What Are the Different Types of HO Policies?
HO-3 fits most single-family homes. Condos use HO-6, renters use HO-4, and older homes sometimes need HO-8.
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Which one your lender is actually asking for
Your lender's proof-of-coverage request almost certainly means an HO-3. If you're closing on a single-family house, that's the standard policy and what a lender expects to see on the binder. The letters and numbers only matter when your situation sits outside that norm. Buying a condo means HO-6, which covers the unit's interior and your belongings since the building itself is insured separately through the condo association. If the house is old and its wiring, plumbing, or roof haven't been updated, an insurer might steer you toward an HO-8, which pays to repair damage rather than fully rebuild to current standards, since full replacement cost can run higher than the home is worth. Your purchase agreement and the house's age tell you which category you're in before you start getting quotes.
Knowing it's an HO-3 only gets you in the door. Two HO-3 policies can still differ by tens of thousands of dollars in dwelling coverage, the amount that pays to rebuild the house. Set that number too low and you're the one covering the gap between what the policy pays and what rebuilding actually costs. Comparing quotes before closing shows whether the dwelling amount, deductible, and price line up with the house you're buying.
What an HO-3 actually covers and leaves out
An HO-3 insures the house itself, the detached structures like a garage or shed, your belongings inside, and your liability if someone gets hurt on the property. It also covers additional living expenses, the cost of staying somewhere else if the house becomes unlivable after a covered loss. This is why lenders accept it without asking questions. It's built around rebuilding the structure, which is what protects their interest in the loan.
The word that matters inside an HO-3 is open perils. The structure of the house is covered against any cause of damage except the ones the policy specifically lists as excluded. Your belongings, by contrast, are usually covered on a named-perils basis, meaning only the causes of loss spelled out in the policy apply to them. The declarations page lists both sets, and they're worth reading once before closing rather than after something happens.
Every HO-3 excludes flood and earthquake damage regardless of which insurer writes it. Those aren't oversights, they're separate kinds of risk that get covered by separate policies entirely. If the house sits near a floodplain or in a region with seismic activity, that's worth asking about now, since a lender in a flood zone will often require flood coverage as a separate condition of the loan, not folded into the homeowners binder.
The other thing an HO-3 doesn't do automatically is match the dwelling coverage to what the house would actually cost to rebuild. That figure comes from square footage, construction materials, and local labor and material costs, not from the sale price or the appraisal. Some insurers calculate it for you during the quote, others expect you to supply a number. Either way, it's the figure worth checking closely before signing anything, since it's the one most likely to be wrong in a way that costs you later.
How the deductible and escrow fit into the policy you're binding
The deductible is the amount you pay out of pocket before the policy starts paying on a claim. A higher deductible lowers what you pay for the policy, a lower deductible raises it. Most HO-3 policies default to a fixed dollar amount, often somewhere between five hundred and two thousand dollars, but some insurers write the deductible for wind or hail damage as a percentage of the dwelling coverage instead of a flat number. On a house with a high rebuild cost, a percentage deductible can mean paying several thousand dollars out of pocket before coverage kicks in, so it's worth checking which kind you're being quoted, not just the number attached to it.
Escrow is a separate matter from the deductible, and it's where a lot of buyers mix things up right before closing. If your mortgage includes an escrow account, the lender collects a portion of your annual insurance premium each month along with your mortgage payment, then pays the insurer directly when the bill is due. This doesn't change what the policy covers or what you owe if you file a claim. It only changes who writes the check for the premium. Your lender will tell you whether escrow applies to your loan, and if it does, the insurance binder you provide still needs to show the dwelling coverage and deductible the lender required, regardless of who's paying the bill.
The binder itself is a short-term proof of coverage, not the full policy. It confirms the policy is in place as of the closing date and lists the dwelling amount, the deductible, and the insurer. Lenders ask for it because the mortgage funds that morning, and they need confirmation the house is insured before money changes hands. The full policy documents, including the declarations page with every coverage limit and exclusion, typically follow within a few weeks of the effective date. Reading that full packet once it arrives is still worth doing, since the binder won't show you the named perils on your belongings or the exact language around exclusions the way the complete policy will.
One more thing worth checking before closing is the effective date on the binder itself. It needs to match or precede the closing date, not follow it. A policy that starts the day after closing leaves the house uninsured for the gap, which is something both the lender and the title company will flag if it's off by even a day.
Before you sign anything
Pull up the dwelling coverage number on your quote and check it against the house's square footage and rebuild cost, not the purchase price. Then confirm the binder's effective date is on or before closing.
