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Major Condo Changes

  • Writer: Phyllis Staines
    Phyllis Staines
  • Aug 4
  • 2 min read

Significant changes to condo financing, instituted by Fannie Mae and Freddie Mac, take effect on August 3, 2026, with further, stricter, requirements following in January 2027. These changes aim to strengthen the financial and structural health of condominium associations following the 2021 Surfside collapse.

 

Key changes include the end of streamlined reviews for most projects, mandatory increases in reserve funding, and stricter insurance requirements.

 

Major 2026 Condo Financing Changes

  • End of Limited/Streamlined Reviews (Aug 3, 2026): The "Limited Review" (Fannie Mae) and "Streamlined Review" (Freddie Mac) processes, which previously allowed for faster approval with less documentation for established projects, are being eliminated.

  • Mandatory Full Reviews: Almost all condo transactions will now require a "Full Review." This necessitates a deep dive into the association’s budget, insurance, and maintenance records, which may cause longer closing timelines.

  • Higher Reserve Requirements (Jan 4, 2027): Condo associations must set aside at least 15% of their annual budget for reserves, up from the current 10% requirement.

  • Stricter Reserve Studies: If an association uses a reserve study to meet funding requirements, lenders must now use the highest recommended reserve amount, rather than a minimum or baseline estimate.

  • Small Project Exceptions: Condo projects with 2 to 10 units may now qualify to bypass the full project review process entirely, easing restrictions for smaller buildings.

  • Investor Concentration Limits Removed: For established projects, the 50% cap on investor-owned units has been eliminated, making more buildings eligible for conventional financing.

 

Insurance Updates

  • Roof Coverage Flexibility: Roofs no longer need to be insured at full replacement cost; policies can now use Actual Cash Value (ACV), which accounts for depreciation.

  • Higher Deductibles: Master insurance policies may now have per-unit deductibles up to $50,000, meaning owners might need to carry more robust individual HO-6 insurance policies to cover the gap.

 

Impact on Buyers and Owners

  • Stricter Underwriting: Buildings with poor financial health, significant deferred maintenance, or outstanding special assessments may become "non-warrantable," meaning they won't qualify for conventional loans.

  • Higher HOA Fees: To meet the new 15% reserve requirement by 2027, many associations will likely increase monthly HOA fees or impose special assessments.

  • Increased Due Diligence: Buyers should investigate the financial state of the HOA early in the buying process.

 

These updates, in effect as of Aug. 3, 2026, mean that a buyer's personal creditworthiness is no longer the only factor in approval; the financial and physical health of the association is now equally critical

 

 
 
 

Comments

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