Fannie Mae and Freddie Mac Just Changed Condo Financing Rules: What Buyers Need to Check Now

On March 18, 2026, Fannie Mae and Freddie Mac released coordinated policy updates that reshape how condos get financed. Reserve minimums are jumping from 10% to 15%, Limited Review is being eliminated, and every condo purchase will face more scrutiny. Here are the 6 changes and what to verify before you close.

We call the resulting rule set the Warrantability Checklist: the six Fannie Mae criteria that determine whether a condo building qualifies for conventional financing. Reserve funding, delinquency, single-entity ownership, presale, insurance, and commercial space. Fail any one and the entire building becomes non-warrantable for every unit owner, not just yours (see what non-warrantable means). The checklist is what The GoverningDocs 5-Number HOA Health Check tests against, and The GoverningDocs HOA Health Grade translates the result into an A to F verdict.

What makes a condo non-warrantable in 2026?

A condo is non-warrantable when its association fails any one of the six Warrantability Checklist criteria from the Fannie Mae Selling Guide. The hard fails: reserves below 10% of annual budgeted assessment income (rising to 15% for loan applications dated on or after January 4, 2027 per LL-2026-03 page 3), 15% or more of units 60+ days delinquent (B4-2.2-02), or one entity owning more than 20% of units in a 21+ unit project (B4-2.1-03).

Three more criteria round out the Warrantability Checklist: presale of at least 50% of units (B4-2.2-03), master insurance at replacement cost with the per-unit deductible capped at $50,000 for loan applications dated on or after July 1, 2026 (LL-2026-03 page 5; the codified Selling Guide section B7-3-03 had not yet been updated to reflect this change as of publication), and commercial space limited to 35% of the project (B4-2.1-03). Note that the 50% investor concentration limit was retired by LL-2026-03 effective March 18, 2026. Do not confuse it with the single-entity rule, which still applies. Freddie Mac mirrors every one of these.

On March 18, 2026, Fannie Mae and Freddie Mac released coordinated policy updates that reshape how condos get financed in the United States. If you're buying a condo with a conventional mortgage, these changes directly affect whether your loan gets approved and how much your HOA fees might increase.

The timing is rough. You might already be mid-search, maybe even under contract. And your lender probably hasn't flagged any of this yet. That's because some changes take effect immediately, while others phase in over the next 10 months. By the time most buyers hear about this, they'll be scrambling.

This guide breaks down the six biggest changes from Fannie Mae Lender Letter LL-2026-03 and Freddie Mac Bulletin 2026-C, what each one means for your purchase, and exactly what to verify before you close.

What Changed on March 18, 2026?

Fannie Mae and Freddie Mac simultaneously released new condo project standards affecting reserves, reviews, insurance, and investor limits.

On the same day, both agencies published matching rule changes. Fannie Mae issued Lender Letter LL-2026-03 and Freddie Mac published Bulletin 2026-C. The changes are designed to align the two agencies and tighten financial standards for condo associations.

Here's what matters for buyers. Not all changes are bad news. But every single one affects whether your condo qualifies for conventional financing.

Reserve Requirements Are Jumping from 10% to 15%

HOAs must budget at least 15% of annual budgeted assessment income to replacement reserves, up from 10%, or risk losing warrantable status.

Effective date: January 4, 2027

This is the change that will hit buyers hardest. Both Fannie Mae and Freddie Mac are raising the minimum reserve allocation from 10% to 15% of the association's annual budgeted assessment income. Getting the denominator right matters: the lender divides the annual budgeted replacement reserve allocation by annual budgeted assessment income (which includes regular common expense fees), not by the operating budget and not by total expenses. A condo association that falls below the threshold and cannot rely on a qualifying reserve study becomes non-warrantable, meaning conventional mortgages won't be available for units in that building.

Before running that ratio, a lender may deduct several categories of income from the denominator. Per Selling Guide B4-2.2-02, the permitted exclusions are incidental income the project does not rely on for ongoing operations, maintenance, or capital improvements; income collected for utilities that individual unit owners would typically pay themselves, such as cable or internet; income allocated to reserve accounts; and special assessment income. Backing these out can move a budget from failing to passing without changing a single dollar of the reserve contribution, so it is worth checking before assuming a building is short.

One nuance that most coverage misses: this is a budget-line test, not a funding mandate. The lender looks at the reserve line in the budget. Only when that line fails does the reserve study become relevant, as an alternative way to qualify. A reserve study recommending a contribution well above 15% does not, by itself, create a Fannie Mae funding expectation unless the association is leaning on that study to qualify.

What does this mean in practice?

• HOA dues will likely increase. Associations currently at 10-14% will need to raise assessments to hit the new threshold. Budget for this when calculating your monthly costs.
• Some buildings will lose warrantable status. Based on our analysis of 1,900+ HOA documents, a significant number of associations currently operate right at the 10% floor. They have less than a year to adjust.
• Your lender will check this. The reserve allocation percentage will appear in the HOA's financial documents. Ask for the current budget before making an offer.

What to do: Request the HOA's current budget and verify the reserve allocation percentage. If it's below 15%, ask the board whether they plan to increase it before January 2027. If they don't have a plan, treat that as a red flag.

Limited Review Process Is Gone

Limited Review, historically about 40% of condo project reviews, is retired for loan applications dated on or after August 3, 2026. Freddie Mac retires Streamlined Review the same day.

Effective date: August 3, 2026

This one creates real friction. Until now, many condo purchases used a Limited Review process that required less HOA documentation and less financial scrutiny. According to the Community Associations Institute (CAI), Limited Review historically accounted for roughly 40% of all condo project reviews.

The trigger is the loan application date, not the closing date. For applications dated on or after August 3, 2026, that option is gone, and every condo purchase requires either a Full Review or a qualifying Waiver of Project Review. An application dated before August 3 can still close afterward under the old path, which is the distinction most coverage blurs.

Freddie Mac retires its counterpart, the Streamlined Review, on the same date under Guide Bulletin 2026-C (released March 18, 2026). Searching for one term and not the other is a common way to conclude, wrongly, that only one agency changed.

What this means for you:

• Longer closing timelines. Full Reviews require more documentation from the HOA. If the association is slow to respond (many are), expect delays.
• More financial scrutiny. Lenders will now examine the HOA's insurance coverage, reserve funding, litigation status, and delinquency rates for every transaction. Issues that might have slipped through Limited Review will now surface.
• Start gathering documents early. Don't wait until you're under contract. Ask the HOA management company for the condo questionnaire as soon as you identify a building you're serious about.

What to do: Factor an extra 2-4 weeks into your closing timeline for any condo application dated on or after August 3, 2026. Ask your lender what documents they'll need from the HOA and start requesting them immediately.

50% Investor Concentration Limit Retired

Buildings previously blocked by the investor-owner cap can now qualify for conventional financing again.

Effective date: Immediate (Fannie Mae Lender Letter LL-2026-03)

Good news for buyers interested in urban high-rises and mixed-use buildings. Both agencies have eliminated the rule that made condos non-warrantable if more than 50% of units were investor-owned (non-owner-occupied).

Many downtown buildings in cities like Miami, New York, Chicago, and Las Vegas were effectively cut off from conventional financing because of this rule. That's changing now.

Do not confuse this with the presale requirement. LL-2026-03 retires the investment property concentration limit for established projects reviewed under the Full Review option on investor loans, and the letter goes out of its way to note that the separate rule requiring at least 50% of units to be conveyed or under contract to principal residence or second home purchasers still applies (B4-2.2-03). Two different 50% thresholds, only one of them retired.

But there's a catch. Individual lenders can still apply their own overlays. Just because Fannie and Freddie dropped the limit doesn't mean your specific lender will approve the loan. Some banks and credit unions will continue to impose their own investor concentration thresholds.

What to do: If you're looking at a building that was previously non-warrantable due to investor concentration, confirm with your lender that they follow agency guidelines without additional overlays. Get this in writing before you commit.

Small Condo Waiver Expanded to 10 Units

Condos with up to 10 units can now qualify for a Waiver of Project Review, simplifying financing for small buildings.

Effective date: Immediate (Fannie Mae Lender Letter LL-2026-03)

If you're buying in a small condo building, this is welcome news. The Waiver of Project Review previously applied only to very small projects. Now it covers buildings with up to 10 units.

There is a catch for buildings of five to ten units. Those projects only qualify if the project is not part of a master association or a larger development (LL-2026-03 page 2). Freddie Mac applies the same condition to its parallel Exempt from Review option. So a six-unit building inside a master-planned community does not get the waiver, even though it is under the 10-unit ceiling. Buildings of four units or fewer are not subject to this restriction.

This means less paperwork, faster closings, and fewer documentation headaches for small condo purchases. The waiver bypasses much of the Full Review process, so the HOA's financial details get less scrutiny.

For small building buyers, this offsets some of the friction created by eliminating Limited Review. But keep in mind: less lender scrutiny also means less protection for you. Consider running your own due diligence on the HOA's finances even if your lender doesn't require it.

What to do: If your building has 10 or fewer units, ask your lender if you qualify for the Waiver of Project Review. But still review the HOA's reserve study and budget yourself. Lender approval doesn't mean the building is financially healthy.

Reserve Studies Must Follow the Highest Recommended Funding Level

Baseline funding is no longer accepted. The reserve study must recommend and follow the highest recommended funding level.

Effective date: August 3, 2026

This is a technical change with big financial implications. Reserve study companies typically provide multiple funding scenarios: baseline (bare minimum), threshold (moderate), and full funding (recommended). Many HOAs have been using the lowest option to keep dues down.

That's over. Effective August 3, 2026, both Fannie and Freddie require the reserve study to recommend and follow the highest funding level, per Lender Letter LL-2026-03 and Freddie Mac Bulletin 2026-C.

Separately, and already in force, the reserve study must be completed within the last 36 months of the lender's project review date. This is a longstanding requirement under Fannie Mae Selling Guide B4-2.2-02 and mirrored in Freddie Mac's Seller/Servicer Guide. Studies older than three years are deemed unreliable and force the project back to the default 10% funding rule or full ineligibility.

What this means:

• HOAs using baseline funding will need to increase contributions. This translates directly to higher monthly assessments.
• Outdated reserve studies won't pass review. If the building's study is more than 3 years old, the lender will flag it.
• The reserve study becomes the single most important document in your due diligence. It tells you whether the building is funded to handle major repairs without special assessments.

What to do: Request the reserve study and check two things. First, when was it completed? If it's older than 36 months, that's a problem. Second, which funding level does it use? If it says "baseline," the HOA will need to switch to a higher funding level before August 2026 to maintain warrantable status.

Roofs No Longer Need Replacement Cost Coverage

Master policies must still settle on a replacement cost basis, but roofs are now carved out of that requirement.

Effective date: Immediate (Fannie Mae Lender Letter LL-2026-03)

Insurance costs have been crushing condo associations, especially in Florida and coastal markets. This change offers a small relief valve. Roofs must still be insured, but they no longer have to be insured on a Replacement Cost Value (RCV) basis, so an HOA can carry cheaper Actual Cash Value (ACV) coverage on the roof.

But there's a hard limit. The master policy as a whole must still settle on a replacement cost basis. The roof is a carve-out from that rule, not a precedent for the rest of the building. LL-2026-03 does separately note that some insurers write ACV terms for personal property and certain property elements, and that this is acceptable, but the structure itself stays at replacement cost. If the HOA switches its entire master policy to ACV to save money, the building becomes non-warrantable.

This distinction matters because some boards, under pressure to reduce costs, might make insurance changes that jeopardize financing for every owner in the building.

What to do: Ask for a copy of the HOA's master insurance policy. Verify it carries replacement cost coverage for everything except roofing. If the board is discussing switching to ACV to lower premiums, understand that this could make your unit un-financeable with a conventional mortgage.

Your Pre-Closing Checklist: 6 Documents to Request

Before you close on any condo in 2026, gather these six documents and verify each item against the new rules.

Before you close on any condo in 2026, gather these documents and verify each item:

• HOA annual budget: Confirm reserve allocation is at or above 15% (or has a plan to reach it by January 2027)
• Reserve study: Must be within 36 months and use the highest recommended funding level
• Master insurance policy: Verify replacement cost coverage on everything except roofing
• HOA financial statements: Check delinquency rates and any pending special assessments
• Condo questionnaire: Your lender will need this for Full Review. Start the request early.
• Investor concentration data: If the building had issues before, confirm your lender accepts the new guidelines