Attention Condo Homeowners and Real Estate Agents – Don’t blink, because this is what happens: Last month, as I was explaining the loan application and monthly savings for a client, I encountered little resistance (I kinda felt like my client was feeling suspect, like they were getting ripped off or bamboozled…) as I was explaining how their projected new monthly payment will include an additional insurance premium fee of $31/mo. that was not required when they purchased the condo in 2009.
Recent Fannie Mae, Freddie Mac, and HUD guideline changes as they relate to Condominiums, now require a supplemental insurance policy on top of the Master Condominium Insurance Policy. This supplemental policy, the Condominium HO-6 Insurance Policy is required in addition to the master insurance policy typically covered by the home owners’ association. A HO-6 policy is like a regular homeowner’s policy, but for a condominium unit, and with a lot more extras. HO-6 insurance policies cover the interior of the unit and personal property inside–commonly known as “studs in” coverage.
Why HO-6 Should Have ALWAYS Been Required By Lenders
Under the recently revised Fannie Mae (FNMA) and FHA overhaul of condominium lending guidelines, lenders are now requiring HO-6 policies for new condo unit purchases and refinances. Sounds like common sense, but HO-6 policies weren’t required by lenders, and many condominium unit owners were under the mistaken impression that the master condominium insurance policy covered all damage to the interior of their unit as well as damage to furniture, appliances, etc. That isn’t so. In most cases, that master insurance policy covers common areas such as the hallways, roof, basement, elevator, boiler, and common walkways, for both liability and physical damage–but not the inside of units.
HO-6 Policy Coverage
HO-6 policy benefits include:
- Coverage for damage to personal property such as furniture, computer equipment and clothing
- Fill in the gaps of the master insurance policy and cover losses under master policy deductibles
- Personal liability coverage
- Interior walls and floor coverings coverage
- Coverage for improvements or upgrades (most master insurance policies only cover the original condition and value of the unit).
- Typically has small deductible and fairly inexpensive ($30-40 per month)
Under the new lending rules, an HO-6 insurance policy must provide coverage for no less than 20% of the condominium unit’s appraised value.
Master Insurance Policy Deductable Protection
Another benefit of obtaining an HO-6 policy is that in certain situations, it will provide gap coverage caused by the often high deductibles on a master insurance policy. More and more these days, condominium associations have been cutting costs by increasing their deductibles, anywhere from $10,000 to even $50,000. More importantly, condominium documents often indicate that the unit owner is responsible for losses that fall below the deductible. A well-tailored HO-6 policy will protect you in this situation. Here is a good article on the benefits of a “walls in” insurance policy from an insurance adjuster. .
Protection Against Expensive Special Assessments
HO-6 policies can also provide coverage for unexpected special assessments. Special assessments are usually a one-time, often hefty, capital expenditure imposed on all unit owners for major repairs or improvements. Think about a $125,000 roof replacement project… HO-6 policies can also cover lawsuits against the association.
In conclusion, I must say that at the time of loan approval when the underwriter required an additional insurance policy I was somewhat shocked and frustrated that HUD required an additional fee. But after looking into HO-6, I now have a totally different outlook. The HO-6 policy is a must have for every condominium owner!
A special thanks to my preferred insurance agent Doug Greiert, at Greiert Insurance. Being able to have your insurance agent review the master insurance policy, its deductibles and coverages is CRITICAL when buying a condo. Please feel free to contact me directly below or via email if you have any questions on buying or refinancing a condo – email@example.com or (425) 350-7136.
For all of your insurance needs, and for a FREE policy quote, I recommend calling Doug Greiert at (425) 334-7577.