Fannie Mae condo review changes put building records and reserves in focus

What happened

Fannie Mae has changed its condominium-project financing review standards, ending the limited-review route for most projects as of Aug. 3. Under the updated framework described in Fannie Mae Lender Letter LL-2026-03, projects that previously could receive a lighter review will generally undergo full review instead.

That review examines a building’s budget, reserves, delinquency rate and overall financial condition. The change places more emphasis on the information that condominium boards, managing agents and associations can provide during a lender’s project review.

A separate reserve requirement will take effect later. For full-review loan applications dated on or after Jan. 4, 2027, the minimum allocation for capital expenditures and deferred maintenance will rise from 10% to 15% of annual budgeted assessment income.

The key details

The end of limited review is the central operational change. Full review calls for a more detailed examination of project finances and can require more documentation from a building than the streamlined process it replaces. The Mortgage Bankers Association has cautioned that processing times may lengthen during the transition, with timing depending substantially on how quickly an HOA or management company can assemble the required documents.

The revised standards also remove the 50% investor-concentration cap for established projects undergoing full review. That cap had been a potential underwriting issue for some condominiums with substantial investor ownership.

The rule for new and newly converted projects remains different: at least 50% of total units must be conveyed or under contract to principal-residence or second-home purchasers before those units are eligible.

Buildings with fewer than 10 units will not be subject to the same review. The prior threshold was fewer than four units.

The source also notes early indications that Fannie Mae could establish reserve-fund guidelines specifically for co-ops, though no such policy is final.

Why it matters

For transactions involving affected condominium buildings, project review may become a more visible part of the financing timetable. A lender’s assessment is not limited to an individual borrower’s loan file; it can also depend on the building’s financial records and the responsiveness of its management or governing body.

The upcoming reserve change makes the budget line for capital expenditures and deferred maintenance particularly relevant for applications dated from Jan. 4, 2027. Boards may need to assess how their budgets and funding plans align with the new 15% minimum for full-review applications.

The removal of the investor-concentration cap may ease one prior constraint for certain established projects. However, it does not change the separate pre-sale requirement that continues to apply to new and newly converted projects.

What to watch

The immediate issue is how consistently buildings can supply budgets, reserve information, delinquency data and other full-review materials. The source indicates that document readiness may influence review timing.

Buyers can seek building information early in the process, including current reserve funding, insurance deductibles and any pending special assessments. Sellers and boards may encounter more lender requests for project records as full review becomes the standard path.

For applications dated on or after Jan. 4, 2027, the applicable full-review reserve allocation minimum will be 15%. Market participants will also be watching whether Fannie Mae issues finalized co-op reserve guidance.