If you’ve heard that getting a mortgage on a condominium has become more difficult, you’re not imagining it.
Following the tragic Surfside condominium collapse and increasing concerns about aging buildings, deferred maintenance, reserve funding, and insurance coverage, both Fannie Mae and Freddie Mac have updated their condominium lending guidelines.
The goal is simple:
- Protect homeowners
- Reduce financial risk
- Ensure condominium associations are financially healthy
- Help prevent expensive surprises after someone buys a condo
While these changes may seem overwhelming, they do not mean condos are impossible to finance. It simply means buyers, sellers, lenders, and condominium associations must work together a little earlier in the process.
Let’s break it down into plain English.
Why Did These Changes Happen?
For years, many condominium associations kept HOA dues artificially low by delaying repairs or contributing too little to reserve accounts.
After Surfside, lenders realized that many buildings had:
- Deferred maintenance
- Structural concerns
- Little money saved for major repairs
- Large special assessments
- Insurance policies with significant coverage gaps
The result?
The Government Sponsored Enterprises (GSEs)—Fannie Mae and Freddie Mac—tightened their project review standards to better evaluate the long-term financial health of condominium communities.
Change #1: Elimination of Limited and Streamlined Reviews
Before
Many established condominium projects could qualify using a Limited Review.
This meant lenders often needed very little documentation from the HOA.
The process was:
- Faster
- Less paperwork
- Easier approvals
Now
Beginning with applicable loan applications under the new guidelines, the traditional Limited Review pathway is being retired for most established condominium projects.
Instead, lenders must use more comprehensive review methods depending on the project’s characteristics.
What this means
Instead of asking:
“Can we skip reviewing the condo?”
Lenders now ask:
“Is this condominium financially healthy?”
Real-Life Example
Old Process
John buys a $350,000 condo.
The lender confirms occupancy, loan-to-value, and a few basic items.
Loan approved.
New Process
The lender now requests:
- HOA budget
- Insurance certificate
- Reserve information
- Special assessment information
- Structural reports (when applicable)
- Delinquency information
If everything looks healthy…
Loan approved.
If not…
Additional documentation—or another financing option—may be needed.
Change #2: Eligible Project Review Types
Rather than relying on streamlined reviews, lenders now determine eligibility using review methods such as:
- Full Review
- Waiver of Project Review (when eligible)
- Project Eligibility Review Service (PERS) where required
- Other review paths outlined by each GSE based on project type and loan characteristics.
Think of it like taking your car to the mechanic.
Instead of simply checking the tire pressure…
The mechanic now performs a complete inspection before saying everything looks good.
Change #3: Reserve Requirements
One of the biggest changes involves reserve funding.
HOA reserves are the community’s savings account.
They pay for:
- Roof replacement
- Elevators
- Painting
- Concrete restoration
- Pools
- Parking garages
- Plumbing
- Major repairs
Historically, many associations budgeted at least 10% of annual assessment income toward reserves.
Under the phased-in GSE updates, the benchmark increases to 15% for applicable loans unless the association has a qualifying reserve study supporting a different funding level.
Reserve Studies Become More Important
A professional reserve study evaluates:
- Current condition
- Remaining useful life
- Estimated replacement costs
- Future repair schedule
- Recommended reserve funding
Instead of using a simple percentage, lenders may rely on a current reserve study showing that the association is adequately funding future repairs.
Real-Life Example
| 🏢 HOA A (Healthy Association) | 🏢 HOA B (Potential Financing Challenges) |
| Annual Budget: $800,000 | Annual Budget: $800,000 |
| Reserve Contribution: $120,000 (15%) | Reserve Contribution: $20,000 (2.5%) |
| Roof is in good condition | Roof is 28 years old |
| No known structural issues | Concrete restoration is needed |
| No pending special assessments | Large special assessment is pending |
| Current reserve study supports funding | No recent reserve study or reserves are underfunded |
| Adequate master insurance coverage | Insurance may require updates |
| Result: Healthy reserve funding. This project is more likely to qualify for conventional financing with fewer lender concerns. | Result: The project may have difficulty meeting Fannie Mae or Freddie Mac eligibility requirements until reserve funding, maintenance, or insurance issues are addressed. |
Change #4: Master Insurance Requirements
Insurance has become one of the most important parts of condominium financing.
Lenders now pay much closer attention to:
- Replacement cost coverage
- Deductible amounts
- Wind coverage
- Flood coverage (when applicable)
- General liability
- Fidelity coverage (where applicable)
- Coverage exclusions
- Building valuation
Some insurance requirements have also been simplified for projects qualifying for a Waiver of Project Review, while other coverage standards have become more specific.
Why This Matters
Imagine buying a condo.
Six months later…
A hurricane damages the building.
Insurance only covers half the repairs.
Owners receive a $60,000 special assessment.
The updated guidelines are designed to reduce that type of risk.
What Buyers Should Do
Before falling in love with a condo…
Ask your Realtor or lender to request:
- HOA budget
- Reserve information
- Insurance certificate
- Any pending special assessments
- Structural inspection disclosures (if applicable)
Doing this early can save weeks of delays.
What Sellers Should Do
If your condo is in a financially healthy association:
Gather these documents before listing:
- Budget
- Insurance
- Reserve study
- Meeting minutes
- Assessment information
A well-prepared seller can help avoid financing delays.
What HOA Boards Can Do
Boards play a major role in keeping units financeable.
Best practices include:
- Complete reserve studies regularly
- Follow reserve study recommendations
- Maintain adequate insurance
- Address deferred maintenance promptly
- Communicate openly with owners
- Budget responsibly
Healthy associations help owners maintain property values and expand the pool of eligible buyers.
Can These Problems Be Overcome?
Absolutely.
Many issues have practical solutions.
Scenario 1: Low Reserves
Problem
HOA contributes very little to reserves.
Possible Solution
Complete a professional reserve study and adopt a funding plan that supports future repairs.
Scenario 2: Large Special Assessment
Problem
The association recently approved a major assessment.
Possible Solution
Show that repairs are underway, the funding plan is in place, and the work will strengthen the property over the long term. Some buyers may also consider alternative financing options if the project does not currently meet conventional guidelines.
Scenario 3: Insurance Deductible Too High
Problem
Master policy deductible exceeds current GSE expectations.
Possible Solution
The association can work with its insurance agent to evaluate deductible structures, supplemental coverage, or other policy changes that satisfy lender requirements.
Scenario 4: Deferred Maintenance
Problem
Concrete restoration has not started.
Possible Solution
Begin the engineering process, secure financing, and document the repair plan. Lenders often view a community with a clear remediation strategy more favorably than one ignoring known issues.
Resources Available from Fannie Mae and Freddie Mac
Both agencies provide extensive guidance to help lenders navigate condominium eligibility.
Fannie Mae
Resources include:
- Selling Guide
- Condo Project Manager resources
- Lender Letters
- Project Eligibility Review Service (PERS)
- Desktop Underwriter (DU)
Freddie Mac
Resources include:
- Seller/Servicer Guide
- Guide Bulletins
- Condo Project Advisor
- Loan Product Advisor (LPA)
- Condo Project review tools
These resources help lenders determine whether a condominium project meets current eligibility requirements and identify the documentation needed for approval.
The Bottom Line
The 2026 condominium guideline updates represent one of the most significant changes to condo financing in years.
While the process now requires more documentation, these changes are intended to create stronger, safer, and financially healthier condominium communities.
For buyers, this means fewer unexpected surprises after closing.
For sellers, preparation is more important than ever.
For HOA boards, maintaining adequate reserves, insurance, and transparent financial records can make a meaningful difference in keeping the community eligible for conventional financing.
The good news is that most financing issues can be identified early and, in many cases, addressed with proper planning and communication.
At VMA Lending, we help buyers, Realtors, and condominium associations understand these requirements before they become closing-day problems. Our goal is to make the financing process as smooth as possible by identifying potential issues early and helping clients explore the best available mortgage solutions for their situation.
