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Master Policy vs. HO-6: What Fannie Mae Actually Requires Your Condo to Insure

Published September 7, 2026 · 8-minute read · By the CondoScores team at RentSpire

Every condo closing runs into the same insurance question eventually: does the HOA's master policy cover it, or does the buyer need their own policy? The answer determines whether a unit owner needs an HO-6 "walls-in" policy, how big the association's fidelity bond has to be, and — increasingly — whether an underwriter will even approve the loan. Fannie Mae's Selling Guide answers all of this in specific dollar amounts and coverage tables. Here's what the rule actually says, not the summarized version.

The master policy has to cover 100% of replacement cost — with two named exceptions

Fannie Mae's baseline rule for the HOA's master property insurance policy, under B7-3-03, Master Property Insurance Requirements for Project Developments, sets a hard floor: "The master property insurance coverage amount must equal at least 100% of the estimated replacement cost value of the project improvements, including common elements and residential structures" (Fannie Mae Selling Guide B7-3-03).

Lenders can document that number five different ways: "Guaranteed replacement cost coverage, or its equivalent; Extended replacement cost coverage, or its equivalent; A replacement cost value estimate provided by the insurer; The project's insurance risk appraisal; or A statement from the insurer or other applicable professional with appropriate expertise to make such a determination" (Fannie Mae Selling Guide B7-3-03).

The loss-settlement basis matters too: "The master property insurance policy must provide coverage on a replacement cost basis, with the exception of roofs. Roofs must be insured, but do not have to be insured on a replacement cost basis" (Fannie Mae Selling Guide B7-3-03). Fannie Mae also explicitly tolerates a common insurer practice: "Fannie Mae recognizes that some insurers may issue policies that provide coverage on an actual cash value basis for personal property and certain property elements. In the event the lender or servicer sees such terms in a master property insurance policy, this is acceptable" (Fannie Mae Selling Guide B7-3-03).

The required-perils list is longer than most boards assume

The master policy has to be written on a "Special" form or equivalent, and Fannie Mae spells out the minimum peril list boards should check their declarations page against: "Fire, Lightning, Explosion, Windstorm (including named storms designated by the U.S. National Weather Service or the National Oceanic and Atmospheric Administration by a name or number), Hail, Smoke, Aircraft or Vehicles, Riot or civil commotion, Vandalism, Sprinkler leakage, Sinkhole collapse, Volcanic action, Falling objects, Weight of snow, ice or sleet, Water damage" (Fannie Mae Selling Guide B7-3-03).

If a carrier's policy excludes or caps any of these — named-storm exclusions are the most common in coastal markets — the rule doesn't let the gap slide: "the HOA or co-op corporation must obtain an acceptable policy (e.g., stand-alone policy) which provides adequate coverage for the limited or excluded peril" (Fannie Mae Selling Guide B7-3-03).

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Deductibles are capped — and the cap has a specific trigger for HO-6

This is the section that determines whether unit owners need their own property policy. Fannie Mae caps the master policy deductible two ways:

That last sentence is the trigger clause boards should flag for their agents: choosing a per-unit deductible structure on the master policy — common in hurricane-exposed states to control premiums — automatically forces every buyer's lender to require an HO-6 policy on that unit. If deductibles vary by peril (say, a separate named-storm deductible), "each individual deductible must comply with the applicable maximum deductible" (Fannie Mae Selling Guide B7-3-03).

Boards priced out of a compliant deductible aren't necessarily stuck: "A deductible buy-back insurance policy purchased by the HOA or co-op corporation may be used to meet Fannie Mae's master property insurance policy maximum deductible requirements, provided the policy meets all other property insurance requirements" (Fannie Mae Selling Guide B7-3-03).

When a unit owner needs an HO-6 policy — the exact test

Fannie Mae's rule for individual unit coverage, in B7-3-04, Individual Property Insurance Requirements for a Unit in a Project Development, gives lenders a two-part test. "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" (Fannie Mae Selling Guide B7-3-04).

In practice, most master policies only cover the building's shell — studs out — leaving interior finishes, fixtures, and improvements to the unit owner. That's what an HO-6 "walls-in" policy is for, and per the rule above, it's not optional once either trigger condition is met.

The minimum HO-6 coverage amount is defined relative to the gap, not a flat number: "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 the amount of the per unit deductible, if the master property insurance policy has a per unit deductible" (Fannie Mae Selling Guide B7-3-04).

So if the master policy carries a $25,000 per-unit deductible, the buyer's HO-6 policy has to be able to cover at least that $25,000 — not some arbitrary minimum. Fannie Mae recommends collaboration here rather than guesswork: "lenders and servicers encourage borrowers to closely collaborate with an insurance professional to determine their individual insurance needs" (Fannie Mae Selling Guide B7-3-04).

The HO-6 required-perils list mirrors the master policy's core perils, minus a few common-element-specific items: "Fire or lightning, Explosion, Windstorm (including named storms...), Hail, Smoke, Aircraft, Vehicles, Riot or civil commotion" (Fannie Mae Selling Guide B7-3-04). And the deductible pass-through rule runs both directions: "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" (Fannie Mae Selling Guide B7-3-04).

Fidelity/crime insurance: required for almost every project, sized to your bank controls

Separate from property coverage, Fannie Mae requires a fidelity or crime bond protecting the association's funds. B7-4-02, Fidelity/Crime Insurance Requirements for Project Developments states the default plainly: "Fidelity/crime insurance is required for all condo and co-op projects, with the following exceptions: projects that qualify for a waiver of project review... condo or co-op projects consisting of 20 units or less, or condo or co-op projects that would need fidelity/crime insurance coverage of $5,000 or less" (Fannie Mae Selling Guide B7-4-02).

The coverage has to follow the money regardless of who's managing it: "the HOA or co-op corporation must have fidelity/crime insurance coverage for the dishonest or fraudulent acts of anyone who either handles or is responsible for funds held or administered for the HOA or co-op corporation... whether or not that individual receives compensation for services rendered" (Fannie Mae Selling Guide B7-4-02). A property manager's own fidelity policy doesn't substitute for the HOA's: "a fidelity/crime insurance policy maintained by the management agent (with the management agent as the named insured) is not an acceptable alternative for a fidelity/crime insurance policy in the HOA or co-op corporation's name" (Fannie Mae Selling Guide B7-4-02).

The minimum coverage amount depends on whether the HOA follows Fannie Mae's financial-controls checklist — separate bank accounts for operating and reserve funds with statements sent directly to the HOA, a management company that keeps segregated books per client and can't draw on reserve funds, and two board-member signatures required on reserve account checks. If the HOA follows those controls, the minimum coverage is "the sum of three months of assessments on all units in the project." If it doesn't, the minimum jumps to "the maximum funds that are in the custody of the HOA or co-op corporation... at any point in time" (Fannie Mae Selling Guide B7-4-02) — typically a much larger number, since it has to cover the full reserve balance rather than a quarter's worth of dues.

That's a direct financial incentive for boards to adopt the dual-signature, segregated-account controls: doing so can cut the association's required fidelity bond from "all reserve funds on hand" down to three months of assessments.

What this means for boards closing deals this year

  1. Pull your master policy's declarations page and check three things: the coverage amount against current replacement cost, the loss-settlement basis (replacement cost, not actual cash value, except for roofs), and whether any required peril — especially windstorm in coastal states — is excluded or sub-limited.
  2. Know your deductible structure. If you're running anywhere near the 5%-of-coverage or $50,000-per-unit ceilings, every unit sale in the building will require the buyer to carry an HO-6 policy sized to that deductible. Tell your real estate agents and the buyers' lenders proactively — this is a frequent source of last-minute closing delays.
  3. Verify your fidelity/crime bond against the checklist, not just a round number. If your board hasn't formally adopted the two-signature and segregated-account controls, your required minimum coverage is dramatically higher than boards assume.
  4. Give buyers' lenders the master policy and HOA insurance certificate early — Form 1076 asks about this directly, and a slow response is one of the most common ways boards accidentally kill a closing.

None of this is new-for-2026 policy — it's the standing Selling Guide framework — but it's exactly the kind of detail that gets missed until a lender's underwriter flags it mid-transaction. Getting ahead of it keeps your building's units moving through conventional financing without surprises.

Sources

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