If your house is damaged by a fire or natural disaster, it may be in such bad shape that no one can live there until it’s repaired. That doesn’t mean you won’t have to pay your mortgage, though. In fact, you may still be responsible for your mortgage even if your house is completely destroyed.
What Homeowners Insurance Will and Won’t Cover
Your mortgage lender has a security interest in your home. They require you to purchase homeowners insurance, and possibly flood insurance, and to maintain enough coverage to pay off your outstanding mortgage balance.
If your house is damaged by a covered peril, such as a fire, your homeowners insurance policy will pay for repairs and alternative housing expenses until you can move back into your home. You will have to continue making mortgage payments even while you aren’t living there.
If your home is destroyed by a disaster covered by your insurance policy, your insurance will pay off the mortgage balance and pay for temporary living expenses. The amount you will receive to rebuild your home will depend on the specific terms of your policy.
Assistance for Costs Not Covered by Insurance
If your house is damaged or destroyed by a disaster that is excluded from your policy, you will still be responsible for your mortgage payments. You will also have to pay for repairs or rebuilding yourself, unless you qualify for government assistance.
If your house is destroyed by a hurricane, the amount of your insurance payout will depend on the type of coverage you bought. If wind destroys your home, your insurance will pay to rebuild it. A standard homeowners insurance policy doesn’t cover a flood or storm surge. If one of those destroys your home, you will still be responsible for your mortgage. If you don’t have a separate flood insurance policy, you may qualify for a low-interest government loan to help you get back on your feet.
If your home is destroyed by an earthquake, you will still have to pay your mortgage. Earthquake insurance can cover home repairs, replacement of damaged or destroyed property and temporary housing. If you don’t have earthquake insurance, you may qualify for assistance from the federal government.
The Small Business Administration offers low-interest disaster relief loans. The Federal Emergency Management Agency offers grants for repairs and other expenses not covered by insurance. The Federal Housing Administration can provide assistance with rebuilding and repairs through its Section 203(h) program.
Your lender might offer forbearance, which would allow you to skip payments or make partial payments. Interest would still accrue, but you wouldn’t be charged late fees.
