What insurance does Freddie Mac require for multifamily loans?
Freddie Mac's Optigo program requires replacement cost property coverage, minimum liability limits, flood insurance in mapped zones, and specific deductible caps for wind-exposed properties.
Freddie Mac's Multifamily Seller/Servicer Guide (Chapter 43) requires borrowers to maintain property insurance on a replacement cost basis with coverage equal to 100% of the insurable replacement cost of improvements. The policy must include an agreed amount endorsement or a coinsurance clause of no less than 90%. Insurers must hold an A.M. Best rating of A- or better with a Financial Size Category of VI or higher.
General liability insurance must carry limits of at least $1,000,000 per occurrence. Flood insurance is mandatory for any property with improvements located in a FEMA-designated Special Flood Hazard Area, and coverage must equal at least the lesser of the outstanding principal balance or the maximum available under the NFIP, supplemented by private excess flood if the NFIP maximum is insufficient. Business income or loss of rents coverage must provide at least 12 months of projected gross income.
For properties in Tier 1 wind zones (coastal counties in hurricane-prone states), Freddie Mac caps the named-storm deductible at 5% of the total insured value and requires that the borrower demonstrate liquid reserves sufficient to cover the deductible. Equipment breakdown coverage is required, and ordinance or law coverage must be carried at a minimum of 10% of the building value. The Seller/Servicer Guide is updated periodically, so borrowers should confirm current requirements with their Optigo lender at each renewal cycle.
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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.