Wrap Policies for California Homeowners: Filling the FAIR Plan Gap for Your Mortgage

I’m Michael DiVita — DRE #01372066 | NMLS #241655, DiVita Home Finance (DRE #01818285 | NMLS #323700), Tiburon, CA. I’ve been in California mortgage lending since 2000 and founded DiVita Home Finance in 2007. I’m known as a creative mortgage broker: when a bank says no, I find the lender and the loan structure that can say yes. Call (800) 239-1103.

If the only fire insurance you can get on your California home is the FAIR Plan, you’re partway there — and that’s the part most buyers don’t realize until they’re deep in escrow. The base FAIR Plan dwelling policy covers a short list of perils: fire, lightning, internal explosion and smoke. It has no personal liability coverage at all, it doesn’t cover theft or water damage, and unless you pay for the options, it doesn’t cover windstorm or hail either. A mortgage lender needs the property insured against a longer list of perils than that. The usual fix is a second policy that “wraps around” the FAIR Plan.

This page is my complete guide to financing a home in a California fire zone: what a wrap policy is, what lenders actually require (conforming, jumbo and non-QM), how the premium changes what you can borrow, and how to keep insurance from blowing up your closing date. For the details of the FAIR Plan policy itself — coverage options, the $3 million limit, replacement cost and condo master policies — see my companion page, California FAIR Plan: Coverage, Limits and What Your Lender Requires.

Why Insurance Is Now the Hardest Part of a Fire-Zone Closing

Every lender requires proof of hazard insurance before funding a purchase or a refinance. In much of California that used to be a formality. Now it’s where escrows stall. Many private carriers have non-renewed or stopped writing new homeowner policies in wildfire-exposed areas, and the FAIR Plan — the state’s insurer of last resort — has grown to 696,562 policies in force as of June 2026, up 157% since September 2022, according to the FAIR Plan’s own data.

The usual failure pattern: a buyer goes into contract, applies for the loan, and only then discovers that no standard carrier will write the house. They scramble, land a FAIR Plan quote, and find out late that the lender still needs more coverage than that policy provides — or that the real premium pushes their debt-to-income ratio over the line. Both problems are avoidable if you deal with insurance on day one.

The areas where I see this most are Marin County (Mill Valley, Fairfax, the San Rafael and Novato hills, the Tiburon hillsides), Sonoma County (Santa Rosa hillsides, Healdsburg, Glen Ellen, Kenwood, Guerneville), the Oakland and Berkeley hills, Moraga, Orinda and Lafayette, the Peninsula hills (Woodside, Portola Valley, Los Altos Hills) and the Santa Cruz Mountains, the Los Angeles foothill and canyon communities (Pacific Palisades, Malibu, Topanga, Altadena and the Pasadena foothills, Calabasas, Santa Clarita), Ventura County foothills (Ojai, Thousand Oaks), and rural San Diego County (Ramona, Julian, Alpine, Valley Center). But it can happen anywhere near open brush.

What Is a Wrap Policy?

A wrap policy — insurance people usually call it a Difference in Conditions (DIC) policy, and you’ll also hear “companion policy” — is a separate policy from a different insurer, written to sit alongside the FAIR Plan. The FAIR Plan handles fire on the dwelling; the DIC policy excludes fire and picks up the other coverages a standard HO-3 homeowner’s policy would give you. Two policies, two bills, two claims processes — but together they cover roughly what one homeowner’s policy used to.

DIC policies aren’t standardized, so the exact coverages, limits and deductibles vary by carrier. That’s exactly why the policy needs to be reviewed against your lender’s requirements before you bind it.

What Lenders Actually Require

Conforming loans (Fannie Mae / Freddie Mac)

Fannie Mae explicitly accepts policies from a state FAIR plan when standard coverage isn’t available. What it requires is that the property be insured on a replacement cost basis (roofs excepted) against a specific list of perils: fire or lightning, explosion, windstorm, hail, smoke, aircraft, vehicles, and riot or civil commotion, on a “special” form or equivalent. If a policy excludes or limits one of those perils, the borrower has to carry another policy that covers it. The maximum deductible is 5% of the coverage amount. The insurer also has to meet Fannie Mae’s rating minimums (for example, AM Best “B” or better).

In plain English: a bare FAIR Plan fire policy doesn’t cover windstorm and hail, so on its own it won’t satisfy these rules. You need the FAIR Plan’s Extended Coverage option, a DIC policy that covers the missing perils, or both — and the FAIR Plan dwelling coverage has to be written with the replacement cost option rather than the default actual cash value.

What about liability? Fannie Mae’s property insurance rules for a one- to four-unit home don’t list personal liability. Still, some lenders add it as their own requirement, and you should carry it regardless — a serious injury claim on your property is exactly the kind of risk that can cost you the house. A DIC policy is the normal way to get it.

A 2026 update also matters here: Fannie Mae no longer requires lenders to document a replacement cost estimate on one- to four-unit homes. A policy written on a replacement cost basis is considered sufficient. So for conforming loans, the question is whether the coverage terms are right, not whether the dollar limit matches an estimate.

Jumbo loans

Once you’re above the conforming limit ($832,750 baseline, up to $1,249,125 in high-cost counties like Marin and San Francisco for 2026), you’re dealing with lenders who set their own insurance rules. That’s where the variation is. Depending on the lender, you might see:

• A requirement that coverage come from an admitted California carrier, which rules out many surplus lines (non-admitted) DIC policies.
• Higher insurer-rating minimums than Fannie Mae’s.
• A dwelling coverage amount at least equal to the loan amount or an estimated replacement cost. On a large home, the FAIR Plan’s $3 million dwelling limit can fall short of that.
• Lower maximum loan-to-value in certain fire zones, meaning a bigger down payment.
• The full first-year premium paid at closing, which adds to your cash to close.

None of this is universal — plenty of jumbo lenders take a FAIR Plan + DIC structure without complaint. The point is that it varies. With a bank, you get that one bank’s rules. As a broker, I can check several jumbo investors’ insurance requirements before you shop for coverage, and pick the lender that fits the coverage you can actually get. More on jumbo options: California jumbo loans and Marin County jumbo loans.

FHA, VA and non-QM loans

FHA and VA financing is available in fire zones too. The lender still has to confirm the hazard coverage meets program rules, and the FAIR Plan + DIC structure is common. Non-QM lenders — DSCR loans for investors, bank statement loans for the self-employed, asset depletion loans for retirees and high-net-worth buyers — underwrite each file individually. Insurance still has to be adequate, but these lenders can often be more flexible on how the coverage is structured.

Condos: watch the HOA’s master policy

If a condo HOA loses its carrier and moves its master policy to the FAIR Plan, the project can run into trouble with Fannie Mae. The master policy has to cover a long list of perils. If it excludes or limits any of them, the HOA must buy separate coverage for the gap, or units in that project may not qualify for conventional financing. That affects every buyer and every owner trying to refinance, not just you. If you’re buying a condo in a fire-exposed area, we review the master policy early. If the project doesn’t meet agency rules, a non-warrantable condo loan may still work.

Where to Get a Wrap Policy

You buy the FAIR Plan through a licensed agent or broker. The DIC policy usually comes from a different market: specialty admitted programs or surplus lines (non-admitted) carriers, which can price individual high-risk properties that admitted carriers won’t write. Not every insurance agent has access to those markets or has experience pairing them with the FAIR Plan.

When I work with you on a fire-zone purchase or refinance, I introduce you to independent insurance brokers I know who place FAIR Plan + DIC coverage in the areas above. I don’t sell insurance and I don’t take referral fees. I make the introduction because an uninsurable house is the fastest way to lose a closing. I also get the lender’s exact insurance conditions in writing first, so the broker knows what the policy has to include.

There’s no reliable published price list for DIC policies. The premium depends on the home’s construction, roof, defensible space, distance to brush, claims history and which carrier writes it. Get real quotes — for both the FAIR Plan and the DIC — before you finalize your offer.

How the Premium Changes What You Can Borrow

Your monthly insurance cost goes into your housing payment and your debt-to-income ratio. If your total premium comes in $7,200 a year ($600 a month) higher than you budgeted, that $600 a month is money that can’t go to principal and interest. At a 30-year fixed rate around 7%, $600 a month supports roughly $90,000 of loan. If you’re already near your qualifying limit, that alone can move you out of your price range. Some lenders also collect the full first-year premium plus an escrow cushion at closing.

So I qualify fire-zone buyers using the actual insurance quote, not a generic estimate. If the numbers are tight, we look at options: a larger down payment, a rate buydown, a different loan program, or a lender with more room on DTI. See also how much house you can afford in California.

Refinancing After a Non-Renewal

A refinance needs active hazard insurance at closing, the same as a purchase. If your carrier just non-renewed you, you’ll need replacement coverage — FAIR Plan + DIC, a surplus lines policy, or whatever satisfies the new lender — before the loan can fund. Two things are worth knowing. First, after a declared wildfire emergency, the California Department of Insurance can impose a mandatory one-year moratorium on non-renewals in affected and adjacent ZIP codes, so check whether your ZIP is covered before you assume you’ve lost your policy. Second, call me before you call your current lender. The coverage structure needs to match whichever lender we end up using.

The Timeline: Treat Insurance as a Day-One Task

1. Before you write an offer: check the property’s fire hazard severity zone on CAL FIRE’s map, and ask the listing agent whether the seller’s current policy is standard, FAIR Plan or surplus lines. The seller’s policy doesn’t transfer to you, so their situation tells you about the market, not what you’ll get.
2. Day one of escrow: send the property details to an insurance broker and request FAIR Plan and DIC quotes (or a single surplus lines quote). Don’t wait until the inspection contingency is almost over.
3. Before you bind: I confirm with the lender that the proposed coverage meets its conditions: perils, replacement cost, deductible, insurer rating, and admitted vs. surplus lines for jumbo.
4. Underwriting: the real premium goes into your payment and DTI. No surprises at the end.
5. Closing: declarations pages for both policies, with the lender as mortgagee, go to escrow. If insurance is taking longer than expected, we deal with it early — before your rate lock gets close to expiring.

Frequently Asked Questions

What is a wrap policy for California homeowners insurance?

A wrap policy, usually called a Difference in Conditions (DIC) policy, is a separate policy written to sit alongside the California FAIR Plan. The FAIR Plan covers fire on the dwelling; the DIC policy excludes fire and typically adds coverages the FAIR Plan lacks, such as personal liability, theft, water damage and additional living expenses. Coverage varies by carrier, so it should be checked against your lender’s requirements before you bind it.

Can I get a mortgage if the FAIR Plan is my only insurance option?

Yes, usually. Fannie Mae accepts state FAIR plan policies, but the property must be insured on a replacement cost basis against perils including windstorm and hail, which the basic FAIR Plan policy does not cover. Buyers normally add the FAIR Plan’s Extended Coverage option and/or a DIC policy. Jumbo lenders set their own rules, so the right coverage structure depends on the lender.

Does my lender require liability coverage?

Fannie Mae’s property insurance requirements for one- to four-unit homes do not list personal liability, but some lenders add it as their own requirement. Either way you should carry it, and a DIC policy is the usual way to get it when you are on the FAIR Plan.

Will a jumbo lender accept a surplus lines wrap policy?

It depends on the lender. Some jumbo lenders require coverage from an admitted California carrier or set higher insurer-rating minimums, which can rule out certain surplus lines policies. Others accept them. I confirm each lender’s insurance conditions before you shop for coverage, so you are not buying a policy the lender will reject.

How much does a FAIR Plan plus wrap policy cost?

There is no reliable standard price. Premiums depend on the home’s construction, roof, defensible space, distance to brush, claims history and the carrier. Get actual quotes for both policies before you finalize your offer, because the premium goes into your debt-to-income ratio. At a 30-year fixed rate around 7%, every extra $600 a month in insurance reduces the loan you can support by roughly $90,000.

My insurer non-renewed me and I want to refinance. What do I do?

You need active hazard insurance in place for the refinance to fund. First check whether the California Department of Insurance has placed your ZIP code under a one-year non-renewal moratorium after a declared wildfire emergency. If not, line up replacement coverage such as FAIR Plan plus a DIC policy, and talk to your broker before binding so the structure fits the refinance lender.

Related Resources

• California FAIR Plan: Coverage, Limits and What Your Lender Requires
• California Jumbo Loans
• 2026 California Conforming Loan Limits
• Non-Warrantable Condo Mortgages
• Debt-to-Income Ratio for a California Mortgage
• Marin County Mortgage Broker
• Mortgage Broker for Complex Borrowers