What Are Fannie Mae's Guidelines for Homeowners Insurance?
Dwelling coverage must equal at least the loan amount or 100% of rebuild cost, whichever is lower.
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Dwelling coverage amount
Your lender wants dwelling coverage that covers what it would cost to rebuild the house, not what you paid for it. Your loan amount sets a floor, but if rebuild cost runs higher, build it to that figure instead. Your insurer can walk you through the estimate.
The binder deadline
Your lender set a date for proof of coverage, usually a few days before closing. The binder is a temporary document showing the policy is in place. Get it to your lender's closing or underwriting contact as soon as the policy is issued, not the day it's due.
Deductible limits
Lenders generally accept deductibles up to a set percentage of the dwelling coverage, often around 1 to 5 percent depending on the loan type. A higher deductible lowers what you pay for the policy, but check your loan terms before picking one, since some loan types cap it lower.
Escrow and the first payment
If your loan includes escrow, your lender collects part of the annual premium with each mortgage payment and pays the insurer directly at renewal. At closing, you typically pay the first year's premium upfront yourself, then escrow takes over from there.
The same dwelling coverage amount and deductible can come with very different premiums depending on the insurer, and since you're setting this up for the first time, there's no policy history keeping you with one company. Comparing quotes before your binder is due shows you what rebuild-cost coverage actually costs around town, so the number you send your lender is one you're not overpaying for.
What else shows up on the lender's checklist
Besides the dwelling amount and the deadline, your lender's requirements usually name a few other coverages, plus a specific way the lender itself needs to appear on the policy. One is liability coverage, which pays if someone is hurt on your property or you damage someone else's property. Lenders typically want a minimum amount, often $100,000, though many policies default higher. The policy also needs to list your lender as mortgagee, sometimes written as loss payee. That means if the house is damaged, the insurance payout goes toward repairs and protects the lender's stake in the property, not just yours.
Your policy also needs to name the right people and the right address. The names on the policy should match the names on the loan, and if you're buying with someone else, both names usually need to appear. The address needs to match the property exactly, since a typo or an old address can hold up closing when the title company cross-checks documents. These are easy to get wrong when you're filling out an application for the first time, so it helps to have your closing disclosure or purchase contract next to you when you apply.
Lenders also check that the policy term lines up with closing, meaning coverage starts on or before the closing date, not after. A policy that starts a few days late, or one written for the wrong effective date, will bounce back from underwriting and cost you time you may not have. If your closing date moves, which happens often, let your insurer know so they can adjust the effective date on the binder before it's sent over again.
None of this is unusual or a sign something is wrong with your purchase. It's standard paperwork that protects the loan, and most of it is handled by filling out the application accurately the first time. If your lender's requirements mention something you don't recognize, like a specific coverage form or an additional insured, your insurer can tell you what it means and whether your quote already includes it.
What happens if the house doesn't match the policy at closing
Sometimes what gets written up for insurance doesn't match what the title company or appraiser has on file. Square footage, year built, or the number of units can all differ slightly between the appraisal and what you tell your insurer. A small difference in square footage usually doesn't matter. A difference in unit count does, since a policy written for a single-family home won't cover a duplex, and your lender will catch that mismatch when the file crosses their desk.
If the house has features that affect risk, like a pool, a trampoline, an older roof, or knob-and-tube wiring, your insurer needs to know before the policy is issued, not after. Some of these raise the premium. Others mean a standard policy won't cover the house at all, and you'd need a different kind of policy entirely. Finding this out during underwriting, a few days before closing, is the expensive way to find out. Finding it out when you first get quotes gives you time to fix it or shop around.
Condos and townhomes bring their own version of this. If the property has a homeowners association, your lender usually wants to see the master policy the association carries, since it covers the building structure, while your own policy covers the interior and your belongings. The two coverages need to fit together without a gap, and your lender's checklist may ask for proof of both. Ask your insurer directly whether what you're buying is the right type of policy for a property with a master policy above it, since the answer changes what you need to carry.
Most of this surfaces on its own when you fill out the application with accurate details about the house, not just the loan. If something about the property is unusual, mention it to your insurer before the quote comes back, not after. A policy written around accurate information the first time rarely needs to be reissued, and reissuing a policy a few days before closing is exactly the kind of delay a binder deadline is meant to prevent.
Before you send anything to your lender
Pull up your closing disclosure, check the dwelling amount against rebuild cost, and confirm your lender's name is spelled correctly for the mortgagee clause before the binder goes out.
