I wish I had a dime for everyone that has said this over the years?
The FHA and Fannie mae can control your lives.They tell you what to do and they expect complete compliance without exception.
So What is FHA looking for when it comes to insurance?
In reality, nothing more than what you should have and what is prudent. The only problems arise, when they try to interpret what you have given them. Their terms and nomenclature seem to differ from the insurance industry.
Here is what they require:
- Hazard insurance this is your basic property insurance for fire and other perils. They require 100% replacement cost ( this is one of those terms where the problems start )
- Liability insurance standard stuff that we all have with a $1,000,000 limit ( they don’t understand the aggregate part however)
- Fidelity (dishonesty insurance). They are selective here. They only require you to have it for associations with over 20 units. Sometimes they make you add the property manager as an additional insured. They want you to have a limit of 3 months fees and enough to cover the reserves. ( You can see that this floating number can be an issue)
- Flood- If the FHA thinks they can figure out flood insurance, I might hire them, because the other government entity that is more beaurocratic than the FHA if the NFIP. More letters means more confusion. You need it, up to the replacement cost, but the NFIP won’t sell it to you in all cases. They also won’t let you buy it on your own, the association needs to buy it. So, like in my condo, the other owners ( no mortgages ) don’t want it, or they don’t need it ( above grade floor) you have no choice but to go on your own for it.
These are the basic requirements, and they are fair, and you probably already have the coverage, but just wait till they have to approve it. If it is not in their language, WATCH OUT!
It is the FHA’s game and you have to play by their rules, or you do not get approval. More than 30% of all condo loans are FHA backed and approved.