HOA insurance changes could lead to inability to buy or sell units

There have been changes in homeowners insurance because of an increase in claims due to severe weather such as wind and hail. Last fall I wrote about how overhanging tree branches can make a home uninsurable. This year the big homeowners insurance news I have encountered that can make a property uninsurable has to do with HOA master hazard insurance policies.

Most conventional loans are guaranteed by Fannie Mae or Freddie Mac, which means to qualify for a mortgage the loan must conform to certain criteria and underwriting guidelines. Since 2022 they require that the maximum deductible for master policies is 5%. This hasn’t been a problem until policy costs have been rising significantly, especially due to an increase in hail and wind claims. To offset the rise in policy costs, associations may increase their deductible. Sounds like a smart tradeoff.

Only problem is, if the deductible goes over 5% units cannot be sold with conventional financing… it doesn’t matter how big the down payment is! FHA financing does not have this requirement, but the complex must be FHA approved, which many are not.

I talked with an agent this week who brought a buyer for a townhouse I listed. My Windsor Green townhouse listing was ok, but she said she has had three deals fall apart this year because of this requirement.

I talked to the lender who posts each week on this blog… she has also encountered this problem. She said she has heard they are working to raise the 5% requirement for conventional financing, but it takes time and even if it is approved it likely won’t go into effect until at least the end of this year or in 2025.

Whether you are buying or selling a unit in an HOA, be sure to check out the master insurance policy to make sure the deductible isn’t over 5% before you find out financing isn’t possible as you get into underwriting.

More more about it… Insurance Changes Could Lead to Association Members’ Inability to Sell Their Units

Sharlene Hensrud/RE/MAX Results – shensrud@homesmsp.com

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I love what I do! Highly insightful, analytical and creative, there is nothing I love more than helping you find the right solution for your real estate transition. My mission is to serve my clients with honesty and integrity, exceeding their expectations in service and support… and to help others by donating a portion of every transaction to Habitat for Humanity.

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