Lender Requirements for Condo Insurance
Lenders typically require an HO-6 policy covering the unit's interior and your liability, naming them as mortgagee.
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Where the HOA's policy stops
The HOA's master policy usually covers the building's structure, common areas, and shared systems, but not what's inside your walls. Your lender requires your own HO-6 to cover that gap. The HOA's governing documents define exactly where the master policy stops.
Setting your dwelling limit
Lenders usually set a minimum dollar amount for the interior coverage on your HO-6, often tied to your loan balance. That number may not match what it would cost to rebuild your unit's interior, so check it against your own renovations.
Loss assessment coverage
If a shared loss exceeds the HOA's master policy limit, the HOA can bill every owner a special assessment to cover the rest. Lenders often require a minimum amount of loss assessment coverage on your HO-6. Check your declarations page for the limit your policy carries.
Naming the lender
Lenders require your policy to list them as mortgagee, so they're notified directly if coverage lapses or cancels. This protects their financial interest in the unit, separate from protecting yours. Your declarations page should show the lender's name exactly as it appears on your loan.
Two units with the same loan balance can need very different HO-6 limits. One owner has original builder-grade finishes, another has a renovated kitchen or custom flooring, and the rebuild cost is not the same. A policy sized only to meet the lender's minimum may leave that gap uncovered. Comparing policies lets you match interior coverage and loss assessment limits to your unit, not just to what the loan requires.
What happens when water comes from a neighbor's unit
Water damage from a neighboring unit is one of the most common claims in condo buildings, and figuring out who pays takes more than one phone call. Start with where the water came from and whether it's something the HOA insures. A burst pipe inside a shared wall, or a problem with plumbing the HOA's documents classify as a common element, usually falls to the master policy. A washing machine hose that fails inside your neighbor's unit, in space they own, is often their responsibility and their HO-6 that responds.
Your own HO-6 matters here even when the damage didn't start in your unit. If water from upstairs ruins your flooring or drywall, your policy's interior coverage can pay for the repairs to your unit while any dispute over fault gets sorted out between insurers. Most HO-6 policies also include coverage for your personal property, so damaged furniture or belongings are handled the same way, through your own policy first.
Loss assessment coverage can come into play too, in a different way than a single pipe burst. If the water damage affects shared plumbing or structural elements and the repair cost exceeds what the HOA's master policy covers, the HOA may issue a special assessment to all owners, including those whose units were never touched. That's the scenario loss assessment coverage on your HO-6 is built for, and it's worth checking your limit matches what a major shared repair could actually cost.
Townhomes complicate this further because ownership lines often differ from condos. In many townhome communities, the owner holds title to the exterior walls and sometimes the roof, not just the interior, which means the HOA's master policy may cover less of the structure than it would for a condo in the same situation. Some townhome HOAs carry no master policy at all, leaving owners to insure the full structure themselves. Your HOA's governing documents, not assumptions based on how condos typically work, determine which situation applies to your unit.
How townhome coverage differs from condo coverage
Condo and townhome ownership often get lumped together, but the insurance picture can be very different. In a typical condo, you own the airspace inside your unit and the HOA's master policy covers the building structure around it, the roof, the exterior walls, the foundation. A townhome is often set up so you own the structure itself, including the walls and sometimes the roof over your head, not just the interior space. That changes what your policy needs to do.
If your townhome HOA doesn't carry a master policy at all, which happens more often with townhomes than condos, your own policy has to cover the full structure, not just the interior finishes. That's a different kind of policy than an HO-6 built for condo walls-in coverage. It looks more like a standard homeowners policy, insuring the roof, exterior walls, and foundation along with everything inside. Some lenders will specify this directly when the HOA structure is known.
Even when a townhome HOA does carry a master policy, it may only cover shared amenities like a clubhouse or pool, or the land and common walkways, leaving every structural element of the home itself to the owner. This is the opposite of how most condo master policies work, and assuming condo rules apply can leave a real gap. The governing documents for the specific HOA spell out who insures what, and that document, not the general pattern for condos, is what determines the coverage a townhome owner needs.
Before buying or renewing coverage on a townhome, it's worth getting a copy of the HOA's insurance declarations alongside its governing documents, not just relying on what the HOA website or a neighbor says. A lender reviewing the file will usually want to see that the structure is insured by someone, either the HOA's master policy or the owner's own policy, and a mismatch between the two can surface during closing or after a claim, when it's harder to fix.
Before you buy a policy
Pull your HOA's master policy declarations and governing documents. Compare your HO-6 dwelling limit and your loss assessment coverage against what's written there, not just the lender's minimum. Match both to your own unit.
