B7-3-04, Property Insurance Requirements for Individual Units in a Project Development (08/05/2026)

See Overview in B7-3-03, Master Property Insurance Requirements for Project DevelopmentsB7-3-03, Master Property Insurance Requirements for Project Developments for definitions of common elements and residential structures and additional information on requirements for master property insurance policies covering project developments.

The borrower must have a unit owners property insurance policy when:

• any portion of the interior of the unit or improvements to the unit are not covered by the master property insurance policy, or
• the master property insurance policy includes a per unit deductible.

See Determining if a Master Property Insurance Policy is Required in B7-3-03, Master Property Insurance Requirements for Project DevelopmentsB7-3-03, Master Property Insurance Requirements for Project Developments for determining when a master property insurance policy and/or a unit owners property insurance policy is required.

The unit owners property insurance policy should be written on a "Special" coverage form or equivalent. At a minimum, the coverage must include the perils listed in the following table.

If the master property insurance policy includes a per unit deductible applicable to a specific required peril, the unit owners property insurance policy must include coverage for that peril.

If the unit owners property insurance policy excludes or limits coverage of any of the required perils, the borrower must obtain an acceptable policy (e.g., stand-alone policy) that provides adequate coverage for the limited or excluded peril (see B7-3-05, Additional Insurance RequirementsB7-3-05, Additional Insurance Requirements for additional information).

Coverage sufficiency for a unit owners property insurance policy is determined based on the coverage amount and the policy's loss settlement terms. 

Coverage Amount

The minimum amount of coverage required for a unit owners property insurance policy must be at least equal to the greater of:

• an amount sufficient to cover any portion of the interior of the unit or improvements to the unit not covered by the master property insurance policy in order to restore the unit to its condition prior to a loss event; or

Note: Coverage sufficiency should be based on the best information known or available to the lender or servicer, which may include information obtained from the borrower, in collaboration with the insurer or insurance agent, the HOA or co-op corporation legal documents, or other professional with appropriate expertise to make such a determination.

• the amount of the per unit deductible, if the master property insurance policy has a per unit deductible.

Fannie Mae recommends that lenders and servicers encourage borrowers to closely collaborate with an insurance professional to determine their individual insurance needs.

Loss Settlement

The unit owners property insurance policy must provide coverage on a replacement cost basis.

The maximum allowable deductible for a unit owners property insurance policy for all required property insurance perils is the greater of:

• 5% of the property insurance coverage amount, or
• $2,500.

See B7-3-08, Mortgagee Clause, Named Insured, and Notice of Cancellation RequirementsB7-3-08, Mortgagee Clause, Named Insured, and Notice of Cancellation Requirements for requirements applicable to a loan secured by a unit in a project development.