Master condo insurance policy vs. HO-6 insurance policy
Until recently, lenders did not require condominium purchasers (borrowers) to obtain property insurance coverage beyond that provided in the condominium association’s master policy. That all changed last year due to new condominium lending guidelines imposed by Fannie Mae (FNMA) and FHA, which now require purchasers to obtain H0-6 insurance policies.
In general, the condominium master insurance policy only covers "from studs out;" it does not cover "wall in." For example, the master policy would cover such things as the roof, exterior, common areas, and elevators. It does not cover such things as flooring, wall coverings, and other improvements made within the unit. Nor does it cover the unit owner’s personal belongings or protect the unit owner against personal liability occurring within the unit.
A H0-6 "walls in" coverage policy covers such things as personal liability, losses under master policy deductibles, personal property and improvements/upgrades to unit. The good news for borrowers is that the coverage is inexpensive and comes with low deductibles.
Again, under the new lending guidelines, unless the master policy provides the same interior unit coverage, Fannie Mae and FHA now require the borrower to obtain a H0-6 "walls in" coverage policy. The policy must offer coverage for no less than 20% of the condominium unit’s appraised value.