What are HUD/FHA insurance requirements for apartment buildings?
HUD requires replacement cost property coverage, broad-form liability, flood insurance in SFHAs, and boiler and machinery coverage for all FHA-insured multifamily mortgages.
HUD's Multifamily Accelerated Processing (MAP) Guide (Chapter 7) and HUD Handbook 4350.1 establish insurance requirements for FHA-insured multifamily mortgages under programs including Section 221(d)(4) for new construction and Section 223(f) for acquisitions and refinancings. Property insurance must be written on a replacement cost basis covering the full insurable value of the improvements, with no coinsurance clause or with an agreed amount endorsement.
General liability limits must be at least $1,000,000 per occurrence. Flood insurance is required for any property in a Special Flood Hazard Area per the Flood Disaster Protection Act of 1973 (42 U.S.C. Section 4012a), with coverage at least equal to the outstanding principal balance or the maximum available under the NFIP. Boiler and machinery coverage is required for properties with central heating, steam, or pressure vessel systems.
HUD also requires fidelity bond coverage for management agents handling project funds, with the bond amount based on the gross potential income of the project. Builders risk insurance is mandatory during construction under Section 221(d)(4) and must cover the full value of the work in place plus materials stored on-site. The HUD mortgagee must be named as loss payee on all property policies. Unlike Fannie Mae and Freddie Mac, HUD reviews and approves the insurance program as part of its regulatory oversight, meaning noncompliance can trigger regulatory sanctions beyond just a loan default.