May an FHA borrower include optional insurance policy premiums in their Escrow Account?

The Mortgagee may allow the Borrower to add Personal Property and personal liability insurance premiums to their monthly payments.

The Mortgagee must clearly separate the collection of unpaid optional coverage premiums from the collection of any unpaid Mortgage Payment. If the payment does not include all or a part of an optional coverage premium, the Mortgagee may not treat the failure to pay as a failure to pay a part of the Mortgage Payment.
For policy information see Handbook 4000.1 III.A.1.h.iv. at

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.

Topic Number: KA-05233