Fannie Mae's Condo Rule Changes 2026

Questions this article answers

• What is Fannie Mae’s Lender Letter LL-2026-03, and what does it change?
• What does the elimination of Limited Review mean for condo buyers?
• How does the 15% reserve requirement affect condo values and HOA fees?
• What happens to financing if my condo building becomes non-warrantable?
• How do the new insurance rules change what your HOA needs to carry?
• What should buyers, sellers, and owners do before each deadline?

At a glance

Affects

Condo buyers, sellers, and owners with conventional mortgages

Key rule change

Limited Review eliminated Aug 3, 2026 — Full Review becomes standard

Reserve deadline

15% minimum HOA reserve funding required by Jan 4, 2027

If building fails review

Non-QM / non-warrantable financing may be available — often with risk-adjusted pricing

Good news

Looser insurance rules may restore eligibility for some previously ineligible buildings

Next step

Review your scenario with Gallagher Team before your next transaction closes

Most people buying or selling a condo assume financing works the same way it always has. You find a building you like, your lender runs the numbers, and the deal moves forward. What many borrowers don’t realize is that a condo unit’s eligibility for conventional financing depends not just on the borrower — it depends on the building itself. If the building’s reserves are too low, its insurance falls short, or its project review doesn’t pass, the loan can be denied even when the buyer is fully qualified.

That’s the context for Fannie Mae’s March 18, 2026 update. Lender Letter LL-2026-03 rewrites several of the foundational rules that determine whether a condo project qualifies for conventional financing. The changes roll out in phases through January 2027, and each deadline has direct implications for transactions already in progress.

What Fannie Mae Condo Guidelines Changed — and Why

The changes in LL-2026-03 were issued alongside parallel updates from Freddie Mac, coordinated through the Federal Housing Finance Agency. They address three areas that have created friction and inconsistency in condo lending: how projects are reviewed, how reserve funding is evaluated, and how insurance requirements are structured.

Why Warrantable Condo Project Eligibility Matters

When a condo building qualifies under Fannie Mae’s standards, it’s called warrantable — meaning Fannie Mae will purchase conventional mortgages secured by units in that building. When it doesn’t qualify, the building is non-warrantable, and buyers are pushed toward alternative financing at higher rates with fewer lender options.

For sellers, a non-warrantable building shrinks the buyer pool significantly. For owners looking to refinance, it can close off conventional loan options entirely until the building comes back into compliance.

More transactions need a documented project review

Retiring Limited Review changes the documents a lender needs before approving an eligible condo loan. Ask which review route applies early; a larger down payment does not by itself waive the building review.

The End of Limited Review — What It Means for Condo Buyers

Under the old system, condo lending worked on a two-track model. Limited Review used a narrower set of checks for eligible established projects, with loan and occupancy limits. It was not simply an exemption earned by a large down payment. Full Review was the slower, document-heavy process that examined the building’s finances in detail.

For loan applications dated on or after August 3, 2026, Limited Review is no longer available. The lender must determine the applicable project-review route, including whether Full Review or a Waiver of Project Review applies.

What Full Review Requires from the HOA

Under Full Review, lenders evaluate project eligibility, the HOA budget and reserve allocation, insurance, delinquencies and applicable repair information. They may request financial statements, meeting minutes and other supporting documents. A reserve study is particularly relevant when the lender uses the study-based alternative to the required budget allocation; it is not a universal substitute for reviewing the budget. If a structural or mechanical inspection was completed within three years of the loan’s review date, lenders must also obtain and review that report.

What This Means for Active Condo Buyers

Timelines get longer. More document requests go to HOA management. And there are more opportunities for underwriters to identify issues — deferred maintenance, low reserves, special assessments, or insurance gaps — that can delay or kill the transaction even when the borrower is creditworthy. Buyers using FHA loans or VA loans should also verify condo-project eligibility early, because those programs have approval rules separate from Fannie Mae conventional financing. For higher-balance condo purchases, jumbo loan options may need to be reviewed alongside agency rules if the building or loan amount falls outside standard conventional limits.

What buyers should do before making an offer on any condo

• Ask the listing agent or HOA management for the current budget, reserve study, and master insurance policy before going under contract
• Ask your lender to check the project’s current status in Fannie Mae’s Condo Project Manager
• Budget extra time in the transaction — especially for buildings that have not recently been through Full Review
• Talk to your lender before making an offer, not after

Fannie Mae 10-Unit Condo Exemption Rules

Buildings with 10 units or fewer may qualify for a Waiver of Project Review under the expanded exemption in LL-2026-03. This is meaningful relief for small-scale and infill condo projects. Five-to-ten-unit projects cannot be part of a master association or larger development. To use the waiver, the building must not have an Unavailable status in Condo Project Manager, must meet applicable insurance requirements, and must have no critical repairs on file for certain refinance transactions.

The 15% Reserve Requirement — Impact on Sellers and Owners

Fannie Mae and Freddie Mac are increasing the minimum reserve funding requirement from 10% to 15% of annual budgeted assessment income for the applicable Full Review calculation. The new threshold takes effect January 4, 2027. A project that does not meet the applicable reserve requirement or an accepted reserve-study alternative may be ineligible for that financing route. This is a lender project-review decision, not an automatic change to every loan in the building. For Florida condo projects, Fannie Mae’s reserve review may overlap with state-level Structural Integrity Reserve Study requirements. In New York, older condo buildings with deferred maintenance, underfunded reserves, or insurance gaps may face a harder time passing Full Review. If the building is eligible, New York buyers can often offset higher HOA costs by reducing their mortgage recording tax with a Purchase CEMA.

Why This Matters for HOA Fees

Many condo associations currently operate at or below the 10% threshold. Getting to 15% means increasing reserve contributions, which typically means higher monthly HOA fees. Buildings that have been underfunding reserves will feel the pressure most acutely, and boards that haven’t yet communicated this to owners are behind.

The Reserve Study Alternative for Condo Associations

An association can satisfy the requirement without hitting 15% if it has a reserve study completed within the past 36 months — but only if it is following the highest recommended funding level identified in the most recent study. The old “baseline funding” method, which allowed associations to maintain minimal reserves as long as the balance didn’t go negative, is no longer permitted.

For sellers — this directly affects your buyer pool starting January 2027

If your building’s HOA is currently under-reserved and does not have a plan to reach compliance, buyers using conventional financing may not be able to purchase your unit after January 4, 2027. This is a material fact that affects your listing price, your timeline, and who can make a competitive offer. Ask your HOA board where reserves stand now.

Insurance Rule Changes — What Got Better, What Got Stricter

The insurance changes in LL-2026-03 are a mixed picture. Some rules were loosened in ways that restore financing eligibility for buildings that had been blocked. Others added requirements that HOA boards need to understand before their next renewal.

What Changed in Favor of Buildings

Fannie Mae removed the requirement that roofs must be insured on a replacement cost basis. Roofs must still be covered, but actual cash value is now acceptable. Inflation guard coverage is also no longer required. These two changes may create additional insurance options — particularly in high-risk coastal markets where carriers had been pricing policies at unworkable levels.

The master-policy per-unit deductible cap is $50,000 for loan applications dated July 1, 2026 or later, with earlier implementation allowed. An individual unit policy is also required when the master policy has a per-unit deductible.

What Still Requires Full Replacement Cost Coverage

The building coverage generally remains on a replacement-cost basis. The letter also permits actual-cash-value treatment for personal property and certain property elements. An HOA that switches its entire master policy to actual cash value to cut premiums will make its building non-warrantable. The roof flexibility does not extend to the rest of the structure — a distinction that some boards may miss when shopping for cheaper coverage.

How to Finance a Non-Warrantable Condo

For a state-specific example, see our Florida non-warrantable condo financing guide. Florida’s building and reserve requirements are not interchangeable with New York’s; the guide helps explain why project details matter.

Non-warrantable status is not the end of the road for financing — but it changes the math significantly for everyone involved in a transaction. Investors buying a condo as a rental may also want to compare DSCR loans if conventional project review limits agency financing options.

Financing may be available through non-QM and portfolio lenders, often with risk-adjusted pricing compared with conventional. Down payment requirements may be higher, fewer lenders will compete for the loan, and the buyer pool for resale shrinks because buyers who need conventional financing won’t qualify. Because non-warrantable condo guidelines vary heavily by lender, wholesale mortgage broker access can give buyers more programs to compare than relying on one bank’s condo policy. For self-employed condo buyers, bank statement loans may also be worth reviewing, although the condo project still needs to meet the selected lender’s property guidelines.

Non-warrantable status is also not permanent. If a building improves its reserve funding, updates its insurance, and passes Full Review, it can return to warrantable status — at which point conventional refinancing becomes available again for unit owners.

Gallagher Team has access to non-warrantable condo programs

Through our wholesale lender network, we can access financing for non-warrantable condos where conventional options are unavailable. If your building has lost or may lose warrantable status, we can review your scenario and identify available paths — including conventional options if the building qualifies under the new rules, or non-QM alternatives if it doesn’t. No hard credit pull to start a scenario review.

Questions to ask your HOA board now

• What percentage of the annual budget is currently allocated to reserves?
• When was the last reserve study completed — is it within 36 months?
• Has our lender checked the project’s current Condo Project Manager status?
• Does the master policy satisfy the current replacement-cost and coverage-amount rules, including the letter’s limited exceptions?
• Is any per-unit deductible no more than $50,000, with the required individual unit coverage?

Key Dates: What Is in Effect and What Comes Next

As of this article’s Updated date, the August change is in effect; the January 2027 reserve threshold is still ahead. Confirm the applicable rules with your lender using the loan application date, not simply the purchase-contract or closing date.

The letter was issued March 18, 2026. Some provisions allowed earlier implementation; this summary does not replace the letter’s transaction-specific requirements.

Sources and review dates

Read Fannie Mae’s LL-2026-03 and the current Full Review guide. Your lender must apply the current requirements to the actual application and project.