*Loan,banking and credit>>>homeowner insurance

Does the homeowner's insurance have to cover the mortgage amount?

The market value of the house is worth 300K.
The loan amount is of 275K.
The cost to rebuild is 200K.

Would you be required by the mortgage company to get insurance to cover the loan amount of 275K?

Legally, no, but that doesn't mean the mortgage company won't give you a HORRIBLE time over it.

Legally, as long as your house is insured for 100% replacement cost, and the policy SAYS that, and the insurance company agrees that your house is insured for 100% of the replacement cost, the mortgage company should accept that.

However, it will be a battle - and likely, you'll be fighting that battle EVERY SINGLE YEAR when your policy renews, until the loan balance drops under the policy amount.

You can ask your AGENT to fight that battle for you. Source(s): agent, 21+ years

Yes - the mortgage company has to protect their investment. If something happens to the home, the mortgage has to be paid in full.

There are some exceptions, but this is the general rule.
Mortgage Banker
The reason the mortgage company gave me when I purchased my home made sense. Although it may cost a lot less to rebuild than the loan amount, if you choose not to rebuild, they are out the money.
It's the loan you are securing not the house. The bank wants to be sure they get their money.
You generally buy replacement cost coverage for the house, which in your case, would be $200,000. The land value isn't going to change even if the house burns to the ground. I'm assuming the land value in this case is $100,000.