A condominium buyer can have excellent credit, strong income, plenty of assets, and a substantial down payment—and still run into a financing problem.

The reason may have nothing to do with the buyer.

It may be the condominium project itself.

Fannie Mae and Freddie Mac have recently made significant changes to their condominium project review guidelines. Some of these changes provide lenders with greater flexibility, while others increase the importance of an HOA’s financial condition, reserve funding, insurance, and project documentation.

One of the wholesale lenders we work with, Newrez, recently prepared a comparison chart summarizing these changes. Several requirements became effective immediately, others became mandatory for applications beginning August 3, 2026, and another important reserve requirement becomes mandatory for applications beginning January 4, 2027.

For condominium buyers, sellers, real estate agents, and HOA boards, the changes reinforce an important concept:

Financing a condominium involves underwriting two things:

  1. The borrower
  2. The condominium project

A borrower can qualify perfectly while the condominium project does not.

What Changed?

The recent Fannie Mae and Freddie Mac changes address several areas of condominium project eligibility, including:

  • Project review requirements
  • HOA replacement reserves
  • Reserve studies
  • Investor concentration
  • Property insurance
  • Insurance deductibles
  • Smaller condominium projects
  • New condominium projects in Florida

Some requirements became more flexible.

Others became more restrictive.

Here are several of the changes that condominium buyers, Realtors, HOA boards, and property managers should understand.

1. Limited and Streamlined Condo Reviews Are Being Eliminated

Previously, certain established condominium projects could qualify for a Limited Review under Fannie Mae guidelines or Streamlined Review under Freddie Mac guidelines when the transaction met specific loan-to-value and other requirements.

That review option has now been eliminated for applications beginning August 3, 2026.

Projects must instead use the applicable Full Review or Waiver/Exempt From Review pathway.

Why does that matter?

A Full Review can involve considerably more scrutiny of the condominium project itself.

That makes the HOA’s financial condition, documentation, reserves, insurance, and other project characteristics increasingly important.

2. HOA Reserve Requirements Are Increasing

This may ultimately become one of the most important changes for condominium owners and HOA boards.

Historically, the minimum replacement reserve requirement has generally been:

10% of annual budgeted assessment income.

Under the new guidelines, that minimum increases to:

15% of annual budgeted assessment income.

The new 15% requirement becomes mandatory for applications beginning January 4, 2027.

That five-percentage-point increase can be significant.

Consider an HOA collecting $1,000,000 annually in assessment income.

At 10%, the association would allocate:

$100,000 annually toward replacement reserves.

At 15%, that becomes:

$150,000.

An HOA budget that previously satisfied agency requirements therefore may not automatically satisfy the new standard.

That could potentially mean increasing reserve contributions, changing the HOA budget, relying upon an acceptable reserve study, or exploring another financing strategy.

3. Reserve Studies Are Becoming More Important

An HOA may be able to use a qualifying reserve study when its budget does not meet the standard reserve contribution requirement.

But the rules surrounding those reserve studies are changing as well.

Previously, a reserve study could be used in lieu of the 10% budgeted reserve requirement when fully funded using an allocation method, including a baseline funding method.

Under the new requirements, when a reserve study is used in lieu of budgeted reserves, the highest recommended reserve allocation in the study must be used.

The baseline funding method is no longer allowed for this purpose.

That means the details buried inside an HOA’s reserve study may become increasingly important to mortgage financing.

A reserve study shouldn’t simply be viewed as another document buried inside an HOA disclosure package.

It may help determine whether buyers can obtain conventional financing.

4. Waiver/Exempt Review Eligibility Is Expanding

Not every guideline change makes condominium financing more restrictive.

Previously, certain condominium projects consisting of 2-to-4 units could be reviewed under Waiver of Project Review or Exempt From Review guidelines.

The new requirements expand that eligibility to certain projects containing 2-to-10 units.

For projects containing 5-to-10 units, however, the project cannot be part of a master HOA.

This could be particularly relevant in markets such as San Francisco and the Bay Area, where smaller condominium buildings are common.

5. Investor Concentration Rules Are Becoming More Flexible

Another potentially favorable change involves investor concentration.

Previously, established condominium projects undergoing Full Review for investor loans generally faced a maximum 50% investment-property concentration.

That restriction has been retired for established projects.

There is no longer a requirement under this particular rule that established projects remain below 50% investor concentration for investor loans.

However, this doesn’t eliminate other condominium eligibility requirements, and the presale/owner-occupancy requirements applicable to new projects remain.

6. Florida New-Condo Review Requirements Are Changing

New condominium projects with attached units in Florida previously had to be submitted for Fannie Mae PERS approval.

That requirement has been retired.

Florida attached-unit projects may now be reviewed under Full Review requirements.

While this particular change is primarily relevant to Florida transactions, it demonstrates that the agencies are restructuring condominium review requirements rather than simply making every guideline more restrictive.

7. Some Insurance Requirements Are Becoming More Flexible

There are also changes involving condominium insurance.

Previously, replacement-cost coverage was required for all insurable property.

The new guidelines permit Actual Cash Value (ACV) coverage on roofs and certain structures that aren’t buildings, including items such as fences, pools, and personal property.

The rules concerning per-unit deductibles are also changing.

Previously, the maximum was generally 5% of the coverage amount.

Under the new guideline, the amount can be $50,000 per unit for all perils, provided it is covered by the unit owner’s HO-6 policy.

These insurance details can be extremely important because an otherwise financially sound condominium project can encounter financing problems if its master insurance coverage doesn’t satisfy agency requirements.

Why This Matters in the San Francisco Bay Area

Condominium financing has become increasingly complicated.

And in a high-cost housing market such as San Francisco and the surrounding Bay Area, discovering a condominium financing problem after a buyer is already in contract can become expensive.

The issue might involve:

  • Inadequate HOA reserves
  • An outdated or inadequate reserve study
  • Deferred maintenance
  • Pending or active litigation
  • Special assessments
  • Delinquent HOA dues
  • Master insurance coverage
  • Excessive insurance deductibles
  • Structural or safety concerns
  • Commercial space
  • Project documentation
  • Or another agency eligibility requirement

This is why I frequently tell condominium buyers and their real estate agents:

Getting the borrower pre-approved is only half of the condominium financing equation.

The condominium project needs to qualify as well.

A $1 Million Buyer Can Qualify. The $1 Million Condo May Not.

Consider a buyer purchasing a $1 million condominium.

The buyer has:

  • Excellent credit
  • 20% down
  • Stable employment
  • Strong income
  • Significant financial reserves

From the borrower’s standpoint, the loan looks easy.

Then the lender reviews the condominium documents.

Perhaps the HOA’s budget doesn’t meet the applicable reserve requirement.

Or the reserve study doesn’t satisfy agency standards.

Or the master insurance coverage doesn’t meet lender requirements.

Or there is litigation, deferred maintenance, or a significant special assessment.

Suddenly, a borrower who easily qualifies for the mortgage may be unable to obtain the expected financing for that particular condominium.

That’s why the question shouldn’t simply be:

“Is my buyer pre-approved?”

Another important question is:

“Have we identified any financing issues with the condominium project?”

For Listing Agents: Condo Financing Should Start Before You Receive an Offer

These changes are particularly important for listing agents.

Waiting until a buyer is in escrow to discover an HOA financing problem can put the entire transaction at risk.

Whenever possible, important HOA documentation should be reviewed early, including:

  • Current HOA budget
  • Reserve study
  • Master insurance policy
  • Current special assessments
  • Pending litigation
  • Delinquent assessments
  • Recent meeting minutes
  • Structural or inspection reports
  • Major upcoming repairs

Identifying a potential financing problem before the property goes on the market provides time to investigate possible solutions.

Finding the problem before accepting an offer gives you options.

Finding the same problem two weeks before closing gives you a deadline.

For Buyers: Don’t Assume “Conventional Financing” Means Every Condo Qualifies

A loan pre-approval primarily evaluates the borrower.

It doesn’t automatically approve every condominium the borrower may want to purchase.

Before removing financing contingencies, buyers should understand whether the condominium project has been reviewed and whether additional HOA documentation remains outstanding.

This becomes particularly important when the buyer’s ability to close depends upon Fannie Mae or Freddie Mac eligibility.

For HOA Boards: Financing Eligibility Can Affect Marketability

These changes aren’t just a mortgage-industry issue.

They can become a property marketability issue.

If an HOA’s finances, reserves, insurance, maintenance, or documentation make conventional financing difficult, the potential pool of buyers for units in that development may shrink.

That is why HOA boards should understand how their financial decisions can potentially affect owners who eventually want to sell or refinance.

Keeping HOA dues artificially low isn’t necessarily beneficial if inadequate contributions to reserves create larger financing problems later.

BROKER’S EDGE TIP

For condominium purchases, don’t wait until the end of escrow to investigate the HOA.

Whenever possible, I prefer to identify potential project problems early—particularly reserves, insurance, litigation, deferred maintenance, and special assessments.

The earlier an issue is identified, the more time there may be to determine whether it can be resolved or whether another financing strategy is available.

Who Benefits Most From Understanding These Changes?

These new guidelines are particularly important for:

  • Condominium buyers
  • Condominium owners considering refinancing
  • Listing agents
  • Buyer’s agents
  • HOA board members
  • Property managers
  • Real estate investors
  • Mortgage professionals

In today’s lending environment, understanding the financial health of the HOA can sometimes be nearly as important as understanding the financial health of the borrower.

Common Misconception

“If my buyer has 20% down and excellent credit, the condo should be easy to finance.”

Not necessarily.

The borrower and the condominium project are evaluated separately.

A highly qualified borrower cannot make an otherwise ineligible condominium project eligible for conventional agency financing.

But that doesn’t necessarily mean the transaction is dead.

Depending upon the project and the particular problem, portfolio, jumbo, or alternative financing may sometimes provide another path.

Those programs can have different rates, costs, down-payment requirements, and underwriting guidelines, which is why identifying the problem early is so important.

Questions to Ask Your Mortgage Advisor

Before financing a condominium, consider asking:

  • Does this transaction require a Full Project Review?
  • Is the project eligible for a Waiver or Exempt From Review?
  • Has the condominium already been reviewed?
  • Does the HOA budget satisfy current reserve requirements?
  • Is a reserve study available?
  • Does the reserve study satisfy current guidelines?
  • Does the master insurance policy meet lender requirements?
  • Are there special assessments or significant deferred maintenance?
  • Is there pending litigation?
  • Are there structural or safety concerns?
  • Are there other project issues that could affect Fannie Mae or Freddie Mac eligibility?
  • If the project doesn’t qualify for agency financing, are alternative financing programs available?

Key Takeaway

The newest condominium guidelines reinforce something I have emphasized for years:

Condo financing isn’t just about qualifying the borrower. It’s about qualifying the building.

Some of the latest Fannie Mae and Freddie Mac changes create additional flexibility, while others place greater emphasis on HOA reserves, reserve studies, insurance, and project financial strength.

For buyers, sellers, and real estate agents, the lesson is straightforward:

Investigate the HOA early.

Finding a problem before writing an offer—or before accepting one—gives everyone more time to explore solutions.

Finding the same problem shortly before closing can put the entire transaction at risk.

Need Help Evaluating a Condominium?

I’ve developed a Condo Warrantability Checklist and an HOA Red Flag Guide to help buyers, Realtors, and condominium owners identify potential financing issues earlier in the process.

If you’re considering purchasing, selling, or refinancing a condominium, contact me and I can provide the appropriate resource and discuss the financing considerations for the property.

And remember: A condominium that doesn’t meet conventional Fannie Mae or Freddie Mac requirements isn’t necessarily unfinanceable.

Depending upon the issue, there may be portfolio, jumbo, Non-QM, or other alternative financing solutions available.

Sometimes the most important job of a mortgage broker isn’t simply determining whether a loan fits inside one lending box.

It’s knowing where to look when it doesn’t.

Mortgage and condominium project guidelines change frequently. This article is intended for educational purposes and reflects guidelines available at the time of publication. Individual lender requirements and overlays may vary. Contact a mortgage professional for current requirements applicable to a specific property and transaction.

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This content is provided for informational purposes only and is not a loan commitment or guarantee of financing. Loan programs, rates, terms, and conditions are subject to change and borrower qualification. Individual results may vary.

Posted in Condominiums, First Time Real Estate Buyers, Residential Real Estate Loans, Tips and Tricks, Uncategorized