How much homeowners insurance coverage does Fannie Mae require?

Fannie Mae does not set a dollar amount of dwelling coverage on a one- to four-unit conventional file. Selling Guide B7-3-02 (08/05/2026) treats the policy as sufficient when it settles on a replacement-cost basis, except roofs.

This is for the processor or processing manager at an independent mortgage bank on Encompass whose HOI row is still open prior to docs because Coverage A sits below the loan amount, or the agent will not raise the limit. The counterparty is the insurance agency. Pull the conditions list, the binder or declarations page already on the file, the loan number, and the property address before you email the agent.

Coverage sufficiency is settlement language

Fannie Mae Selling Guide B7-3-02 (08/05/2026) determines coverage sufficiency from the policy’s loss-settlement terms, not from a Coverage A formula. A one- to four-unit policy that provides coverage on a replacement-cost basis is deemed sufficient, except roofs. Roofs must be insured. They do not have to be replacement cost.

Lender Letter LL-2026-03 (03/18/2026) retired the section that told lenders to document replacement cost value to verify the coverage amount. It also retired the requirement to insure roofs on a replacement-cost basis. The Guide published 08/05/2026 is that letter in the book.

What to read on the binder or dec page	Fannie 1-4 rule
Loss-settlement terms on the dwelling	Replacement-cost basis. B7-3-02 treats that as sufficient
Roof	Must be insured. Actual cash value is acceptable
Deductible, including each separate peril deductible	At or under 5% of the coverage amount
Coverage A versus loan amount	Not a Fannie 1-4 origination test

If the form is silent on replacement cost, ask the agent for a line that the policy settles on a replacement-cost basis up to the dwelling limit shown. That is not a replacement-cost estimate. When the agent will not send an RCE is that row.

The unpaid-principal-balance formula is retired

Until March 2026 the Guide used a coverage-amount calculation of unpaid principal balance versus 80 percent of replacement cost, and it wanted the worksheet as proof. LL-2026-03 retired that calculation, the examples, and the RCV verification requirements in their entirety.

Freddie Mac Bulletin 2026-C (03/18/2026) retired the same UPB versus 80 percent math. Freddie Guide 4703.2 (effective 09/16/2026, read 2026-10-10) now wants coverage on a replacement-cost basis, excluding roofs, with deductibles at or under 5 percent of dwelling.

On r/loanoriginators in September 2025, an underwriter held a conventional file because Coverage A sat below a $200,000 loan amount. The thread still recited the old lower-of-loan-amount-or-replacement-cost test. Do not chase that from an AllRegs printout dated before 03/18/2026.

Flood is a different test. B7-3-06 still uses the lesser of 100 percent of replacement cost of the improvements, the NFIP maximum, or unpaid principal balance. Do not apply that formula to the homeowners policy.

Roofs must be insured; they do not have to be replacement cost

B7-3-02 says roofs must be insured, but do not have to be insured on a replacement-cost basis. Actual cash value on the roof is acceptable. Actual cash value is also acceptable for personal property and structures that are not buildings.

Public recaps of the March 2026 change often say Fannie now accepts actual-cash-value homeowners policies. The Guide does not. The dwelling still has to settle on a replacement-cost basis. Only the roof is carved out.

On r/loanoriginators in March 2025, a conventional file sat because every carrier would only write actual cash value on an aging roof, and B7-3-02 still required replacement-cost settlement on every element. That roof rule is gone. Do not bounce a 1-4 conventional binder solely because the roof is ACV.

The FHFA news release (03/18/2026) is the same change in plain language: ACV roofs on single-family and condo, replacement-cost settlement on the rest of the dwelling.

Matching dwelling coverage to the loan amount is overlay

Many desks still match Coverage A to the loan amount. That match is a shop overlay. It is not B7-3-02.

The agent set Coverage A from the carrier’s rebuild worksheet. Land is not in that number. A high-LTV purchase on a cheap-to-rebuild house will often show Coverage A below the note amount. Raising the limit to the loan amount is a coverage change the named insured has to buy. It is not a Fannie 1-4 condition.

Some states cap what a lender may demand. Michigan Compiled Laws 445.1602a (read 2026-10-10) says a credit-granting institution shall not require property insurance greater than the replacement cost of the mortgaged buildings, except where a sale of the loan to a third party requires it. Other states differ. Check counsel. This is not legal advice.

Florida Statute 626.9551(1)(e) (read 2026-10-10) and North Carolina G.S. 58-3-137 (read 2026-10-10) bar requiring the agent’s replacement-cost estimator as a loan condition. They do not set Fannie’s coverage test. They stop you from chasing the worksheet that used to prove the old formula.

A condo master still has a 100 percent replacement-cost floor

A one- to four-unit file and a project file are different tests. B7-3-03 (08/05/2026) still wants the master coverage amount at least equal to 100 percent of the estimated replacement cost of the project improvements, including common elements and residential structures.

Document that with any one of: guaranteed replacement cost or equivalent, extended replacement cost or equivalent, an insurer replacement-cost estimate, the project’s insurance risk appraisal, or a statement from the insurer or another qualified professional. Master loss settlement is replacement cost, except roofs. A per-unit deductible may not exceed $50,000. A per-occurrence deductible may not exceed 5 percent of the master coverage amount.

B7-3-04 (08/05/2026) requires a unit owners (HO-6) policy when any interior is off the master, or when the master has a per-unit deductible. The HO-6 amount is the greater of the uncovered interior or that deductible. It must settle on a replacement-cost basis. The HO-6 deductible may not exceed the greater of 5 percent of that coverage or $2,500. The HO-6 covers the per-unit deductible. It does not cure a master per-occurrence deductible over 5 percent. HUD Handbook 4000.1 (read 2026-10-10) puts Evidence of Hazard Insurance in the FHA case binder and still wants the condo master at 100 percent of insurable replacement cost of the project, including the units.

Fannie, Freddie, and FHA are not the same coverage test

Agency	1-4 coverage test	Condo master	Roof
Fannie Mae	Replacement-cost settlement except roofs; deductible at or under 5% (B7-3-02, 08/05/2026)	100% of estimated replacement cost of project improvements (B7-3-03)	Insured; ACV acceptable
Freddie Mac	Replacement-cost basis excluding roofs; deductible at or under 5% of dwelling (4703.2; Bulletin 2026-C, 03/18/2026)	100% of RCV of project improvements, including common elements and residential structures	Insured; ACV acceptable
FHA	Evidence of Hazard Insurance in the case binder. No published UPB formula on a 1-4 origination file	Master at 100% of insurable replacement cost of the project, including the units	Mortgagee’s overlay

What a mortgage lender needs from the homeowners insurance agent before closing is the rest of the packet: evidence of a valid policy, the mortgagee clause, dates, and the condo extras. What an insurance binder should include is the fields on the binder itself. This page is the coverage-amount row.

What to bounce, and what to leave off

Item	Why it delays or fails
Actual cash value on the dwelling (not the roof)	B7-3-02 wants replacement-cost settlement on the building
Deductible over 5% of the coverage amount, including a separate wind or wildfire deductible	B7-3-02
Chasing Coverage A to the loan amount on a conventional 1-4	Overlay. Settlement language is the Guide test
Agent’s internal RCE as proof of the dollar amount	Retired on a 1-4. Fla. Stat. 626.9551(1)(e); N.C. G.S. 58-3-137
Using the flood formula on the homeowners policy	B7-3-06 is flood. B7-3-02 is HOI
Condo master below 100% of estimated replacement cost of the project improvements	B7-3-03 still uses a dollar floor
HO-6 missing when the master is not walls-in, or when the master has a per-unit deductible	B7-3-04

Pull the files that still have an open HOI condition. Read the settlement language on the binder or declarations page already in the eFolder before you chase a Coverage A number. If the dwelling settles on a replacement-cost basis, roofs are insured, the deductible is at or under 5 percent, and the mortgagee line is this lender, resend only for a missing field, and log the sent date on the file that afternoon.