What are Fannie Mae's insurance requirements for apartment building loans?
Fannie Mae requires replacement cost property coverage, general liability, flood insurance in SFHAs, and specific endorsements including loss payee and ordinance or law coverage for all DUS multifamily loans.
Fannie Mae's Multifamily Selling and Servicing Guide (Chapter 11) sets detailed insurance requirements for all Delegated Underwriting and Servicing (DUS) loans. Property insurance must be written on a replacement cost basis with no coinsurance provision, or with an agreed amount endorsement that waives coinsurance. The policy must cover all insurable improvements at 100% of replacement cost, and the insurer must carry an A.M. Best rating of at least A- (Size Category VI or higher) or be an approved surplus lines carrier.
General liability coverage must carry minimum limits of $1,000,000 per occurrence and $2,000,000 general aggregate. Flood insurance is required if any portion of the improvements is in a Special Flood Hazard Area as mapped by FEMA, and the coverage must be at least equal to the lesser of the outstanding loan balance or the maximum available under the NFIP (with private or excess flood required to fill any gap). Loss of rents coverage must equal at least 12 months of projected gross rental income.
Fannie Mae also requires ordinance or law coverage at a minimum of 10% of the property coverage amount, boiler and machinery (equipment breakdown) coverage, and a mortgagee clause naming the lender. Wind and named-storm deductibles are capped at 5% of the total insured value per the Servicing Guide. Failing to maintain compliant coverage triggers a loan default and potential force-placed insurance at the borrower's expense.
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Related Questions
What types of insurance does an apartment building owner need?
Apartment owners typically need commercial property, general liability, loss of rents, umbrella, and workers compensation coverage at minimum.
How much does apartment building insurance cost?
Apartment building insurance typically costs $500 to $3,000 per unit annually, depending on the property's size, location, age, and coverage needs.
What does general liability insurance cover for apartment buildings?
General liability covers bodily injury and property damage claims from third parties, such as a tenant or visitor injured in a common area.
Do I need flood insurance for my apartment building?
If your property is in a FEMA-designated flood zone, your lender almost certainly requires it. Even outside flood zones, flood coverage is worth considering.
What is loss of rents coverage and how does it work?
Loss of rents coverage replaces rental income lost when units become uninhabitable due to a covered property damage event, such as a fire or major storm.