According to Fannie Mae guidelines, what should the amount of hazard insurance coverage equal?

In accordance with Fannie Mae guidelines, hazard insurance coverage should equal the lower of the replacement cost of the property or the unpaid loan amount. This approach ensures that the homeowner is sufficiently covered in case of a loss, while also protecting the lender's interest in the property.

The idea behind using the lower of these two amounts is to provide adequate protection for both the borrower and the lender. If the coverage were strictly equal to the appraised value or the purchase price, it might not always accurately reflect the current market conditions or the actual protection needed in the case of a complete loss. Replacement cost considers what it would cost to rebuild the home at current prices, which can differ from past values, and the unpaid loan amount is directly related to the lender's risk.

Overall, using this guideline helps to ensure that insurance coverage meets the financial and safety needs of both parties involved in the mortgage agreement.