Guides
Fannie Mae and Freddie Mac homeowners insurance requirements
What Fannie Mae and Freddie Mac require in a homeowners policy after the March 2026 changes: replacement cost basis, the 5% deductible cap and insurer ratings.
If your mortgage is owned or guaranteed by Fannie Mae or Freddie Mac, your homeowners policy on a one-to-four unit home must pay on a replacement cost basis (roofs excepted), cover a defined list of perils including named storms, and carry no required-peril deductible above 5%. Since March 18, 2026, neither company makes the servicer verify a replacement cost estimate against your dwelling limit, which retired the older "80% of replacement cost" formula. The insurer must also hold an acceptable financial-strength rating.
The rules below come from Fannie Mae's Selling Guide (Chapter B7-3, version dated August 5, 2026) and Freddie Mac's Single-Family Seller/Servicer Guide (Chapter 4703, as updated by Bulletin 2026-C). These are minimums that the servicer enforces; your lender can add overlays, and your loan documents can be stricter.
What changed in March 2026
On March 18, 2026, Fannie Mae issued Lender Letter LL-2026-03 and Freddie Mac issued Guide Bulletin 2026-C, coordinated with the Federal Housing Finance Agency. Fannie Mae said it was "retiring the requirements related to documenting the replacement cost value to verify the property insurance policy coverage amount" and the requirement to insure roofs on a replacement cost basis. Freddie Mac wrote that servicers "are no longer required to verify the replacement cost value (RCV) to ensure coverage sufficiency" and that the calculation involving the unpaid principal balance and 80% of RCV was retired.
Articles written before this date still describe the old math. If you read that your limit must be the greater of the balance or 80% of the rebuild cost, that is out of date for these two investors on one-to-four unit homes. Fannie Mae folded the changes into the Selling Guide in Announcement SEL-2026-07 (August 5, 2026), and Freddie Mac's Bulletin 2026-E confirmed they are in the Guide. Other lenders, FHA, VA and USDA are separate; see FHA, VA and USDA homeowners insurance requirements.
One-to-four unit homes: the current rules
| Item | Fannie Mae (B7-3-02) | Freddie Mac (4703.2, Bulletin 2026-C) |
|---|---|---|
| Coverage basis | Replacement cost, except roofs; such a policy is "deemed to provide sufficient coverage" | "Replacement cost basis, excluding roofs" |
| Roofs | Must be insured, but need not be at replacement cost | Same |
| Perils | Special-form or equivalent: fire or lightning, explosion, windstorm including named storms, hail, smoke, aircraft, vehicles, riot or civil commotion | Perils listed in Section 4703.2(a); named storms designated by NWS or NOAA by name or number are a required part of windstorm |
| Maximum deductible | 5% of the property insurance coverage amount for all required perils; any separate wind or wildfire deductible must also be 5% or less | 5% of the limit maintained for dwelling coverage, for all required perils |
| Personal property and non-building structures | Actual cash value acceptable | Same |
Say your dwelling limit is $400,000 (hypothetical). The deductible for each required peril can be at most $20,000. A 2% hurricane deductible is $8,000 and passes; a 10% option on a Gulf Coast policy, which would be $40,000, would not. If your policy has a named-storm or wildfire deductible above the cap, ask the insurer for a lower option, or find another carrier. hurricane and named-storm deductibles explained covers those options, including which states regulate them.
Two cautions. First, the "deemed sufficient" language is about the loss-settlement terms, not about whether your limit is enough to rebuild. A policy that nominally pays replacement cost can still leave you short if the dwelling limit is too low, which is why the lender's compliance is not a coverage review. Second, the wording differs slightly between the two companies, but both effectively point to the dwelling limit.
Insurer ratings
Fannie Mae's B7-3-01 says the insurer must meet one of these: AM Best Financial Strength Rating of B or better; Demotech Financial Stability Rating of A or better; Kroll Bond Rating Agency BBB or better; or S&P Global BBB or better. The insurer needs only one. Freddie Mac accepts ratings from the same four agencies. Its Bulletin 2023-3 (February 1, 2023) added KBRA, effective January 1, 2023, with a minimum Insurance Financial Strength Rating of BBB. Before that, the Guide accepted only AM Best, Demotech and S&P Global. Freddie Mac's Bulletin 2022-5 (March 2, 2022) dropped the separate AM Best Financial Size Category requirement. Industry summaries of Section 4703.1 give Freddie Mac's AM Best minimum as B+, one notch above Fannie Mae's B, with Demotech A and S&P BBB, but we could not read the current Guide text to confirm those grades. If your insurer is rated B by AM Best, ask your servicer whether it qualifies for a Freddie Mac loan. Financial strength ratings: AM Best, S&P, Moody's and Demotech and Demotech ratings and Florida's insurers explain what the letters mean.
Fannie Mae lists exceptions, including FAIR plans and state-mandated windstorm pools "if they are the only coverage that can be obtained." That matters if you are in a market where standard insurers are scarce. Fannie Mae also says the borrower "has the right to select the insurer of their choice" provided the insurance meets its requirements.
Condominiums, co-ops and planned unit developments
For projects, the master policy must cover at least 100% of the estimated replacement cost value of the project improvements (Fannie Mae B7-3-03). Master policy deductibles are capped at 5% of the master coverage amount per occurrence and, for loans with application dates on or after July 1, 2026, $50,000 per unit. Freddie Mac set the same $50,000 per-unit cap and retired the inflation guard requirement. A unit-owner policy (HO-6) is required when the master policy does not cover all or part of the unit interior or has a per-unit deductible, with a deductible of no more than the greater of 5% or $2,500 under both companies. condo master policies: what the association covers and what you cover explains how to match the two.
Monitoring is getting stricter
Freddie Mac's Bulletin 2026-C says that from January 1, 2027 (servicers are encouraged to start sooner), servicers must confirm at least annually, or at renewal or replacement, that the coverage meets Chapter 4703 minimums on carrier licensing and rating, coverage sufficiency, perils and deductibles. They must notify borrowers of one-to-four unit loans when a policy fails, and send an annual reminder to review coverage. Expect a letter if your renewal pushes a deductible above the cap or your insurer is downgraded.
What to do if your policy does not meet the rules
- Get the servicer's notice in writing and identify the specific requirement (deductible, peril, rating, coverage).
- Ask your agent for a compliant option. Often a lower wind deductible or a different form fixes it, and you can see the premium change before deciding.
- Send the revised declarations page to the servicer right away.
- Do not ignore the deadline. If the servicer cannot confirm compliant coverage, it can place coverage at your expense; see force-placed (lender-placed) insurance explained.
Key takeaways
- For Fannie Mae and Freddie Mac one-to-four unit loans, the policy must pay replacement cost on the dwelling (roofs may be actual cash value) and cover the required perils including named storms.
- Since March 18, 2026, neither company requires a replacement cost estimate test or the 80% formula, but the 5% maximum deductible applies to each required peril.
- Fannie Mae accepts insurers rated AM Best B, Demotech A, KBRA BBB or S&P BBB or better. Freddie Mac also accepts KBRA BBB, but confirm its AM Best minimum with your servicer.
- Condo unit deductibles are capped at the greater of 5% or $2,500, and master policy per-unit deductibles at $50,000 for newer loans.
- Meeting the minimum does not mean your dwelling limit is high enough to rebuild.