1. Increased replacement reserve requirements
We are revising our reserve allocation requirement for capital expenditures and deferred maintenance from a minimum of 10% to a minimum of 15% of the annual budgeted income assessment.
Effective: Lenders must comply with this requirement when utilizing the Full Review process for all loan applications dated on or after Jan. 4, 2027.

Fannie Mae Lending Letter, LL-2026-03, March 18, 2026

One of the most consequential changes involves reserve funding obligations.
Fannie Mae increased the minimum reserve allocation requirement for capital expenditures and deferred maintenance from 10% to 15% of the HOA’s annual budgeted assessment income. This requirement becomes mandatory for loan applications dated on or after January 4, 2027.
Legally and financially, this revision reflects Fannie Mae’s growing concern that many associations have historically underfunded reserves in order to maintain artificially low monthly assessments. Following structural failures and deferred maintenance concerns in several states, the agency is clearly prioritizing long-term building stability over short-term affordability.
For HOAs currently operating near the prior 10% threshold, the likely consequence is increased assessments or special assessments. Associations that fail to comply risk rendering every unit in the project ineligible for conventional financing.
For buyers and their real estate agents, reserve adequacy now becomes a central due diligence issue. A prudent purchaser should review:

• The HOA’s current annual budget
• Reserve allocation percentages
• Planned reserve increases
• Pending special assessments
• Engineering or reserve study recommendations
  
  A lack of written reserve adjustment planning may signal elevated financing risk.

2. Enhanced reserve study requirements
Current policy allows lenders to obtain a reserve study to demonstrate a project has sufficient reserves when it is not budgeting for replacement reserves that meet our Selling Guide requirements. We are updating this policy to clarify when lenders use this flexibility, they must verify the project’s budget includes the highest recommended reserve allocation amount in the reserve study to adequately cover the costs identified.
N O T E: Lenders are no longer permitted to use the baseline funding method which is the option that allows the reserve cash balance to approach but never fall below zero.
Effective: Lenders are encouraged to implement this change immediately but must do so for all loan applications dated on or after Aug. 3, 2026.

Fannie Mae Lending Letter, LL-2026-03, March 18, 2026

Fannie Mae also tightened standards regarding reserve studies. Previously, lenders could rely on baseline funding models that allowed reserve balances to approach zero so long as they never became negative. Effective August 3, 2026, that approach is no longer permissible.
Instead, lenders must verify that HOA budgets satisfy the highest recommended reserve allocation identified in the reserve study.  Note that the reserve study must have been completed within the last 36 months of the lender’s project review date. 
This change is legally significant because it transforms reserve studies from advisory documents into quasi-mandatory financial benchmarks for financing eligibility.
Reserve study companies typically provide multiple funding scenarios: baseline (bare minimum), threshold (moderate), and full funding (recommended).  Many Florida condominium associations have historically relied upon minimally funded reserve strategies (i.e. baseline) to suppress assessments. Those projects may now face substantial increases in monthly dues.
Buyers should confirm:

• The reserve study date
• Whether the study is less than 36 months old
• Which funding methodology the association follows
• Whether current budgets align with the study’s highest recommended funding level
  
  Failure to satisfy these standards may directly impair financing availability.

3. Deductible requirements
We are updating our requirements related to per unit deductibles in Deductible Requirements in Selling Guide B7-3-03, Master Property Insurance Requirements for Project Developments.
With this Lender Letter, the maximum allowable per unit deductible for all required property insurance perils covered by a master property insurance policy is $50,000 per unit.
Effective: Lenders are encouraged to implement these changes immediately but must do so for all loans with application dates on or after July 1, 2026.

Fannie Mae Lending Letter, LL-2026-03, March 18, 2026

Effective July 1, 2026, Fannie Mae imposed a maximum allowable master policy deductible of $50,000 per unit for required property insurance perils.
In high-risk insurance markets such as South Florida, this revision is particularly important. Many condominium associations increased deductibles in recent years to offset soaring insurance premiums. Under the new standards, however, excessively high deductibles may render the entire project ineligible for conventional financing.
Accordingly, buyers and Realtors® should review:

• The HOA master insurance policy
• Deductibles by peril
• Windstorm coverage
• Hurricane deductibles
• Loss assessment provisions
  
  This review process is no longer merely advisable. It is now essential to determining loan eligibility.

4. Coverage sufficiency
The master property insurance policy coverage amount must equal at least 100% of the estimated replacement cost value of the project improvements, including common elements and residential structures.
Additionally, we are retiring the requirement to insure roofs on a replacement cost basis. The master property insurance policy must provide coverage on a replacement cost basis, with the exception of roofs.
N O T E: Roofs must be insured, but do not have to be insured on a replacement cost basis 
Last, we are retiring the requirement that project developments have inflation guard coverage.

Fannie Mae Lending Letter, LL-2026-03, March 18, 2026

Effective: These changes are effective immediately.
Not all changes are bad news for the buyers.
Fannie Mae simultaneously relaxed several insurance coverage requirements by eliminating the mandate that roofs be insured on a replacement-cost basis and by retiring the inflation guard requirement.
The remainder of the project, however, must still maintain insurance coverage equal to at least 100% of estimated replacement cost value.
These revisions may reduce insurance premiums for some associations and potentially expand financing eligibility in high-premium markets.

5. Elimination of the Limited Review process
We are retiring the Limited Review process. Established projects previously eligible for Limited Review must now be reviewed using the Full Review process or, when applicable, the Waiver of Project Review process in Selling Guide B4-2.1-02, Waiver of Project Review.
N O T E: This change effectively retires the remaining geographic restrictions that apply to the state of Florida. Geographic restrictions remain in effect until the Limited Review process is retired on August 3, 2026.
Effective: Lenders may implement the retirement of Limited Review immediately but must do so for all loan applications dated on or after Aug. 3, 2026.

Fannie Mae Lending Letter, LL-2026-03, March 18, 2026

One of the most operationally significant changes is the elimination of the Limited Review process effective August 3, 2026.
Historically, many condominium transactions, especially in Florida, qualified for limited review procedures requiring lesser documentation. Under the new framework, most projects will now undergo Full Review unless they qualify for a narrow waiver category.
This substantially increases lender scrutiny of:

• HOA financial statements
• Insurance coverage
• Litigation exposure
• Reserve adequacy
• Delinquency rates
• Deferred maintenance
• Structural integrity concerns

Transaction timelines are expected to lengthen accordingly.
From a practice standpoint, Realtors® and buyers should begin gathering condominium documentation (from the HOA management company and lender) before a property goes under contract. Waiting until loan underwriting begins may significantly delay closing.

6. Retirement of investor concentration limits
We are retiring the investment property concentration limit of 50% in established projects reviewed as part of the Full Review option on investor loans.
N O T E: The presale requirement that at least 50% of the total units in the project or subject legal phase must have been conveyed or be under contract for sale to principal residence or second home purchasers still applies as described in Selling Guide B4-2.2-03,
Effective: Lenders may take advantage of this change immediately.
This change is another good news for the buyers.  Fannie Mae eliminated the longstanding rule disqualifying projects where investor ownership exceeded 50% in established projects reviewed under Full Review.
This change benefits urban condominium markets with high investor participation, including many projects in Miami, Fort Lauderdale, Palm Beaches, Tampa, Orlando, Jacksonville and other major metropolitan areas nationwide.
However, buyers should understand that lenders may still impose independent “overlay” requirements stricter than Fannie Mae’s minimum standards. Therefore, the elimination of the agency guideline does not guarantee loan approval.
Projects previously considered non-warrantable or ineligible solely because of investor concentration may now re-enter the conventional financing market, but lender-specific policies remain critical.  Therefore, shopping for lender becomes even more important.

A. What makes a condo non-warrantable or ineligible for conventional loans in 2026?
A non-warrantable or ineligible condo is a unit that does not meet Fannie Mae or Freddie Mac criteria for conventional mortgage financing.  In these cases, the Buyers need so-called portfolio loans with higher interest rates and larger down payments or they need to make the purchase in cash.  A condo is non-warrantable or ineligible when its association fails any one of the ineligibility criteria from the Fannie Mae Single Family Selling Guide dated May 6, 2026.

All of the rules identified above must be complied with, otherwise, the unit becomes non-warrantable or ineligible for conventional financing.  In addition, there are many longstanding eligibility rules, which remain fully enforceable, some of which are highlighted below:

1. Single Entity Ownership Restrictions
   Single entity ownership: A project meets the definition of single-entity ownership when a single entity (the same individual, investor group, partnership, project sponsor, or corporation) owns more than the following total number of units in the project:
   • projects with 5 to 20 units – 2 units
   • projects with 21 or more units – 20%
     
     B4-2.1-03 Fannie Mae Single Family Selling Guide, May 6, 2026
     
     A condominium project becomes ineligible when a single entity owns:
   • More than two units in projects containing 5 to 20 units, or
   • More than 20% of units in projects containing 21 or more units.
     
     This rule is especially relevant in Florida, where developers, investors, LLCs, or related ownership groups often retain substantial inventory.
     
     The policy rationale is straightforward: excessive concentration of ownership may destabilize governance and create financial risk within the association
     
     
2. Commercial Space Limitations
   The total space that is used for nonresidential or commercial purposes may not exceed 35%.
   
   B4-2.1-03 Fannie Mae Single Family Selling Guide, May 6, 2026
   
   Projects where commercial or nonresidential space exceeds 35% are also ineligible for conventional financing.
   Mixed-use developments must therefore be carefully analyzed before contract execution.
   
   
3. Critical Repairs and Deferred Maintenance
   Projects in need of critical repairs, including material deficiencies and significant deferred maintenance.” Critical repairs are defined as:
   • “material deficiencies, which if left uncorrected, have the potential to result in or contribute to critical element or system failure within one year;
   • any mold, water intrusions or potentially damaging leaks to the project’s building(s);
   • advanced physical deterioration;
   • any project that failed to pass state, county, or other jurisdictional mandatory inspections or certifications specific to structural safety, soundness, and habitability; or
   • any unfunded repairs costing more than $10,000 per unit that should be undertaken within the next 12 months (does not include repairs made by the unit owner or repairs funded through a special assessment)
     
     B4-2.1-03, Fannie Mae Single Family Selling Guide, May 6, 2026
     
     Fannie Mae continues to disqualify projects requiring critical repairs or exhibiting significant deferred maintenance.
     
     Disqualifying conditions include:
   • Structural deterioration
   • Water intrusion
   • Mold issues
   • Failed governmental inspections
   • Unfunded repairs exceeding $10,000 per unit within the next 12 months
     
     This provision is particularly important in aging Florida coastal condominium projects subject to milestone inspection requirements.
     
     
4. Litigation and Pre-Litigation Exposure
   Litigation or Pre-litigation Activity
   
   Projects in which the HOA or co-op corporation is named as a party to pending litigation, or for which the project sponsor or developer is named as a party to pending litigation that relates to the safety, structural soundness, habitability, or functional use of the project are ineligible for sale to Fannie Mae.
   
   If a lender discovers that a project is engaging in pre-litigation activities (such as, but not limited to, arbitration or mediation) that are reasonably expected to proceed to formal litigation; the lender must apply Fannie Mae’s litigation policies. Whether the legal action is resolved through arbitration, mediation, or it proceeds to litigation, there is risk that the project is exposed to material financial hardship related to the matters addressed in the complaint.
   
   If the lender determines that pending litigation involves minor matters with no impact on the safety, structural soundness, habitability, or functional use of the project, the project is eligible provided the litigation meets one or more of the following:
   
   • non-monetary litigation including, but not limited to neighbor disputes or rights of quiet enjoyment;
   • litigation for which the insurance carrier has agreed to provide the defense, and the amount is covered by the HOA’s or co-op corporation’s insurance;
   • the HOA or co-op corporation is the plaintiff in the litigation and upon investigation and analysis the lender has reasonably determined the matter is minor and will result in an insignificant impact to the financial stability of the project;
   • the reasonably anticipated or known damages and legal expenses are not expected to exceed 10% of the project’s funded reserves;
   • the HOA or co-op corporation is seeking recovery of funds for issues that have already been remediated, repaired, or replaced and there is no anticipated material adverse impact to the HOA or co-op corporation if funds are not recovered;
   • litigation concerning localized damage to a unit in the project that does not impact the overall safety, structural soundness, habitability, or functional use of the project; or
   • the HOA or co-op corporation is named as the plaintiff in a foreclosure action, or as a plaintiff in an action for past due HOA or co-op assessments.
   • Litigation that involves personal injury or death does not meet Fannie Mae’s criteria for minor litigation unless
   • the claim amount is reasonably anticipated or known,
   • the insurance carrier has agreed to provide the defense, and
   • the reasonably anticipated or known damages are covered by the HOA’s or co-op corporation’s insurance.
     
     Construction defect litigation in which the HOA or co-op corporation is the plaintiff are not considered a minor matter unless the HOA or co-op corporation is seeking recovery of funds for issues that have already been remediated, repaired, or replaced. In addition, there is no anticipated material adverse impact to the HOA or co-op if the funds are not recovered.
     
     The lender must obtain documentation to support its analysis that the litigation meets Fannie Mae’s criteria for minor litigation as described above.
     
     B4-2.1-03, Fannie Mae Single Family Selling Guide, May 6, 2026
     
     Pending litigation involving structural safety, habitability, or construction defects may also render a project ineligible.
     Importantly, Fannie Mae extends scrutiny to pre-litigation activities such as arbitration or mediation when formal litigation is reasonably anticipated.
     Although certain “minor litigation” categories remain permissible, lenders must conduct documented analyses demonstrating limited financial or structural impact.
     
     Accordingly, buyers should request:
   • Litigation disclosure statements
   • HOA attorney letters
   • Pending claim summaries
   • Insurance defense confirmations
     
     
5. HOA Delinquency Rates
   
   No more than 15% of the total units in a project are 60 days or more past due on common expense assessments (also known as HOA fees). For example, a 100–unit project may not have more than 15 units that are 60 days or more past due. This ratio is calculated by dividing the number of units with common expense assessments that are past due by 60 or more days by the total number of units in the project.
   
   B4-2.2-02, Fannie Mae Single Family Selling Guide, May 6, 2026
   
   Projects become ineligible when more than 15% of units are 60 days or more delinquent on assessments.  For example, in a 200-unit condominium project, if 32 owners are more than 60 days delinquent, the delinquency rate becomes 16%, thereby disqualifying the entire project from conventional financing eligibility.
   
   This single metric can abruptly eliminate financing eligibility for every unit in a building by Fannie Mae, Freddie Mac, and FHA, regardless of buyer qualifications including credit score and the amount of down payment.
   

Note that the denominator is total units in the project, not occupied units or units that owe dues.  Realtors® should be on alert as it can tank the deal.

B. Impact on Florida Realtors®

These changes by Fannie Mae significantly expand the due diligence burden in condominium transactions.
Realtors®, attorneys, lenders, and buyers must now treat condominium project analysis as a central component of transaction risk management rather than a secondary underwriting issue.
A prudent buyer’s due diligence package should now include:

• HOA annual budgets
• Reserve studies
• Master insurance policies
• Condo questionnaires
• Delinquency reports
• Litigation disclosures
• Investor concentration data
• Inspection and repair records 

C.  Conclusion

Fannie Mae’s 2026 condominium lending reforms fundamentally reshape the conventional financing landscape for condominium transactions.

While certain changes are good news for the buyers and may improve market accessibility particularly regarding investor concentration and insurance flexibility, the overall trend is unmistakable: heightened scrutiny of HOA financial health, structural integrity, reserve adequacy, and operational stability.

For Florida condominium markets in particular, these revisions will likely accelerate the separation between financially strong associations and vulnerable projects struggling with reserves, insurance costs, deferred maintenance, or governance issues.

For buyers, sellers, attorneys, and Realtors®, proactive due diligence is no longer optional. It is now a prerequisite to a successful condominium transaction.