San Francisco Condo Financing Is Changing — What Buyers, Sellers and Realtors Need to Know
Buying a condominium has always involved more than simply qualifying the borrower.
The condo project itself also has to qualify.
That distinction is becoming increasingly important as a combination of new Fannie Mae and Freddie Mac lending guidelines, California HOA laws, balcony and exterior elevated element inspection requirements, and San Francisco-specific building regulations changes the landscape for condominium financing.
Some of these changes are already in effect. Others take effect in the future. And some proposals you’ve heard about never became law at all.
For San Francisco buyers, sellers and Realtors, understanding the difference matters.
A borrower can have excellent credit, substantial assets, strong income and a large down payment — and still run into a financing problem because of the condominium project.
Let’s separate what has changed from what is still coming.
1. Fannie Mae and Freddie Mac Are Tightening Condo Reserve Requirements — Nationwide
Let’s start with lending guidelines rather than California law.
These changes are national and affect condominium projects financed through conventional loans backed by Fannie Mae and Freddie Mac.
One of the most important changes involves HOA reserves.
Historically, an association undergoing the applicable project review generally needed to budget at least 10% of its annual assessment income toward replacement reserves.
Beginning with applicable loan applications on or after January 4, 2027, that minimum increases from:
10% → 15%
The purpose is straightforward: Fannie Mae and Freddie Mac want condominium associations to allocate more money toward future capital expenditures and deferred maintenance.
But there is an important distinction.
This doesn’t necessarily mean an HOA must have 15% of its entire annual budget sitting in a bank account. The guideline deals with the association’s annual budgeted allocation to replacement reserves.
And there is another way an association may potentially satisfy the reserve requirement: through an acceptable reserve study.
However, those rules have tightened too.
2. Reserve Studies Are Becoming Much More Important
Effective August 3, 2026, Fannie Mae and Freddie Mac strengthened the requirements when a lender relies on a reserve study instead of the standard percentage-of-budget reserve test.
If the reserve study contains multiple recommended funding levels, the HOA’s budget generally must support the highest recommended reserve allocation.
A “baseline funding” strategy — essentially allowing reserves to decline toward zero while attempting to stay barely solvent — is no longer acceptable for this purpose.
This represents an important change in philosophy.
The question is increasingly becoming not simply:
“Does the HOA have money in reserves?”
but rather:
“Does the HOA have a realistic financial plan for maintaining this building over time?”
For older San Francisco buildings with elevators, roofs, plumbing systems, exterior structures and other aging components, that can become a significant underwriting issue.
3. The Old Streamlined Condo Review Has Changed Too
Another national lending change became effective in August 2026.
Fannie Mae and Freddie Mac eliminated certain streamlined or limited condo project review processes for projects that previously qualified for them.
For many larger condominium projects, that means more detailed project review.
At the same time, there is some good news for smaller condominium projects.
Fannie Mae expanded its Waiver of Project Review provisions for qualifying projects of up to 10 units, subject to specific requirements.
That’s especially relevant in San Francisco, where smaller two-, three-, four- and other small-unit condominium projects are common.
So the changes aren’t universally more restrictive.
In some circumstances, a small condominium project may actually have an easier review path than a larger project.
4. California Has Now Passed a Major HOA Reserve Law
This is where lending guidelines and California law begin moving in the same direction.
California AB 2050 was signed into law by Governor Gavin Newsom on September 30, 2026.
This is important because earlier discussions of AB 2050 correctly described it as a proposed law while it was moving through Sacramento.
It isn’t proposed anymore.
It is now California law.
Beginning in 2032, California HOAs subject to the law will face mandatory reserve-funding requirements tied to their reserve studies.
The reserve study will calculate the minimum annual contribution necessary to prevent the projected reserve account from falling below zero during the following 30 years.
If the association’s reserve projections show the account falling below zero, the association may be required to contribute at least 15% of its gross annual budget toward reserves until the projection is corrected.
For some well-funded associations, this may not create a dramatic change.
For an underfunded HOA, however, the consequences could eventually include:
- Higher regular HOA assessments
- Increased reserve contributions
- Special assessments
- More difficult budgeting decisions
There is an interesting overlap here.
California’s new reserve law doesn’t begin until 2032, but Fannie Mae and Freddie Mac are already putting greater emphasis on reserves and reserve studies.
In other words, mortgage underwriting may put financial pressure on some HOAs years before California’s new reserve-funding law fully takes effect.
5. What Happened to the Proposed 8% Limit on HOA Increases?
This is an important area where buyers and owners should be careful about headlines.
California SB 1007 proposed reducing the amount an HOA board could increase regular assessments without owner approval.
Under existing California law, HOA boards generally can increase regular assessments by up to 20% over the prior year’s regular assessment without membership approval, subject to applicable statutory requirements.
SB 1007 proposed reducing that threshold to 8%.
But as of the end of the 2026 legislative session:
SB 1007 did not become law.
The bill stalled after reaching the Assembly and was pulled from the committee calendar.
Therefore, don’t confuse this proposal with the reserve requirements under AB 2050.
AB 2050: Passed and signed into law.
SB 1007’s proposed 8% limitation: Did not become law in 2026.
That distinction is important when evaluating information published while these bills were still moving through Sacramento.
6. San Francisco Has Its Own High-Rise Sprinkler Issue
Now we move from national lending guidelines and California law to something specifically affecting San Francisco.
Certain existing residential high-rise buildings are subject to San Francisco fire-sprinkler retrofit requirements.
These requirements can involve extensive work, potentially including sprinkler piping, water supply infrastructure, pumps, electrical monitoring and work inside individual units.
Originally, affected buildings faced a 2027 deadline to submit professionally prepared sprinkler plans and permit applications.
That deadline has now been extended.
Under the amended San Francisco Fire Code, the current schedule generally provides:
January 1, 2032 — Permit application
January 1, 2034 — Water supply and riser installation
January 1, 2035 — Full sprinkler system completion
Not every high-rise condominium in San Francisco is necessarily affected in the same way.
Building height, existing stairway configuration, fire alarm systems, sprinkler infrastructure and other factors matter.
That’s why buyers considering an affected high-rise shouldn’t simply ask:
“Does the building have sprinklers?”
They should also ask:
“Is this building subject to the retrofit ordinance, and if so, what has the HOA done to plan and budget for it?”
That second question could ultimately become much more important.
7. Balcony and Exterior Elevated Element Inspections Are Now a Financing Issue Too
This is another area where California law and mortgage underwriting are colliding.
California Civil Code Section 5551 — commonly associated with SB 326 — requires qualifying condominium projects with three or more attached multifamily dwelling units to periodically inspect certain exterior elevated elements.
These can include qualifying:
- Balconies
- Decks
- Exterior stairways
- Walkways
- Railings
- Load-bearing components and associated waterproofing systems
The first inspection deadline was January 1, 2025, with subsequent inspections generally required every nine years.
And there has been another important change.
Effective January 1, 2026, California SB 410 requires the most recent Section 5551 inspection report to be included among the documents provided to a prospective purchaser under the HOA disclosure requirements.
That means buyers — and potentially their lenders — now have much greater visibility into these reports.
And that can expose another financing problem.
8. An Inspection Isn’t Necessarily Enough — What Did the Inspection Find?
This is where I have seen problems develop in actual mortgage underwriting.
It isn’t necessarily enough for an HOA to say:
“Yes, we completed our balcony inspection.”
The lender may want to review the actual report.
If that report identifies safety issues, significant deterioration or required repairs, the next questions become:
Have the repairs been completed?
Who is paying for them?
Does the HOA have enough money?
Has a special assessment been approved?
Is additional engineering work required?
And perhaps most importantly:
Does the project still meet the lender’s condominium eligibility requirements?
This is why a property can be perfectly marketable from a real estate perspective yet suddenly become difficult to finance.
The problem isn’t necessarily the individual unit.
It’s the building.
As two side-notes, I need to mention the following on recent real estate financing transactions where I had successfully arranged financing:
- There is a separate, but similar guideline for apartment buildings that are over 4 units. California SB 721 requires inspection of balconies and exterior elevated elements in multifamily buildings. One of the final closing conditions my multifamily borrowers needed to provide was an E3 report. E3 being the acronym for Exterior Elevated Elements. The report needed to show that no corrective action was needed, and all the elements were in safe condition.
- A recent residential condominium transaction required the SB 326 form and inspection to be provided. While the listing agent and seller had two of the nine exterior balconies inspected, the lender pushed back and required all nine to be inspected. The report needed to verify all nine were inspected, no corrective action was needed, and all the elements were in safe condition. As the additional inspections required sale contract inspections, the listing agent could have avoided these delays by gently coercing his seller to getting them done ahead of time.
9. A Condo Can Be Legal — And Still Not Be Warrantable
This may be the single most important distinction for buyers and Realtors to understand.
Compliance with California or San Francisco law does not automatically make a condominium eligible for conventional financing.
These are separate standards.
A building might satisfy local inspection requirements yet still encounter lending issues involving:
- Inadequate reserves
- Deferred maintenance
- Uncompleted structural repairs
- Unresolved safety issues
- Special assessments
- Litigation
- Master insurance coverage
- Insurance deductibles
- Commercial concentration
- Single-entity ownership
- Delinquent HOA assessments
- Other Fannie Mae or Freddie Mac project requirements
And the reverse can sometimes occur: an issue may not violate a city ordinance but may still concern a lender.
That is why condo financing requires looking at both sides of the transaction:
The borrower AND the building.
10. Don’t Wait Until You’re in Escrow to Investigate the HOA
This is especially important in competitive markets such as San Francisco.
A buyer may be completely preapproved personally.
But a borrower preapproval doesn’t necessarily mean the condo project has been approved.
Those are two different underwriting questions.
Before removing or waiving a financing contingency, buyers and their Realtors should consider whether the lender has had an opportunity to review the available HOA documentation — particularly when there are warning signs involving reserves, inspections, repairs, insurance, litigation or special assessments.
To help Realtors and their clients identify potential issues earlier, I have developed three Condo Checklists, along with a Standard Lender Condo Questionnaire, that can be used as part of the preliminary review process.
I make these available complimentary to real estate professionals and their clients.
If you would like copies, contact me and I will be happy to provide them.
The objective isn’t to turn a Realtor or buyer into a condo underwriter. It’s to help identify questions that may need to be answered before an offer is written or a financing contingency is removed.
Discovering a condo eligibility problem after entering contract can leave a buyer scrambling for another financing solution.
Which brings us to another important point.
11. Fannie Mae or Freddie Mac Says No. Does That Mean the Condo Can’t Be Financed?
Not necessarily.
A condominium project that doesn’t meet Fannie Mae or Freddie Mac requirements may still have financing options.
As a mortgage broker, I have access to financing sources outside the standard Fannie Mae and Freddie Mac channels, including programs designed to consider non-warrantable condominium projects.
The appropriate solution depends on the particular problem with the HOA or project.
For example, the financing challenge might involve reserves, litigation, insurance, commercial space, owner concentration, deferred maintenance or another project-specific issue.
The interest-rate premium can vary depending upon the reason the project is considered non-warrantable, as well as the borrower’s qualifications, loan-to-value and the individual lender’s guidelines.
In some situations, the financing difference may be relatively modest.
In others, the available alternatives may be considerably more expensive or restrictive.
That’s why the specific reason for the Fannie Mae or Freddie Mac ineligibility matters.
But There Is an Important Warning
Finding financing does not mean the underlying HOA problem has been solved.
That distinction is critical.
Suppose one lender is willing to finance a condominium in a project that Fannie Mae or Freddie Mac will not currently accept.
That means we’ve potentially solved the buyer’s financing problem.
It does not necessarily mean we’ve solved the building’s:
- Structural problem
- Reserve shortage
- Insurance problem
- Pending litigation
- Deferred maintenance
- Special assessment exposure
- Inspection issue
- Or whatever other condition caused the project to become non-warrantable
Those are separate considerations.
A buyer still needs to understand why the project was deemed ineligible and make an informed decision about whether he or she is comfortable owning in that building.
Alternative financing should be viewed as a financing solution — not a certification that the HOA or building is financially or physically sound.
12. Condo Financing Is Becoming Building Underwriting
For years, many buyers thought of mortgage approval primarily in terms of four things:
Income. Credit. Assets. Property value.
With condominiums, that list is incomplete.
Today we increasingly need to add a fifth:
The financial and physical health of the HOA and the building itself.
The direction of both lending guidelines and legislation is clear.
Fannie Mae and Freddie Mac are paying more attention to reserves, deferred maintenance and project financial strength.
California is requiring greater reserve funding in the future.
California buyers now receive more information about exterior elevated element inspections.
And San Francisco continues to wrestle with major building-safety requirements that could create substantial future costs for certain properties.
None of this means buyers should avoid condominiums.
It means condominium buyers — and the Realtors representing them — need to perform more due diligence than they may have needed in the past.
Before You Buy: Ask the Right Questions
When I’m reviewing financing for a condominium buyer, some of the most important questions may have nothing to do with the borrower’s credit report.
I want to know:
How well funded are the reserves?
Is there a current reserve study?
Are there significant deferred maintenance items?
Have required exterior elevated element inspections been completed?
Were repairs identified, and have they been completed?
Are there pending or recently approved special assessments?
Does the master insurance meet lender requirements?
Is there litigation?
And most importantly — is this project financeable under the loan program the buyer intends to use?
Finding the answers early can prevent a financing problem from becoming a closing problem.
Complimentary Condo Resources for Realtors and Their Clients
Because these issues have become increasingly complicated, I have developed three Condo Checklists and a Standard Lender Condo Questionnaire to help identify potential financing issues earlier in the process.
I make these resources available complimentary to real estate professionals and their clients.
Contact me if you would like copies.
And if you’ve already discovered that a condominium project has been deemed non-warrantable or ineligible for Fannie Mae or Freddie Mac financing, that doesn’t necessarily end the conversation.
There may be other financing options available.
The interest-rate premium and terms will depend on the specific issue affecting the project and the borrower’s overall transaction.
But remember:
Financing the condo and fixing the HOA problem are two different things.
An alternative lender’s willingness to make the loan should never be interpreted as evidence that the underlying financial, structural, insurance, legal or other HOA issue has disappeared.
The Bottom Line
The condominium market is entering an era in which the condition and finances of the entire project matter more than ever.
Some of the new rules are national mortgage guidelines. Some are California laws. Some apply only in San Francisco. And some proposals you may have heard about never became law.
Understanding which is which matters.
Because when you’re financing a condominium, qualifying the borrower is only half the equation.
The building has to qualify too.
And when it doesn’t qualify for conventional Fannie Mae or Freddie Mac financing, the next question shouldn’t simply be:
“Can we still get a loan?”
It should be:
“Why isn’t the project eligible, what does that mean for the buyer, and what financing alternatives are available?”
Those are three very different questions — and all three deserve an answer before moving forward.
Why this matters to you?
Every borrower is unique. Every property has a story.
If you’re navigating a real estate challenge — big or small — I’m here to help you find the smartest path forward.
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📞 Steven Hook | Residential & Commercial Mortgage Broker
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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.
