As the losses on condo inventory have increased, Fannie Mae has put out a new inside the walls insurance requirement for condos. Many long time Real Estate professionals are unaware of this change. Fannie Mae made this announcement in December of 2008 and it took effect January 15th, 2009.
When obtaining financing for condos and PUD’s, FNMA requires they must have hazard insurance that covers fixtures, equipment, and other personal property inside individual units. The updated policy now requires that the borrower obtain a “walls-in” coverage policy (commonly known as HO-6 policy) unless the lender can document that the master policy provides the same interior unit coverage. The master policy must include replacement of improvements and betterment coverage to cover any improvements that the borrower may have made to the unit. The HO-6 insurance policy must provide coverage in an amount that is no less than 20% of the condominium unit’s appraised value. The standard requirement for a 5% deductible applies.
More Details on this Fannie Mae Announcement regarding Hazard Insurance for Condos and Puds