay these large expenses yourself.

Why your monthly payment went up when your loan didn't

A monthly mortgage payment can change even when the loan terms have not, because the escrow part of the payment can change. The CFPB's escrow page puts it this way: "Your property taxes and insurance premiums can change from year to year." The page goes on to say that your escrow payment, and with it your total monthly payment, will change accordingly.

The CFPB breaks the payment into its parts in What's the difference between my principal and interest payment and my total monthly payment?. That page describes the total monthly payment as principal, plus interest, plus mortgage insurance if applicable, plus escrow for homeowners insurance and tax. It says the principal and interest payment will generally remain the same as long as you make regular payments on time, with exceptions such as a balloon loan, while your escrow payment can change.

A changed premium is one possible cause among several. The CFPB's Why did my monthly mortgage payment go up or change? lists a change in property taxes or homeowners insurance premiums, for a borrower with an escrow account, among the common reasons for a payment change, along with others such as an adjustable rate or new fees. It suggests checking your mortgage statement for the itemized charges and contacting your servicer if you still have questions.

So a higher payment does not by itself tell you that your insurance premium rose. If it was the insurance premium, our guide on why home insurance went up in Texas covers the factors that can sit behind a change.

Homeowners, hazard and mortgage insurance: what each term means

Homeowners insurance, hazard insurance and private mortgage insurance (PMI) are three terms that can appear around a Texas mortgage. The CFPB treats the first two as names for one policy, while PMI is a different product. Here is how TDI and the CFPB describe each one.

Homeowners insurance. TDI's Home insurance guide says home policies combine several types of coverage into one policy, and that most home policies in Texas include six coverages: dwelling, personal property, other structures, additional living expenses, personal liability and medical payments. TDI also notes there that coverages vary by company and suggests reading your policy or talking to your agent to be sure of your exact coverages.

Hazard insurance. The CFPB's What is homeowner's insurance? says homeowner's insurance is also sometimes referred to as hazard insurance. If your loan documents use that term, one step you can take is to ask the lender what coverage it requires and compare the answer with your policy.

Private mortgage insurance (PMI). PMI is a different product from the policy on your house. TDI's page Private Mortgage Insurance (PMI) explains when it comes up: "If you have less than a 20% down payment when you purchase a home, you most likely will be required to purchase private mortgage insurance or PMI." The page then says who it protects: "PMI protects the lender on a conventional mortgage in the event the borrower defaults and the lender forecloses on the property."

TDI's PMI page goes on to say the premium for PMI is paid by the borrower and may be canceled once certain conditions are met, and that other variations of this type of insurance may not be canceled if the mortgage is backed by the Federal Housing Administration (FHA) or the VA. It also says the lender is your best source for details on what is necessary to cancel it, and that TDI does not maintain mortgage information.

The two products cover different things. TDI describes PMI as protecting the lender if the borrower defaults, while the CFPB's homeowner's insurance page describes homeowner's insurance as paying for losses and damage to your property and says it is not the same as mortgage insurance.

Flood coverage is a further separate item. TDI's Home insurance guide says most home policies don't cover damage caused by floods, and adds: "If your home is in a designated flood zone, your lender requires you to have flood insurance."

What happens if the policy lapses

TDI's Home insurance glossary says that if you still owe money on your mortgage and do not have homeowners insurance, your lender may take out a policy to protect its own interest in the property, and the CFPB adds that the lender must give you advance notice. The glossary defines a lapse as the termination of an insurance policy because a renewal premium is not paid by the end of the grace period.

The glossary defines the grace period too: "The time – usually 31 days – during which a policy remains in force after the premium is due but not paid." That entry says the policy lapses as of the day the premium was originally due unless the premium is paid before the end of the 31 days or the insured dies, and that this is not a free-insurance period. These are general glossary definitions, so your own policy is the place to confirm the terms that apply to you.

The glossary's entry for single interest insurance describes what a lender can do. It says that if you still owe money on your mortgage and do not have homeowners insurance, your lender may take out a single interest insurance policy to protect its own interest in your property. The entry ends: "Single interest insurance protects only the policy owner, not the homeowner."

The CFPB's national guidance describes the same situation. Its What is homeowner's insurance? says that if you don't have insurance, your lender is allowed to buy it for you and charge you for it, but must give you advance notice, and that this insurance may only cover the lender and not you.

For a homeowner, the point from both sources is that lender-bought coverage may not protect your own interest in the home. Knowing whether your own policy is in force is worth a minute of your time, even when the premium is paid through escrow.

Buying a house? The timing question

A lender may ask for proof of home insurance when you buy a house with a mortgage. The CFPB's What is homeowner's insurance? says lenders generally require proof that you have homeowner's insurance.

TDI's Home insurance glossary defines two terms that come up at this stage. A binder, in TDI's words, is "A temporary insurance contract that provides proof of coverage until you receive a permanent policy." The effective date is defined there as the date on which an insurance policy becomes effective.

The CFPB's homeowner's insurance page says the cost of your homeowner's insurance is listed on page one of your Loan Estimate, in the Projected Payments section. The CFPB adds that it's usually a good idea to do your own research about how much homeowner's insurance costs, and notes that some loan types do not come with a Loan Estimate.

In practice, a buyer may want to compare policies before closing, while there is still time to look at more than one. Our guide on how to choose home insurance in Texas covers what to compare, and independent agency vs. buying direct covers who you can shop through.

One more place your mortgage company shows up

A mortgage company can also be involved when a home insurance claim is paid for repairs. TDI's Home insurance guide says that if you owe money on your home, the insurance company will make the check for repairs out to both you and your mortgage company, and that you'll need to endorse it and send it to the mortgage company. The guide says that in most cases the mortgage company will deposit the check and release money to you as the work is done.

According to the guide, the mortgage company may ask you for more information before it releases money, such as a list of the work to be done and cost estimates, information about who's doing the work, and timelines. It then gives a timeline: "After the mortgage company gets the information, it must release all or some of the money to you within 10 days." TDI's guide says that if your mortgage company doesn't release the money on time, you can complain to the Texas Attorney General's Office.

For a homeowner with a mortgage, this means repair money may reach you in stages as the work progresses. Having the contractor's estimate and schedule ready may make the mortgage company's request easier to answer.

What to do with this

Here are steps you can take if your home insurance is paid through your mortgage. The checklist is ours, and the facts behind it are in the sections above.

If your payment changed, check the itemized charges on your mortgage statement. The CFPB suggests this, and contacting your servicer if you still have questions.
Check the term your lender uses. If the paperwork says hazard insurance, ask the lender what coverage it requires and compare that with your policy.
Find out whether you pay PMI. If you do, ask your lender what is necessary to cancel it.
Confirm your own policy is in force. Paying through escrow does not remove the need to know your coverage, your deductibles and your renewal date.
If you're buying, compare policies before closing. That leaves time to look at more than one option.

Key facts

The CFPB's What is an escrow or impound account?, which is national guidance, says an escrow account is set up by your mortgage lender to pay certain property-related expenses and is funded from a portion of your monthly mortgage payment.
The CFPB's What is homeowner's insurance? says many homeowners pay for homeowner's insurance through an escrow account, that you can shop for it separately, and that it is sometimes referred to as hazard insurance.
The CFPB escrow page says property taxes and insurance premiums can change from year to year, and that your escrow payment and total monthly payment change accordingly.
TDI's Private Mortgage Insurance (PMI) page says a buyer with less than a 20% down payment will most likely be required to purchase PMI, that PMI protects the lender on a conventional mortgage, and that it may be canceled once certain conditions are met, with FHA-backed and VA-backed variations that may not be canceled.
TDI's Home insurance glossary says that if you still owe money on your mortgage and do not have homeowners insurance, your lender may take out a single interest insurance policy, which protects only the policy owner and not the homeowner.
That TDI glossary describes a grace period as usually 31 days during which a policy remains in force after the premium is due but not paid, and says the policy lapses as of the original due date unless the premium is paid before the end of that period or the insured dies.
TDI's Home insurance guide says that if you owe money on your home, a repair check is made out to both you and your mortgage company, and that after the mortgage company gets the information it asks for, it must release all or some of the money within 10 days.
That TDI guide says most home policies don't cover damage caused by floods, and that if your home is in a designated flood zone, your lender requires you to have flood insurance.

Sources: Consumer Financial Protection Bureau, What is an escrow or impound account?, What is homeowner's insurance? Why is homeowner's insurance required?, On a mortgage, what's the difference between my principal and interest payment and my total monthly payment? and Why did my monthly mortgage payment go up or change?; Texas Department of Insurance, Home insurance glossary, Home insurance guide and Private Mortgage Insurance (PMI).

Take the next step

Whether or not your premium is paid through escrow, the home insurance policy is one you can review and compare. If your escrow payment changed recently, why home insurance went up in Texas explains what can sit behind a premium change, and how the wind and hail deductible works covers a deductible worth checking on your policy.

Get a second opinion on your policy — free. Credify is a licensed insurance agency in Texas that helps you compare home insurance from roughly 20 licensed Texas carriers, so you can see whether your home policy fits your needs. It takes a few minutes, and there's no obligation. 📞 Talk to Credify 24/7.

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