What Is an HO3 Policy?
The most common homeowners policy, covering your house for all risks except what's specifically excluded, and your belongings for named perils only.
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For closing, this is likely the policy your lender expects. What matters most to the lender is dwelling coverage, the amount it would cost to rebuild the house if it were a total loss. That figure should reflect rebuilding cost, not the purchase price, since land value and construction cost don't move together. Your lender sets a minimum, often the loan balance, but ask what the house would actually cost to rebuild before settling on a number. The binder sent before closing shows this dwelling amount, your deductible, and the lender listed as mortgagee.
Get the dwelling number right before you commit
Rebuilding cost varies by insurer, and so does price for the same coverage. Comparing quotes before closing means checking that the dwelling amount actually matches what the house would cost to rebuild, not just the lender's minimum.
What else does an HO3 policy actually cover
Dwelling coverage is the part your lender cares about, but your policy has several other pieces working alongside it. Other structures coverage pays to rebuild a detached garage, fence, or shed, usually set at a percentage of your dwelling amount. Personal property covers your belongings, furniture, clothes, electronics, but on an HO3 policy this part works differently from the house itself. The house is covered for any cause of damage except what the policy specifically excludes. Your belongings are covered only for the perils named in the policy, things like fire, theft, and windstorm. That gap matters less often than you'd think, since most of the damage people file claims for falls on the list, but it's worth knowing the two halves of your policy don't work the same way.
Loss of use is the piece people forget until they need it. If the house becomes unlivable after a covered loss, this pays for a hotel or rental while repairs happen. Liability coverage is separate again, it pays if someone gets hurt on your property and sues, or if you're found responsible for damage to someone else's property. None of these show up on the binder your lender wants before closing, but they're part of the same policy and worth reading through once you have the document in hand.
A standard HO3 policy does not cover flood damage. That's a separate policy through a different program, and if the house sits in a flood zone your lender will likely require it in addition to homeowners coverage. Earthquake damage is usually excluded too, and whether that matters depends on where the house is. Neither of these will stop your closing if your lender doesn't require them, but they're easy to assume are included when they aren't.
Your deductible is the amount you pay out of pocket before coverage kicks in on a claim. A higher deductible generally means a lower premium, and the binder will show whichever number you chose. There's no universal right answer here, it depends on how much you'd rather pay upfront in premium versus hold in reserve for if something happens. Some policies also carry a separate, higher deductible just for wind or hail damage, so it's worth checking whether yours does before you decide the number works for you.
What happens if you need to file a claim
Once the policy is in place, the way a claim works depends on which half of the policy you're using. For damage to the house itself, you report what happened, an adjuster looks at the damage, and the payout is based on what it costs to repair or rebuild that part of the structure, measured against your dwelling coverage. For belongings, the insurer checks the cause of loss against the named perils list before anything else happens. If a pipe bursts and ruins the flooring and a couch, the flooring claim and the couch claim are evaluated differently, even though they came from the same event.
How much you actually get back also depends on a setting most new buyers never look at, replacement cost versus actual cash value. Replacement cost pays what it takes to buy new flooring or a new couch today. Actual cash value pays that amount minus depreciation, so an eight-year-old couch might be worth a fraction of what a new one costs. Most HO3 policies default to replacement cost for the dwelling and offer it as an option for personal property, but it's worth confirming which one applies to your belongings specifically, since that's where insurers are more likely to write in actual cash value as the default.
Your deductible applies per claim, not per year, so if you file twice in one policy term, you pay it twice. Some events, like a named hurricane in certain states, can trigger a separate percentage-based deductible instead of your standard dollar amount, and that number can run much higher. This is worth checking at the same time you check your wind or hail deductible, since it's the same idea applied to a narrower, costlier category of storm.
None of this affects what the lender needs before closing. The binder just needs to show the dwelling amount, the deductible, and the lender's name as mortgagee. But understanding how a claim actually pays out is what tells you whether the deductible and coverage limits you picked still make sense once the policy is live, rather than finding out the first time something goes wrong.
Before closing
Check that the dwelling amount on your binder reflects the actual rebuilding cost, not the purchase price or just the lender's minimum. That number, more than anything else on the page, decides whether the policy does its job later.
