Fannie Mae Condo Insurance Requirements: A Board Guide

A buyer is under contract on a unit in your building. A few weeks before closing, the lender sends the association a condo questionnaire and asks for a copy of the master insurance certificate. Then the call comes from the agent: the loan can't close as written, because the association's insurance doesn't meet Fannie Mae's requirements.

Now the seller is upset, the buyer may walk, and the board is hearing about a part of its insurance program it has never looked at.

Most boards don't realize their master policy is being graded every time a unit sells or refinances. A few questions tell you quickly where you stand:

• Is any deductible on the master policy, including a separate wind or named-storm deductible, more than 5% of the policy's coverage amount?
• Does your crime or fidelity coverage protect the association from board members, volunteers and the management company, or only from employees?
• Does the policy include ordinance or law coverage, and equipment breakdown if the building has central heating or cooling?
• When was the building's insured value last updated?

This guide walks through what Fannie Mae requires of a condo association's insurance, where boards usually get caught, and how to check it before a renewal instead of after a failed closing.

What "warrantable" means

When a lender plans to sell a condo loan to Fannie Mae, it has to review the whole condo project, not just the unit. A project that passes is often called "warrantable." One that doesn't is "non-warrantable," and buyers there usually need a different loan program.

The project review looks at a lot of things: how many units are owner-occupied, whether the budget funds reserves, whether there's litigation, and whether any one owner holds too many units. Insurance is one piece, and it's one of the few pieces a board can fix quickly.

Fannie Mae's rules live in its Selling Guide, which lenders follow. The insurance sections cover the property (master) policy, liability, fidelity or crime, and flood. Freddie Mac, FHA and VA each have their own versions. They overlap a lot, but they're not identical, so a project can pass one and fail another.

The requirements, in plain English

Here's what the Selling Guide asks of a condo association's insurance, summarized. Lenders apply the current version, and the rules do change, so treat this as a map, not a substitute for your lender's checklist.

Requirement	What Fannie Mae looks for
Property coverage amount	100% of the replacement cost of the project's buildings and improvements, without a coinsurance penalty
How claims are paid	Replacement cost settlement (roofs are the one area where other settlement terms may be allowed)
Deductibles	No more than 5% of the policy's coverage amount, and that limit applies separately to each deductible, including wind, hail or named storm
Ordinance or law	Required, unless it isn't available in the market
Equipment breakdown	Required when the building has central heating or cooling; the limit is the lesser of $2 million or the replacement cost of the building housing the equipment
General liability	At least $1 million per occurrence, covering common areas and any commercial space the association owns
Fidelity / crime	Required for projects of more than 20 units; must cover anyone who handles association funds, paid or not, including the management company
Flood	Required for buildings in a FEMA special flood hazard area
Named insured	The association (or its authorized representative), for the benefit of the owners

Where boards usually get caught

In our experience, a project rarely fails on something exotic. It fails on one of a handful of ordinary details.

A wind or named-storm deductible that crept above 5%. Deductibles are one of the first things carriers and boards adjust when premiums rise. A board raises the wind deductible at renewal to keep the premium down, and the policy quietly stops meeting the 5% rule. The all-other-perils deductible can look fine while the wind deductible fails. Our guide to who pays the master policy deductible covers what that deductible means for owners.

Fidelity that only covers employees. Most associations have no employees at all. The money is handled by a treasurer, a volunteer board and a management company. If the crime policy only covers "employees," it may not meet the requirement, and a management company's own policy generally doesn't count in place of the association's. Our fidelity bond guide walks through how to fix the wording.

A fidelity limit that's too low. Fannie Mae generally wants the limit to equal at least three months of total assessments when the association has certain financial controls in place, like separate reserve accounts and dual signatures. Without those controls, it wants the limit to cover the most money the association or its manager holds at any one time, which is often much higher.

No ordinance or law coverage. After a serious loss, local codes can require upgrades the original building never had. Ordinance or law coverage pays for that, and it's required when it's available. It's easy to leave off an older policy.

No equipment breakdown on a building with central systems. A boiler or central chiller failure isn't a standard property claim. If the building has central heating or cooling, Fannie Mae expects equipment breakdown coverage. High-rises almost always need it, which our high-rise condo guide covers.

An outdated building value. If the insured value hasn't kept up with construction costs, the policy may no longer reflect 100% of replacement cost. That's a problem for the loan file and an even bigger problem after a loss.

What owners need to carry

Fannie Mae's rules aren't only about the association. If the master policy doesn't cover the inside of the units, which is common with "bare walls" coverage, the lender will expect each borrower to carry their own unit-owner (HO-6) policy that covers the interior.

That's why it matters which kind of master policy you have. Our guide to bare walls vs. all-in coverage explains the difference. And because the association's deductible can be passed to owners, owners should also check their loss assessment coverage, which is the part of their own policy that pays their share of an association assessment.

Boards help owners and buyers most by putting this in writing: what the master policy covers, what it doesn't, and what owners should carry themselves.

How to check your policy before renewal

The best time to catch a Fannie Mae problem is before the renewal is bound, not after a closing fails. A simple routine:

1. Pull the full policy, not just the certificate. A certificate rarely shows every deductible or the fidelity wording.

2. Check every deductible against 5%. Do the math for each one separately: all other perils, wind, hail and named storm.

3. Read the crime or fidelity insuring agreement. Confirm it covers board members, volunteers and the management company, and that the limit meets the three-month rule or the funds-on-hand rule.

4. Confirm ordinance or law and equipment breakdown are on the policy if they apply.

5. Look at the building value. Ask when it was last appraised or updated.

6. Check your flood zone if any building sits in or near a mapped flood area.

7. Before you accept a cheaper option, ask what changed. A lower premium that comes from a higher deductible can cost owners far more if it makes the project ineligible for conventional loans.

That last step is where quote comparisons go wrong most often. Two quotes can look alike on price while one quietly fails a lender requirement. Our guide to comparing HOA insurance quotes shows how to line them up, and our rebid timing guide covers when it makes sense to market the account.

How this fits the bigger picture

Fannie Mae's insurance rules sit on top of the association's whole insurance program. Our condo association master-policy guide covers that full framework, and our guide to condo association vs. HOA insurance explains how the picture changes for townhome and single-family communities.

State law adds its own layer. Some states set their own requirements for association insurance, and lenders apply both. For examples, see our pages on New Jersey HOA insurance and Illinois HOA insurance, or start with our HOA insurance overview.

Associations with commercial space on the ground floor face some of the same questions a building owner does, which our commercial landlord insurance page covers. And when meeting the requirements means a large repair or a bigger reserve contribution, some associations look at financing options to spread the cost.

For a quick first look at where your association may be exposed, our HOA risk calculator assesses your exposure, not your price.

Frequently asked questions

What are Fannie Mae's condo insurance requirements?

In short: property coverage at 100% of replacement cost with replacement cost settlement, deductibles no higher than 5% of the coverage amount, ordinance or law coverage where available, equipment breakdown for buildings with central heating or cooling, general liability of at least $1 million per occurrence, fidelity or crime coverage for projects over 20 units, and flood coverage in special flood hazard areas. Lenders apply the current Selling Guide, so confirm details with the lender.

What is the maximum deductible Fannie Mae allows on a condo master policy?

5% of the policy's coverage amount. The limit applies to each deductible separately, so a wind or named-storm deductible has to meet it too.

Does Fannie Mae require a fidelity bond for an HOA?

For condo projects with more than 20 units, generally yes. The coverage has to protect the association from anyone who handles its funds, including volunteers and the management company, and the association must be the named insured.

How much fidelity coverage does Fannie Mae require?

Generally at least three months of total assessments, if the association has certain financial controls in place. Without those controls, the limit should cover the most money the association or its manager holds at any one time.

Does Fannie Mae require owners to carry their own policy?

If the master policy doesn't cover the unit interiors, yes. The borrower will need an HO-6 policy that covers the interior of the unit.

Are Freddie Mac, FHA and VA requirements the same?

Similar, but not identical. A project can meet one and miss another, so if buyers in your building use FHA or VA loans, check those requirements too.

What happens if our master policy doesn't meet the requirements?

Lenders usually won't sell the loan to Fannie Mae, so buyers may need a different, often costlier loan, or pay cash. Most gaps can be fixed at or before renewal by adjusting deductibles, coverage wording or limits. Does that line up with what your board has seen?