What Condo Owners, Sellers, Buyers, and Realtors® Need to Know Now!

Published Date 9/9/2026

In March 2026, Fannie Mae and Freddie Mac issued coordinated updates (Fannie Mae Lender Letter LL-2026-03 and Freddie Mac Guide Bulletin 2026-C) that significantly reshape condominium project eligibility for conventional loans. These changes affect how condo projects are reviewed, how reserves must be funded, insurance standards, and investor concentration rules.

The goals are clearer: strengthen the financial health of condo associations, reduce risk of special assessments and deferred maintenance for buyers and lenders, and adapt to real-world insurance market challenges. For current owners, sellers, Realtors, and prospective buyers, the practical impact is that more projects will face fuller scrutiny, some associations will need to adjust budgets or insurance, and financing timelines or availability can shift depending on the building’s readiness.

Here is a clear breakdown of the major changes and what they mean for you:

1. Limited Review Process Is Being Retired

Historically, many lower-risk condo projects qualified for a streamlined “Limited Review.” That process is being eliminated for loan applications dated on or after August 3, 2026 (lenders could implement earlier).

Going forward, projects generally need either a Full Review or to qualify for a Waiver of Project Review. Limited reviews previously accounted for a large share of condo transactions, so expect more documentation requests from associations and potentially longer underwriting timelines in many cases.

Expanded Waiver of Project Review helps smaller projects: New and established condo projects with 10 or fewer units may now qualify for a waiver (with the caveat that 5–10 unit projects cannot be part of a master association or larger development). Detached units and 2–4 unit projects continue to have broader exemptions.

Impact: Realtors and buyers should confirm early whether a project will require Full Review. Sellers and boards should prepare standard project documentation (budget, insurance certificates, reserve study if available, governing documents, etc.) so it is ready when requested.

2. Higher Reserve Funding Requirements

Effective for annual budgets starting January 4, 2027 (and Full Reviews from that period), associations must generally allocate at least 15% of annual budgeted assessment income to replacement reserves (up from the previous 10%).

Alternative path: If the project does not meet the 15% benchmark, it may still qualify if it has a recent reserve study and the budget funds at the highest recommended reserve allocation amount in that study. Baseline funding methods (allowing reserves to approach zero) are no longer acceptable under this alternative.

Impact for owners and boards: Associations that have been budgeting closer to 10% will need to increase reserve contributions, which can mean higher monthly assessments. Proactive boards should review their current budget and reserve study now and plan any increases well ahead of the 2027 effective date. Underfunded reserves are a common reason projects become non-warrantable (ineligible for conventional Fannie/Freddie financing), which can reduce buyer pools and property values.

3. Insurance Flexibility  . . . and New Owner Responsibilities

Insurance changes bring welcome practical relief in a tough market:

Roofs may now be insured on an Actual Cash Value (ACV) basis rather than full Replacement Cost Value (RCV). The rest of the building generally still needs appropriate coverage.

Maximum allowable deductible on the master policy increases to $50,000 per unit (effective around July 1, 2026 in many references).

These updates acknowledge rising insurance costs and availability challenges, especially in high-risk areas, and should help more associations obtain compliant coverage.

Important shift for unit owners: Lenders may require (or strongly expect) individual HO-6 policies when the master policy does not cover interior unit improvements or when there is a per-unit deductible. Owners should review their HO-6 coverage for adequate loss assessment limits and any gaps created by ACV roof coverage or higher deductibles.

Impact: Associations gain more options to secure affordable insurance and stay warrantable. Individual owners need to be more proactive about their personal policies to avoid unexpected out-of-pocket costs after a claim.

4. Investor Concentration Cap Eliminated for Established Projects

The long-standing 50% investor-owner limitation for established projects under Full Review has been removed. Presale/owner-occupancy requirements for new projects remain in place.

Impact: Buildings with higher investor concentrations that were previously non-warrantable may now qualify for conventional financing, expanding the potential buyer pool in many projects.

Other Notable Updates

Florida-specific PERS (Project Eligibility Review Service) requirements for certain new attached condo projects have been retired.

Overall emphasis remains on project financial health, no critical deferred maintenance or unsafe conditions, adequate insurance, and proper governance.

Practical Guidance by Audience

Current Condo Owners / Boards:

Review your current reserve funding percentage and most recent reserve study.

Discuss the 15% target (or highest recommended funding from a study) with your management company, accountant, and attorney well before 2027.

Confirm master insurance complies with the new deductible and roof coverage flexibility.

Prepare a complete project review package so sales and refinances are not delayed.

Condo Sellers

Ask your association or management company early whether the project currently meets (or will meet) Full Review standards, especially reserves and insurance.

Be transparent with buyers and their lenders about any known issues. Non-warrantable status can shrink the buyer pool and pressure price or terms.

Realtors®

Educate clients early: Conventional financing depends heavily on the project, not just the buyer’s credit and income.

Encourage pre-listing or early-contract project reviews.

Know which smaller projects may qualify for Waiver of Project Review to set realistic expectations on timing.

Watch for projects that improve eligibility under the eliminated investor cap or new insurance flexibility—these can become newly competitive.

Potential Condo Buyers

Work with a lender experienced in condo financing early in your search.

Ask specifically about project review type (Full Review vs. Waiver), reserve funding, insurance details, and any special assessments.

Factor possible higher HO-6 premiums or loss assessment exposure into your budget.

Strong project financials and reserves generally support better long-term value and lower risk of large special assessments.

Bottom Line

These 2026 updates trade some streamlined processes for stronger financial discipline and more realistic insurance standards. Well-managed associations that fund reserves appropriately and maintain solid insurance should find it easier to remain (or become) warrantable. Associations that have deferred maintenance or chronically underfunded reserves face greater risk of financing restrictions, which can affect marketability and values.

The changes are not optional in practice: while they are GSE (government-sponsored enterprise) guidelines rather than law, most conventional lenders follow them closely. Projects that fall short limit access to the largest pool of mortgage capital.

If you own, are selling, or are considering buying a condo, the smartest step is to confirm your specific project’s current status with the association and a knowledgeable lender. Early preparation by boards and clear communication by Realtors and sellers will minimize friction as these rules take full effect through 2026 and into 2027.

For the most current details, refer to the official Fannie Mae Selling Guide and Freddie Mac Seller/Servicer Guide, as implementation dates and nuances can vary slightly by lender. As a Mortgage Broker/Loan Originator, I am happy to help review a specific project or answer financing questions related to these updates.

Gene Fuessel
Mortgage Solutions Group, PLLC
Sr Loan Officer/Broker
NMLS: 181064
Mortgage Solutions Group, PLLC
Company NMLS: 2179191
Cell: 512-733-6207
Email: gene@mortgagesolutionsgroup.net
Web: https://www.mortgagesolutionsgroup.net/

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