08/26/2026
Condo Underwriting rules have current and upcoming updates that are affecting underwriting and we need to stay ahead of it as they are now impacting buyers and sellers.
Fannie Mae and Freddie Mac made a joint updates that have eliminated limited reviews which affects Conventional financing.
There is also an update on higher reserves (Up from 10% to 15% required) that goes live 1/4/2027 that we need to watch out for.
Take a look at these notes and let me know if you have any quesiotns I can help clarify!
2026 CONVENTIONAL UPDATES - FANNIE MAE Lender Letter - LL-2026-03 - Below is a quick breakdown of what is changing right now and what is coming next 👇
📅 Key Timeline & Policy Changes
🔹 PHASE 1 (Effective August 2026): Limited Review Retired
Limited Condo Reviews are officially gone for conventional loans.
Why it matters: Expect significantly more project documentation and stricter underwriting. If a project fails reserve or maintenance requirements, it becomes ineligible for conventional financing and will require non-warrantable loan options.
🔹 PHASE 2 (Effective January 4, 2027): Higher Reserve Requirements - Required HOA reserve funding increases from 10% to 15% of the budget.
Why it matters: Underwriting must confirm the HOA is actively funding reserves for major capital repairs (roofs, siding, parking lots, HVAC, structural components). this means dues will more than likely need to increase for condo HOA's as well in the near future to absorb these requirements.
📊 Reserve Studies & Investor Concentration
Reserve Study Allocations: If using a reserve study to show sufficient funding, the HOA budget must now include the highest recommended reserve allocation (previously, it was the lowest).
Investor Concentration: Fannie Mae is eliminating the 50% investment-property limit for established projects using Full Review! (Note: Newly converted condo projects still retain the 50% cap).
🛡️ HOA Master Insurance Deductible Caps (Same as it has been for a while now, but good to know if you are not familiar)
Maximum Deductible : Capped at 5% of the policy coverage amount for required perils (including windstorm/wildfire).
Per-Unit Policy Cap: The maximum allowable per-unit deductible is now $50,000.
💡 How to Stay Prepared (Before Listing or Writing an Offer!)
1️⃣ Contact the HOA Early: Request key documents right away: Current Budget, Master Insurance Cert, Litigation Disclosures, Reserve Study, and Deferred Maintenance reports.
2️⃣ Check the Budget First and have it reviewed by our team to ensure you are prepared for surprises before listing: Have sellers pull the budget from their HOA portal to review reserve funding before assuming conventional financing is viable.
3️⃣ Showcase Your Expertise: Educate your buyers and sellers upfront - it proves your high-level industry knowledge and sets realistic expectations!
🎯 BOTTOM LINE: Don’t wait until you're under contract, or after the appraisal/underwriting starts, to discover a condo project isn't warrantable. Early verification saves you and your clients time, money, and headaches!
Got questions about how this impacts your current listings or active buyers? Reach out! - Drop a comment below or send me a DM-I'm here to help you navigate these updates! 📲💬
