Insurance on a HUD apartment loan: what the MAP Guide requires

The coverage list

HUD sets minimums in chapter 3.9 of the MAP Guide, and the borrower’s mortgage carries a covenant to keep fire and extended coverage in force on terms the Commissioner sets (24 CFR 200.86). The same list applies to every MAP program; what changes between a 221(d)(4) and a 223(f) is when the coverage has to start.

During construction and after

On a 221(d)(4) or other construction loan, liability coverage must be in place from the start of construction and endorsed to include owners’ and contractors’ protective coverage. Vehicle coverage must include owned, non-owned and hired vehicles where they apply. Flood insurance starts as soon as the property becomes insurable.

When the owner accepts the building from the contractor, the lender must deliver certified copies of the permanent coverage. Extending the construction-period policies with the right endorsements can be acceptable, but the MAP Guide is explicit that there can be no gap between the two. Permanent liability must also pick up independent contractors’ coverage where it applies.

On a 223(f) purchase or refinance the permanent coverage is simply in force at closing. After endorsement, the ongoing rules live in the asset management handbook (HUD Handbook 4350.1), which is where a renewal or a change of carrier is checked.

Casualty: what “insurable value” means

HUD measures casualty coverage against insurable value: the current cost of replacing each building, excluding land and site improvements. It is not appraised value and not depreciated original cost. The capital needs assessment reports it for every structure on the property (see third-party reports).

Two consequences follow:

• Building by building. A claim pays no more than the damage to a building and no more than that building’s insurable value. Spreading one total cost across dissimilar buildings can understate some and overstate others, which leaves losses uncovered.
• No over-insuring. Most states bar insuring above replacement cost, so the 80% minimum is a floor tied to real replacement cost, not a reason to inflate it.

The minimum face amount is the lower of 80% of insurable improvements or the balance of the insured mortgage, as long as the policy’s co-insurance clause is also met.

Deductibles and co-insurance

HUD caps what the owner can be made to share after a loss in two ways:

1. Deductible cap. No more than the greater of $50,000 or 1% of the insurable value of the building, up to $250,000.
2. Co-insurance. The face amount bought must equal or exceed the policy’s co-insurance requirement, so partial claims are paid in full (less the deductible).

The MAP Guide’s own illustration of why: with a typical 80% co-insurance clause, an owner who buys cover equal to 65% of insurable values gets only 65% of any claim paid, leaving 35% plus the deductible to the owner. Buy at or above the co-insurance level and the insurer pays 100% of the claim, less the deductible, up to the face amount.

Building insurable value	1% of value	Deductible cap
$3,000,000	$30,000	$50,000 (the floor applies)
$12,000,000	$120,000	$120,000
$40,000,000	$400,000	$250,000 (the ceiling applies)

Calculations from the MAP Guide 3.9.2.4 rule; the building values are illustrations.

Waiver. For large properties with many buildings, or properties inside a portfolio program with tiers of coverage, HUD may waive the 80% minimum if the lender shows the coverage is adequate for likely casualty events and the borrower is not left sharing partial losses.

Flood insurance

Where it is required

Federal law bars a federal agency from insuring a loan in a FEMA-identified special flood hazard area unless the building is covered by flood insurance, and the requirement stays with the property through any transfer (42 U.S.C. 4012a(a)). The MAP Guide puts it in practical terms: any insurable structure in a FEMA-mapped Special Flood Hazard Area (the 100-year floodplain) must carry NFIP flood insurance for the term of the loan.

HUD goes further than the statute in three ways:

• It requires flood insurance where an advisory base flood elevation or preliminary FEMA map shows the building will be in an SFHA, even before the final map.
• HUD’s approving official may require it in the moderate hazard zone (zones B or shaded X), on a parcel that includes an SFHA, in coastal areas subject to tidal flooding, tsunami, wave action or storm surge (including limits of moderate wave action), or where topography or past flooding shows high risk.
• At the firm application the lender submits FEMA’s Standard Flood Hazard Determination Form and proof of a flood insurance commitment effective at closing.

The MAP Guide gives the reason: a building in the SFHA has a 26% chance of flooding over a 30-year mortgage, and one in the 500-year floodplain a 6% chance.

How much

The statute’s floor is the lesser of the project cost (less land) or the NFIP maximum, and on an insured loan it need not exceed the loan balance. HUD sets a higher bar for each improved structure in the SFHA: at least the greater of

1. the NFIP maximum for that type of property, or
2. the replacement cost of the bottom two stories above grade (form HUD-92329 or equivalent).

The NFIP maximum for an “other residential building (including multifamily)” is $500,000 of building coverage per building in the regular program (44 CFR 61.6). On anything larger than a small garden building, the two-story replacement cost is likely to be the controlling number, and the cover above $500,000 comes from a private flood policy.

Leases in a floodplain

Where HUD has required flood insurance, every new and renewal lease must include a signed acknowledgment that the resident was told the property is in a floodplain and that flood insurance is available for their personal property (MAP 9.6.6.F).

Siting rules are a separate question

Whether HUD will insure a building in a floodplain at all, and how high new construction must be elevated, is governed by HUD’s floodplain management rules in 24 CFR part 55, not by the insurance section. HUD adopted the Federal Flood Risk Management Standard in a final rule effective May 23, 2024 (89 FR 30850). On July 10, 2026 HUD proposed to rescind that rule and generally restore the earlier regulations, keeping some of its flexibilities (91 FR 42685). Comments closed September 8, 2026, and no final rule had been published as of October 31, 2026. Until one is, check the current part 55 text with the lender before designing to an elevation.

Fidelity bond for the management agent

The lender must confirm the management agent is adequately bonded. The agent certifies that it carries a fidelity bond or employee dishonesty coverage for all its principals and everyone involved in managing the project’s assets, accounts and records. The bond must name the lender and HUD as additional loss payees and cover at least two months of the project’s gross potential income. One bond can cover several properties, including uninsured ones, in which case the minimum is computed on the property with the highest gross potential income (MAP 10.6).

What to have ready

• A schedule of insurable values by building, matching the capital needs assessment.
• Quotes that show the deductible per building against the $50,000 / 1% / $250,000 rule.
• The policy’s co-insurance percentage and a face amount at or above it.
• A flood zone determination for every building, and a flood quote sized to the two-story rule where it applies.
• Carrier ratings (B+ or better) and the agent’s fidelity bond certificate.