Why Do Mortgage Lenders Require Homeowners Insurance? 
When a financial institution pays off the previous owner of your house , they have an investment to protect . After all , it was the lender 's money that allowed you to `` own '' your house . As a result of the lender paying on your behalf , there is a conditional pledge of the property to the bank or lender for your obligation to repay the debt . If something were to happen to the house such as a fire , the value of the house would be significantly impaired and the lender could be left without re-payment of the loan and no house to sell due to the damage . Therefore , the lender is seeking assurance that if there is damage to the house in which he has a financial interest , he can recover his investment . 