New Condo Lending Rules Are Here, Here's What to Know

Do you own a condo? Are you on a condo association board? Are you thinking about buying or selling a condo? If so, some important changes are coming to how condos get financed.

On March 18, 2026, Fannie Mae released new rules called Lender Letter LL-2026-03. These rules change how condo buildings get reviewed and how they must be insured. Freddie Mac and the Federal Housing Finance Agency helped shape these rules too. That means the changes will affect most conventional home loans, not just loans backed by Fannie Mae.

Some of these changes make things easier. Others make the rules stricter. Here is what is changing, when it starts, and what it means for you.

One quick note before we dive in: these rules apply to condo associations, the boards that manage buildings where owners hold a unit plus a share of the common areas. They do not apply to HOAs that manage single-family homes or townhomes, since those owners hold title to the land itself. If you live in a townhome or single-family community with an HOA, these specific changes will not affect your financing.

The Big Picture

Over the past few years, lenders have paid closer attention to how well-funded condo associations are. When an association does not save enough money for repairs, problems can pile up. Buildings fall into disrepair. Owners get hit with surprise bills called special assessments. In some cases, this even leads to loan defaults.

Fannie Mae's new rules try to fix this. At the same time, Fannie Mae is also cutting some paperwork that lenders and insurers said was too hard to follow. So this update does two things at once. It makes some parts of the process faster, and it makes other parts stricter.

What Is Changing for Condo Project Reviews

Small buildings get an easier path. Fannie Mae now lets more small condo buildings skip a full review. Buildings with 10 or fewer units can qualify. Buildings with 5 to 10 units qualify too, as long as they are not part of a larger group of buildings. This change started right away. It could help small condo buildings close faster.

Florida buildings skip an extra step. New condo buildings in Florida no longer need a special extra review called PERS. They can now go through the same standard review as condo buildings in other states. This should save time for Florida condo buyers.

The investor cap is gone. In the past, a condo building could not have more than 50% of its units owned by investors, or it would not qualify for a full review. That rule is gone now. A separate rule still applies to brand-new buildings though. At least half of the units must be sold or under contract to people who will live in them, not investors.

The "Limited Review" option is going away. This is the change most likely to slow things down. In the past, some condo buildings could use a quicker review called a Limited Review. That option is being removed. Starting August 3, 2026, every loan application must use either the full review or the new small-building waiver. This means more paperwork and a longer wait for buildings that used to get the faster review.

Reserve fund rules are getting tougher. This matters a lot for condo association boards. First, associations can no longer use a method that lets their savings drop close to zero before building back up. Second, and this is the big one, associations must now save at least 15% of their yearly dues for repairs and upkeep. The old minimum was 10%. This new rule kicks in for loans dated on or after January 4, 2027.

What Is Changing for Property Insurance

This is the part where Fannie Mae is actually making things easier.

• Homes with one to four units no longer need to prove the exact rebuild cost of the home to show they have enough insurance. Roofs still need insurance, but they no longer have to be insured at full rebuild cost. Some cheaper insurance types are now allowed for things like personal belongings.
• Condo buildings' master insurance policies get similar relief. The paperwork needed to prove enough coverage is simpler now. Roofs do not need full rebuild-cost coverage anymore. A rule requiring extra "inflation guard" coverage has also been dropped. There is a new cap on deductibles too. The most a master policy's deductible can be is $50,000 per unit. This starts for loans dated on or after July 1, 2026.
• Individual unit owners have new, clearer rules for when they need their own insurance policy and how much coverage they need. The most a unit owner's deductible can be is either 5% of their coverage amount or $2,500, whichever is higher.
• Loan servicers now have to remind borrowers once a year to keep up their insurance. There are also new rules for when a servicer must step in and buy insurance for a borrower whose coverage has lapsed. Servicers have until January 1, 2027 to fully follow these new rules.

What This Means If You Are Buying

If you are shopping for a condo, ask your agent or lender whether the building used to qualify for a Limited Review. If it did, your closing could take longer now, since the building will need a full review instead. It also helps to ask the condo association for its latest reserve study and budget. If the building is not saving enough money under the new 15% rule, dues could go up or owners could face a surprise bill. That cost could land on you once you own the unit.

What This Means If You Are Selling or On a Condo Association Board

If you are selling in a small building with 10 units or fewer, you might actually have an easier time now, thanks to the expanded waiver. But if your building used to rely on the Limited Review or on weaker reserve funding, it is time to get ready. Look at your reserve study now. Make sure your budget matches the highest recommended savings amount. Start planning for the 15% rule well before it becomes required in January 2027.

A board that gets ahead of this will make it easier for buyers in the building to get loans down the road. A board that waits could see buyers get denied or delayed, and that can hurt home values across the whole building.

The Bottom Line

Fannie Mae wants healthy, well-insured condo buildings to have an easier time getting financed. Buildings that are underfunded or under-insured will face more questions from lenders. Some of the easier insurance rules already started. The bigger changes, like the end of Limited Review and the higher reserve requirement, arrive on August 3, 2026 and January 4, 2027. Buyers, sellers, and condo association boards all have time right now to get ready.

If you own a condo, or you are thinking about buying one, and you want help figuring out where a building stands, reach out. We can walk through what to look for in a condo association's finances and insurance before you make a move.

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Sources: Fannie Mae Lender Letter LL-2026-03, "Updates to Project Standards & Property Insurance Requirements," March 18, 2026; , "New condo lending rules could mean longer closings and more mortgage denials," via Realtor.com, August 12, 2026.