New FNMA condo guidelines have recently been announced, and it’s important for your community association to adapt and know its impact. What are these changes to Fannie Mae requirements, and how can your HOA stay on top of them?
What is Fannie Mae?
Also known as the Federal National Mortgage Association, Fannie Mae is a government-sponsored enterprise that buys mortgage loans from lenders. After purchasing those loans, bundle them into mortgage-backed securities.
A large share of mortgage loans, including those for HOAs and condo buildings, is typically sold to Fannie Mae and its counterpart, Freddie Mac. Because of this, their guidelines usually determine which loans most lenders will approve.
Even if it’s already established, not all condo buildings meet the FNMA condo guidelines. When that happens, the said project gets tagged with a “non-warrantable” status.
“Non-warrantable” condominiums are properties that many conventional lenders couldn’t finance. As a result, prospective buyers of those condos will be forced to seek other financing options. That usually means higher rates and stricter credit standards.
Changes to the Fannie Mae Condo Guidelines
In June 2021, the 12-story Surfside condominium suddenly collapsed, resulting in many casualties. Following this event, both Fannie Mae and its counterpart, Freddie Mac, have begun raising condominium underwriting standards.
Fast forward to March 2026, and both enterprises have announced a number of changes that could significantly affect how Condominiums are funded. While the new guidelines help smaller condo buildings, larger and more complex ones face bigger financial requirements.
Here are the key changes to Fannie Mae HOA requirements
1. Higher Minimum Reserve Contribution
As part of the announced changes, Fannie Mae raised its minimum required reserve contribution to 15%. Prior to the change, the enterprise required condos and HOAs to set aside at least 10% of their annual income in their reserve accounts. This is set to take full effect on applications made on or after January 4, 2027.
With this change, condo associations that allocate only 10% of their budgets to reserves need to update their guidelines. However, the jump to the 15% floor is not to be taken lightly. In dire cases, HOA and COA boards would need to recalculate their monthly budget to account for the higher reserve contribution floor. This may mean an increase in monthly HOA dues. Alternatively, if the HOA couldn’t immediately raise dues, relying on a reserve fund loan to fill that needed gap.
2. Reserve Studies Recommended Funding Option
When an HOA or COA conducts a reserve study, professionals usually recommend three funding models. These frameworks include a minimum funding option, a moderate one, and the full, recommended funding. From these, the HOA would normally select the lower-tier options to keep HOA dues low.
Under the new FNMA condo guidelines, your community association needs the recommended full funding options. Lenders also need to verify that the association is doing this, based on the reserve study.
Additionally, the new guidelines require reserve studies to be completed within 36 months. Otherwise, condos with reserve studies older than 35 months would be flagged.
3. Limited Review Is No Longer an Option
Before the changes, Fannie Mae offered two types of condo reviews: limited and full.
Limited reviews are more lax than full reviews. It’s usually done for low-risk loans. For this review, lenders still validate eligibility, but the process is not as extensive as a full review.
A full review is more detailed and extensive. It’s meant for higher-risk projects and loans, such as new projects or newly converted condominiums. This type of review delves deep into a condo association’s financials, including its budget, reserve fund, ownership mix, legal structure, and project risks.
Under the new FNMA condo guidelines, the limited review is now being retired. This means that all projects will undergo rigorous reviews that scrutinize every aspect of the project’s financials and risks.
4. Major Insurance Requirement Updates
A large part of the update, which may greatly affect condo associations, is the aforementioned underwriting requirements. This change aims to give both COAs and lenders more flexibility.
One of the first underwriting changes mentioned is regarding the building’s roofing. Roofs no longer need to be insured at full replacement cost; however, they still need to be covered by insurance. This time, however, coverage based on the amenity’s actual cash value is acceptable.
Another change in the enterprise is removing the inflation guard requirement. It also streamlined the guidelines on deductibles. In particular, for master condo policies, the new guidelines have set the maximum deductible per unit at $50,000. This policy will become mandatory for loans dated July 1, 2026, onwards.
In case the master policy of a condo doesn’t offer full protection for the unit’s interior, upgrades, or per-unit deductibles, the loan borrower may have to get a separate owner policy.
What Should Condo Boards Do?
Given the new FNMA condo guidelines, your community association will need to adjust. Adapting to these changes is key to keeping your condo compliant and eligible for funding.
Here are some steps that you can take
Reserve Funds Review
Reserve fund guidelines are having some of the biggest changes. Therefore, the first thing your association needs to do is to review your reserves.
First, you need to check whether your HOA’s reserve contribution meets the new floor requirement. If it’s at 15%, you’re good to go. Otherwise, you will need to change it to at least 15% and recalculate finances. Decide whether you will need to increase HOA dues to fulfill this requirement, or whether you will rely on a special assessment and a loan.
Apart from that contribution policy, you also need to make sure your COA review study is up to date. If you’ve updated it in the past 3 years, try to adopt the recommended or full funding option.
Check and Review Insurance Policies
Another major change in the FNMA condo guidelines concerns insurance. With this, you need to check if your COA’s insurance policies align with the new requirements. For these, you can check your building’s roof coverage and your master policy’s deductible levels. In case they’re not, try to work with both unit owners and your insurance providers to revise your policies in a manner that is consistent with Fannie Mae’s guidelines.
Prepare for Full Reviews
Now that limited reviews are no longer an option, your community association needs to brace for stricter, more tedious reviews. To do so, you need to ensure that your financials are tight, and you have all the necessary documents lenders may want to ask.
Some of these documents include financial statements that show your condo’s status. Usually, they would include your HOA’s balance sheet, income statements, reserve fund documentation, and budget estimates. It should also include all necessary insurance policies, as well as unit owner records and investor-owned units.
Apart from compiling these documents, you will also need to answer a questionnaire. Make sure that you answer this correctly and accurately. Include all the information they ask for,
What Red Flags to Lenders Look Out For?
Of course, not all condos gain Fannie Mae approval. Usually, condos not approved by FNMA have glaring red flags to watch out for.
These red flags include the following:
- Lacking Master Insurance Coverage: Given the new guidelines, lenders are more likely to reject condo projects that lack adequate insurance coverage.
- Low Reserve Contribution: With the new contribution guidelines, lenders need to see how much contribution COAs set aside for their reserve. Falling under the 15% threshold is an immediate red flag.
- Deferred Maintenance: Stemming from the incident in Florida back in 2021, Fannie Mae will now avoid buying mortgages for condos that require deferred maintenance. Unkept or unmaintained condo buildings are at risk of structural issues that can lead to failure.
- Resale Restrictions in COA Guidelines: Condos with restrictions on deeds and resales, such as a right of first refusal, are among the many ineligible characteristics set by Fannie Mae.
- Legal Issues: A legal conflict involving the condo, especially between homeowners and developers, is a red flag for Fannie Mae.
Adapting to Change
Since most homeowners and community associations for condo buildings rely on Fannie Mae, it’s important to be aware of changes to its guidelines. These changes, while they may seem troublesome, have a purpose that benefits all parties involved.
The Forth Group provides condo management services to communities in Chicago and the surrounding areas. Call us today at (312) 379-0400 or contact us online to get started!
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