New Fannie Mae condo requirements have been released this year, prompting several associations to make immediate changes. These requirements are not always easy to understand, especially for volunteer board members. Still, compliance hinges on a thorough grasp of what these requirements are and how they affect communities.
What are Fannie Mae Condo Requirements?
Fannie Mae requirements are not law, so associations are not legally required to meet them. That said, fulfilling these requirements does pose benefits.
To understand these benefits, it is first important to understand how Fannie Mae works. Fannie Mae purchases mortgages from lenders. If a person wishes to purchase a unit in an association, their lender may wish to sell that mortgage to Fannie Mae. Yet, if the association doesn’t meet the requirements, the buyer may not qualify for a Fannie Mae loan.
That said, buyers can still secure a mortgage loan even without Fannie Mae. Several financing options are still available.
New Fannie Mae Updates in 2026
Condo associations that fail to meet Fannie Mae requirements often struggle with attracting buyers. This is because lenders are more hesitant to approve loans when an association doesn’t meet Fannie Mae standards. Ultimately, low marketability can affect property values.
In addition to fulfilling these requirements, board members must stay up-to-date on any changes. Fannie Mae will sometimes amend its guidelines, either passing stricter rules or loosening some requirements.
On March 18, 2026, Fannie Mae’s new condo project guidelines were introduced via Lender Letter LL-2026-03. The letter set forth major amendments to the requirements and policies for HOAs, condo associations, and cooperatives.
Fannie Mae Condo Reserve Requirements
Many associations are required to fund reserves, either by state laws or by their governing documents. The new Fannie Mae requirements for condos make certain changes to reserve allocations, studies, and funding methods.
Reserve Requirement Allocation
One of the most significant changes involves the amount associations must allocate toward their reserves. Fannie Mae is increasing the reserve allocation requirement from 10% to 15%.
Previously, lenders generally expected an association to deposit at least 10% of its projected revenue into the reserve fund. For loan applications dated January 4, 2027, or later, that threshold will increase to 15%.
The goal is to reduce the risk of underfunded reserves. Insufficient reserves can render associations unable to pay for major capital repairs or replacements, forcing boards to levy large special assessments.
Boards should review their reserve budgets well before the new requirement takes effect. Waiting until 2027 could leave an association scrambling to increase its contributions.
Reserve Study
Fannie Mae also allows lenders to evaluate an association’s reserve funding through a reserve study. Under the updated requirements, the reserve study must demonstrate that there is sufficient funding for the association’s future needs.
The reserve study must also be relatively recent. Generally, it must have been completed within the previous three years.
Beyond that, associations must align their budgets with the study’s recommendations. For example, an association can’t have a reserve study recommending $300,000 in annual contributions while budgeting only $200,000. The budget must reflect the highest reserve allocation recommended by the study.
Elimination of Baseline Funding Method
Fannie Mae is also removing the baseline funding approach for applicable projects. Under this method, an association could allow its reserve balance to become very low as it pays for major repairs or replacements. In some cases, the balance could even go to zero.
The new Fannie Mae condo requirements no longer accept this approach. Instead, an association must maintain adequate reserves to address its anticipated capital expenditures. Associations must be more proactive about reserve funding rather than planning to deplete their reserves after major projects.
The change applies to loan applications dated August 3, 2026, or later.
Fannie Mae Condo Insurance Requirements
Fannie Mae is also updating its requirements for condo master insurance policies. The policy must generally cover specific risks, including:
- Fire
- Explosion
- Lightning
- Smoke
- Windstorm
- Hail
- Water damage
- Sprinkler leakage
- Vandalism
- Sinkhole
- Falling objects
- Weight of snow, ice, or sleet
- Certain damage caused by vehicles or aircraft
Board members must review their master policies to ensure the association has sufficient coverage in accordance with Fannie Mae standards.
Coverage Requirement
Fannie Mae is also increasing the amount of insurance coverage that condo associations must carry. In general, the master policy must provide coverage equal to 100% of the estimated replacement cost of the insured components.
This means the policy should provide enough coverage to rebuild the covered property following a major loss. The requirement is based on replacement cost, not the property’s market value.
That said, roofs are an exception to the 100% replacement-cost requirement. Still, associations are required to maintain insurance coverage for their roofs.
$50,000 Deductible
The updated Fannie Mae condo requirements also address per-occurrence, per-unit deductibles. These deductibles generally can’t exceed $50,000 now.
HO-6 Policy Requirement
Unit owners in a condominium must have their own HO-6 policy. This provides coverage for portions of the unit that the master policy doesn’t cover.
According to the updated requirements, an individual unit owner is required to obtain a separate policy if:
- The master policy doesn’t cover certain portions of the unit’s interior, or
- The master policy has a per-unit deductible.
Furthermore, Fannie Mae sets the required coverage. In general, it must be at least the greater of the cost to restore the portions of the unit that the master policy doesn’t cover or the applicable per-unit deductible.
Other New Fannie Mae Condo Guidelines
In addition to the new reserve and insurance requirements, Fannie Mae updated other guidelines. These relate to Limited Reviews and investor-owned properties.
Full Review Required
Fannie Mae is also eliminating the Limited Review process for certain condominium projects. This means boards should expect lenders to request additional information. An HOA management company can help provide all pertinent documents.
Previously, some projects could qualify for Limited Review, which involved a less extensive evaluation under certain conditions. With the new guidelines, projects generally must undergo Full Review unless they qualify for another applicable waiver.
This change applies to loan applications dated August 3, 2026, or later.
Removal of Cap on Investor Properties
Other than that, Fannie Mae has removed its previous 50% limit on investor-owned units for some condo projects. Under the previous requirements, projects may not be eligible if more than half of their units are investment properties. Now, condominiums can exceed this cap.
Critical to Marketability
Understanding the new Fannie Mae condo requirements is imperative for board members. It ensures that condominiums and HOAs continue to qualify for Fannie Mae loans, allowing them to maintain a broad pool of potential buyers and preserve property values.
Westward360 is a trusted partner for HOAs and condo associations across the United States. To get started on expert association management, contact us today or request a proposal online!
