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Change in how roofs are insured could make the biggest difference

By Mark Huffman of ConsumerAffairs

• New federal mortgage guidelines could reduce insurance costs for many U.S. homebuyers.

• Changes affect loans backed by Fannie Mae and Freddie Mac, including condos and rural properties.

• Updates aim to reflect rising insurance costs while maintaining core property protections.

Federal housing officials have announced changes to mortgage insurance requirements that could lower costs for many homebuyers, particularly those purchasing condos or homes in rural areas.

The Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, said the updated rules are intended to address rising property insurance premiums that have made homeownership more expensive and, in some cases, harder to obtain.

The revisions focus largely on how insurance coverage is structured for properties financed through government-backed mortgages.

Key changes to insurance requirements

One of the most significant updates allows lenders to accept Actual Cash Value (ACV) coverage for roofs on both single-family homes and condominium buildings. Unlike full replacement coverage, ACV policies factor in depreciation, meaning insurers pay the current value of a roof rather than the cost to fully replace it.

However, the rest of the property must still be covered at Replacement Cost Value (RCV), ensuring that major structural damage would be fully repaired or rebuilt.

Housing officials say this hybrid approach is designed to balance affordability with adequate protection, particularly as roof replacement coverage has become more expensive and harder to obtain in some regions.

Impact on condo buyers and associations

The changes are expected to have a notable effect on condominium markets. Condo associations will now have more flexibility in how they structure insurance policies, including the ability to use ACV coverage for roofs.

In addition, a previously complex rule governing per-unit insurance deductibles has been simplified. Industry groups had argued that the earlier requirements made it difficult for some condo buildings to qualify for financing backed by Fannie Mae and Freddie Mac.

With the revisions, more condo developments may meet eligibility standards, potentially expanding options for buyers.

Removal of prior guidance

The FHFA also eliminated a 2024 policy clarification related to insurance claims. Critics of that rule had said it could complicate claims processing and contribute to higher costs, though the agency did not characterize the change in those terms.

The updates come as insurance premiums have risen sharply in many parts of the country due to increased risks from natural disasters, inflation in construction costs, and insurers pulling back from certain markets.

By adjusting insurance requirements rather than coverage for entire structures, policymakers are attempting to reduce monthly housing costs without significantly weakening overall protection for homeowners.

What it means for buyers

For prospective buyers, especially first-time purchasers, lower insurance costs could translate into reduced monthly mortgage payments and improved loan qualification prospects.

Current homeowners with mortgages backed by Fannie Mae or Freddie Mac may also see changes in how their insurance policies are structured over time, depending on lender and insurer practices.

Housing experts say the real-world impact will vary by location and insurance market conditions, but the changes could provide some relief in areas where premiums have been a major barrier to homeownership.