Why must a member's closing expenses include homeowner's insurance?

Homeowner's insurance is essential for protecting the lender's investment in the property. When a mortgage is secured, the lender needs assurance that their financial interest in the property is safeguarded against potential losses caused by damage or destruction. This type of insurance covers a variety of risks, such as fire, theft, and natural disasters, which could significantly affect the property’s value and the homeowner's ability to repay the loan. By requiring homeowner's insurance as part of the closing expenses, the lender helps to ensure that, in the event of a loss, there will be funds available to repair or replace the property, thereby reducing the risk to their loan. Thus, having homeowner's insurance is a critical component of the loan process, ensuring that both the homeowner and lender are adequately protected.