Published October 1, 2026 · Chicago Condo Loans Editorial Team · How we research
Quick answer Fannie Mae limits how large a condo building’s master insurance deductible can be: no more than 5% of the policy’s coverage amount per occurrence, and no more than $50,000 per unit when the policy uses a per-unit deductible. If the master policy has a per-unit deductible, you must carry your own unit-owner (HO-6) policy with coverage at least equal to that deductible, and your HO-6 deductible can’t be higher than the greater of 5% of its coverage or $2,500. The rules were announced in Lender Letter LL-2026-03 and are now in Fannie Mae’s Selling Guide (updated August 5, 2026). If a building’s coverage falls short, loans there generally can’t be sold to Fannie Mae until the association fixes it.
This update is part of our guide to the condo questionnaire and HOA review, within our complete guide to condo loans in Chicago.
What does Fannie Mae require of the master policy?
| Requirement | Rule |
|---|---|
| Coverage amount | At least 100% of the estimated replacement cost of the project, including common elements and residential structures |
| Loss settlement | Replacement cost basis; roofs must be insured but don’t have to be on a replacement cost basis |
| Per-occurrence deductible | No more than 5% of the master policy’s coverage amount. If a peril such as windstorm has its own deductible, that deductible must meet the cap too. |
| Per-unit deductible | No more than $50,000 per unit, and unit owners must carry an HO-6 policy |
| Deductible buy-back | The association can buy a deductible buy-back policy to meet the caps |
| Other coverage | Building ordinance or law coverage, if available in the market, and, for buildings with central heating or cooling, equipment breakdown coverage of at least the lesser of $2 million or the replacement cost of the building housing the equipment |
The per-occurrence cap still allows a large deductible in a big building. A tower insured for $80 million could carry a deductible of up to $4 million per occurrence. If a loss falls within the deductible, the association pays from reserves or levies a special assessment on owners.
What does your own HO-6 policy need?
Under Selling Guide B7-3-04, you must have a unit-owner policy when any part of your unit’s interior or improvements isn’t covered by the master policy, or when the master policy has a per-unit deductible. The policy must:
- Cover at least the greater of (a) what it would take to restore the interior and improvements the master policy doesn’t cover or (b) the master policy’s per-unit deductible.
- Pay on a replacement cost basis.
- Cover fire or lightning, explosion, windstorm, hail, smoke, aircraft, vehicles, and riot or civil commotion, plus any peril the master policy’s per-unit deductible applies to.
- Have a deductible no higher than the greater of 5% of its coverage amount or $2,500.
Example: the master policy has a $25,000 per-unit deductible. If restoring your interior would cost $60,000, your HO-6 needs at least $60,000 of coverage, and its deductible can be up to $3,000 (5%). If your interior needs only $15,000, your HO-6 still needs at least $25,000 to match the per-unit deductible, and its deductible can be up to $2,500.
Why this matters for Chicago buyers
Insurance is part of every conventional building review, so the lender will ask for the master policy along with the condo questionnaire. In older high-rises and vintage courtyard buildings, water damage from risers and roofs is a common source of claims, and how the deductible is structured decides whether you or the association pays the first dollars of a loss. A policy with a per-unit deductible shifts part of that cost to individual owners, which is why Fannie Mae now ties it to a required HO-6 policy.
What to ask before you make an offer
- Get the master policy’s certificate or declarations page. Note the coverage amount, the per-occurrence deductible, any per-unit deductible, and any separate deductibles for specific perils.
- Find out what the master policy covers inside your unit. The declaration and the policy decide whether owners insure walls-in, improvements only, or more.
- Ask whether the association carries deductible buy-back coverage.
- Get an HO-6 quote early that meets the minimums above, and ask your agent about loss assessment coverage, which can help pay your share of an assessment after an insured loss.
- Share the insurance documents with your lender so a gap doesn’t surface days before closing.
Frequently asked questions
What is the largest condo master policy deductible Fannie Mae allows?
5% of the master policy’s coverage amount per occurrence. If the policy uses a per-unit deductible, it can’t exceed $50,000 per unit.
Do I need an HO-6 policy for a Fannie Mae condo loan?
Yes, whenever the master policy doesn’t cover all of your unit’s interior and improvements or has a per-unit deductible. In practice most Chicago condo buyers need one.
How high can my HO-6 deductible be?
No higher than the greater of 5% of the policy’s coverage amount or $2,500.
Sources
- Fannie Mae Selling Guide B7-3-03: Master Property Insurance Requirements for Project Developments (08/05/2026)
- Fannie Mae Selling Guide B7-3-04: Property Insurance Requirements for Individual Units in a Project Development (08/05/2026)
Educational content only, not lending, legal or insurance advice. See our Disclaimer.