HO-6 Condominium Policies Now Required By Lenders

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.

HO-6 Now Required By Lenders

Under the new Fannie Mae (FNMA) and FHA overhaul of condominium lending guidelines, lenders are now requiring that condominium unit owner borrowers obtain HO-6 policies. 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.

Coverages

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).
  • Usually has small deductible and fairly inexpensive

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.

High Deductible 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. These days, condominium associations have been cutting costs by increasing their deductibles, anywhere from $10,000 to even $50,000. What’s more, condominium documents often provide that the unit owner is responsible for losses falling below the deductible. A well-tailored HO-6 policy will protect you in this situation. Here is a good article about the tug-of-war on deductibles.

Special Assessments

HO-6 policies can also provide coverage for unexpected special assessments. Special assessments are one-time, often hefty, capital expenditures imposed on all unit owners for major repairs or improvements. Think $50,000 roof replacement project. HO-6 policies can also cover lawsuits against the association.

The HO-6 policy is a must have for every condominium owner!

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This entry was posted on Tuesday, April 6th, 2010 at 9:34 am and is filed under Legal Resources, Realtor Legal Resources. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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