Which homeowners insurance policy is generally favored by lenders for residential properties?

Lenders generally favor the HO3 homeowners insurance policy for residential properties because it provides comprehensive coverage that meets the requirements for most mortgage lenders. The HO3 policy offers protection against a wide range of risks, specifically covering the dwelling on a "SPECIAL" form basis, meaning it covers all perils except those specifically excluded in the policy. This extensive coverage includes protection for the structure itself, personal property, and liability, making it a robust choice for securing the investment.

By contrast, the other options, such as HO1 and HO2, provide more limited coverage. HO1 is a basic form that covers only named perils, and HO2, while broader than HO1, still only covers a specific list of risks rather than offering the all-risk protection found in HO3. The HO5 policy does offer more comprehensive coverage than HO3 but is less common and may not be required by all lenders. Overall, the broad and inclusive nature of the HO3 policy aligns well with lender expectations for safeguarding their investments in residential properties.