On March 18, 2026, Fannie Mae issued Lender Letter LL-2026-03, announcing significant updates to condominium project standards and insurance requirements. The changes cover several important areas, including reserve funding, project review, investor ownership, and insurance requirements.

Fannie Mae and Freddie Mac are government-sponsored enterprises that purchase mortgage loans from private lenders and play a significant role in the secondary mortgage market. Because lenders generally want their condominium loans to remain eligible for sale to Fannie Mae or Freddie Mac—and thereby qualify for preferred rates—their condominium project standards directly affect condominium associations, unit owners, property managers, and prospective buyers.

Fannie Mae confirmed that the changes were developed in alignment with Freddie Mac and in coordination with the Federal Housing Finance Agency. These standards are generally reflected in the condominium questionnaires and documentation requirements used by major mortgage lenders.

Condominium boards and property managers should become familiar with the new requirements now, particularly because several changes took effect during 2026 and the increased reserve requirement becomes effective in 2027.

Reserve Contributions and Reserve Studies

For many years, the general Fannie Mae and Freddie Mac standard has required condominium associations to allocate at least 10% of their annual budget to reserves.

Beginning January 4, 2027, the required reserve contribution will increase from 10% to 15% of the association’s annual budgeted assessment income. Associations preparing their 2027 budgets should therefore begin determining whether their current condominium fees and reserve allocations will satisfy the increased requirement.

An association may be able to satisfy the reserve requirements through an acceptable reserve study rather than the 15% budget allocation. The reserve study must be current, generally meaning that it was completed or updated within the preceding three years, and the association must budget for the highest recommended reserve allocation identified in the study. The reserve recommendation cannot rely on a baseline funding approach under which the reserve balance approaches, but does not fall below, zero.

As of August 3, 2026, when a lender relies on a reserve study to establish that a condominium has sufficient reserves, the lender must verify that the association’s budget includes the highest recommended reserve allocation identified by that study.

These changes may require some condominium associations to increase condominium fees, increase their reserve allocations, obtain or update a reserve study, or otherwise adjust their long-term financial planning.

Changes to Condominium Project Review

The condominium project review process has also changed. As of August 3, 2026, the Limited Review process has been eliminated. Lenders must now generally use either a Full Project Review or a Waiver of Project Review.

A Full Project Review typically requires completion of a condominium mortgagee questionnaire, together with the production and review of association documents, financial information, insurance information, and other records.

At the same time, the availability of a Waiver of Project Review has been expanded. Certain condominium projects containing up to 10 units may now qualify for a waiver, significantly expanding its prior availability for smaller condominium associations.

Investor Ownership Requirements

The existing 50% investor-concentration limit for established condominium projects has also been removed. This change may make financing more accessible in established condominium associations with higher concentrations of investor-owned units.

Different requirements continue to apply to new condominium projects, including projects that remain under developer control or have not yet completed the required transition to unit-owner control. Those projects remain subject to applicable presale, investor, and project-eligibility standards.

Property Insurance Requirements

The updated standards also make significant changes to condominium property insurance requirements.

As of July 1, 2026, the maximum permitted per-unit deductible under an association’s master property insurance policy is generally capped at $50,000. This replaces the more complicated deductible analysis previously required in many condominium reviews.

The standards also provide additional flexibility for roof coverage. Although the condominium property generally must continue to be insured on a replacement-cost basis, roofs may now be insured on an actual-cash-value basis. The prior inflation-guard requirement is also being retired.

Individual unit-owner insurance has become increasingly important under the new standards. When the association’s master policy contains a per-unit deductible, or when portions of a unit or improvements within a unit are not covered by the master policy, the unit owner will generally need an HO-6 or comparable individual unit-owner policy.

The unit owner’s coverage must be sufficient to address the applicable requirements, including coverage for portions of the unit not insured by the master policy and, where applicable, the master policy’s per-unit deductible. The updated guidelines also modify certain deductible requirements applicable to individual unit-owner policies.

What Should Buyers and Borrowers Look Out For?

Buyers and borrowers should proactively investigate the following issues rather than discover midway through a purchase or refinance that an entire building is ineligible for conventional financing:

1. Review the 2026 and proposed 2027 budgets. Determine whether the association has made the changes necessary to satisfy the new 15% reserve contribution requirement beginning in 2027.
2. Ask whether a reserve study has been completed. Confirm that the reserve study is current and that the association’s funding complies with the applicable recommended reserve allocation.
3. Request association records. Financial statements, budgets, maintenance records, reserve information, insurance documents, and other relevant materials should be readily available.
4. Specifically ask about deferred maintenance. Significant deferred maintenance can create separate condominium eligibility issues and may prevent buyers from obtaining conventional financing.
5. Review investor ownership provisions. With the removal of the general 50% investor-concentration limit for established projects, associations concerned about investor concentration should review whether their governing documents contain appropriate leasing or investor-ownership restrictions.
6. Review the master insurance coverage with an insurance professional. Deductibles, replacement-cost coverage, roof coverage, and other policy provisions should be reviewed to confirm that they comply with the updated requirements.

These changes will affect condominium associations differently depending on their size, financial condition, reserve funding, insurance coverage, and governing documents. They may also affect the ability of individual unit owners to sell or refinance their units because a condominium that does not satisfy applicable Fannie Mae or Freddie Mac standards may present financing difficulties for prospective purchasers.

For questions or more information regarding the new requirements, please contact our Condominium Specialist, Sean S. Tiernan, Esq., at Sean@cannerlaw.com.