Roof replacement coverage requirements have been retired! Here’s what that means for you

Scott Teece, Vice President of Sales, Edina Realty Insurance, talks about recent changes in roof replacement coverage and what they mean for homebuyers in this “Ask an expert” article.

Key insights

• Roof replacement coverage requirements have been retired.
• Buyers now have more flexibility and can elect lesser roof insurance coverage.
• Fewer obstacles and delays are expected when securing roof insurance and closing on a home.

There’s good news in the home insurance world — a welcome change in the recent narrative. Fannie Mae and Freddie Mac have eliminated the conventional loan requirement for full roof replacement coverage at closing.

This is a change insurance brokers have been waiting for for years. Now that it’s here, it’s important that buyers understand what it means and how they can benefit.

What were the roof coverage requirements, and how have they changed?

Prior to this change, conventional loan underwriting required all home insurance policies to have replacement cost coverage on the roof. This impacted a large portion of the market, as 80–85% of all home loans are conventional.

Four or five years ago, homes with roofs over 10 years old were often denied coverage. This made it difficult for buyers to secure the insurance needed to meet mortgage requirements on a conventional loan and close on a home. It created strain for buyers and lenders alike and frequently caused delays as buyers worked to obtain additional coverage.

That requirement is now gone, giving buyers more roof insurance options.

What does this mean for buyers?

With the roof coverage requirement now obsolete, insurance companies can write a wider range of policies for different roof types and ages. For buyers, this means there may be:

• More options and flexibility
• Lower cost coverage options
• Potentially lower premiums
• Roof coverage that will likely not affect loan approval
• Fewer delays in closing due to insurance issues

What does this mean for sellers?

While this is especially beneficial for buyers, sellers also stand to gain. Sellers are now less likely to be asked for roof replacements or concessions.

That said, roof age verification remains important. Sellers should keep documentation of when the roof was replaced to help streamline the transaction.

What options are now available to buyers?

With the previous requirement removed, buyers can choose from three different types of roof coverage without impacting loan approval or delaying closing.

There are three primary coverage options:

1. Replacement cost coverage
   • Covers the full cost of materials and labor needed to replace the roof.
   • This was the only coverage accepted under prior mortgage requirements.
2. Actual cash value
   • Also known as depreciated value, this coverage pays the replacement cost minus depreciation based on the roof’s age and condition.
   • For example, if your roof is 10 years old and you file a claim, the payout reflects the replacement cost minus 10 years of depreciation (calculated at the time of loss).
3. Scheduled value
   • The insurance carrier predetermines the payout based on the roof’s age using a schedule that decreases annually.
   • For example, coverage may be 100% up to 10 years, then decrease each year thereafter (e.g., 96% at year 11).
   • In many cases, scheduled value payouts are higher than actual cash value payouts.

Let’s look at an example of how these three coverage types compare.

12-year-old roof, 30-year shingles

• Deductible = $2,500
• New Roof cost = $30,000

As you can see, the type of coverage you choose can lead to significantly different outcomes. While insurance costs matter, so does the potential cost of replacing a roof. (Note the chart above is not a quote or guarantee. Actual policies vary.)

Always consult a professional

Insurance may not be exciting, but it’s critical to understand your options and potential out-of-pocket costs.

Unlike a car, which can be replaced with a similar used vehicle at a depreciated value, you can’t replace a roof with a “used” one. Coverage decisions matter.

Meet with your insurance provider to review your options and determine the best fit. It’s also wise to get a quote early once you’ve chosen a home, giving you time to evaluate coverage scales and make an informed decision.

You can also work with an Edina Realty Insurance professional to understand your costs today and potential expenses in the event of damage. And, as always, consult your Edina Realty agent for transaction-related guidance on roof-related negotiations.