Fannie Mae Requirements – Determining the Amount of Required Property Insurance Coverage

Below is an excerpt from B7-3-03, Determining the Amount of Required Property Insurance Coverage (12/15/2021)

Introduction #

This topic contains information on determining the amount of required property insurance coverage for a property on which an individually held insurance policy is maintained.

Determining the Amount of Required Property Insurance #

The following table describes how to calculate the amount of required property insurance coverage:

StepDescription
1Compare the insurable value of the improvements as established by the property insurer to the unpaid principal balance (UPB) of the loan.
1AIf the insurable value of the improvements is less than the UPB, the insurable value is the amount of coverage required.
1BIf the UPB of the loan is less than the insurable value of the improvements, go to Step 2.
2Calculate 80% of the insurable value of the improvements.
2AIf the result of this calculation is equal to or less than the UPB of the loan, the UPB is the amount of coverage required.
2BIf the result of this calculation is greater than the UPB of the loan, this calculated figure is the amount of coverage required.

Note: Loan amount is used at the time of loan origination and UPB is used during servicing of the loan.

Examples:

CategoryProperty AProperty BProperty C
Insurable Value$90,000$100,000$100,000
UPB$95,000$ 90,000$ 75,000
80% Insurable Value$ 80,000$ 80,000
Required Coverage$90,000$ 90,000$ 80,000
Calculation MethodStep 1AStep 2AStep 2B

The table below provides references to the Announcements that have been issued that are related to this topic.

AnnouncementsIssue Date
Announcement SEL-2021-11December 15, 2021
Announcement SEL-2014–10July 29, 2014
Updated on September 30, 2022
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