Fannie Mae and Freddie Mac Condo Approval Changes: What San Luis Obispo Realtors Need to Know

Beginning with affected applications dated on or after August 3, 2026, Fannie Mae is retiring its Limited Review process, and Freddie Mac is retiring its Streamlined Review process.

A condominium project review is the lender's evaluation of the condominium development, homeowners association, finances, insurance, ownership structure, property condition, and other project-level requirements.

Under the previous system, certain established condominium projects and transactions could qualify through an abbreviated review that evaluated fewer project characteristics.

After the change:

• Fannie Mae loans will generally require a Full Review unless the transaction qualifies for a Waiver of Project Review or another applicable review method.
• Freddie Mac loans will generally require an Established Condominium Projects review, Reciprocal Review, Project Certified status, or eligibility under its Exempt from Review provisions.
• Lenders may implement the updated requirements before August 3, 2026.

A Full Review evaluates a broader set of project characteristics than the former Limited Review.

A Waiver of Project Review is a Fannie Mae provision that allows an eligible transaction to proceed without the standard project review, although specified general eligibility, property-condition, insurance, and other requirements may still apply.

Exempt from Review is a Freddie Mac classification for eligible transactions that are not required to complete the standard project review but remain subject to applicable general project and mortgage requirements.

A more complete review can require additional information from the homeowners association or management company. It can also identify issues that might not have been evaluated through the previous abbreviated process.

This does not mean every condo will become difficult to finance. It means the project, not only the borrower, should be examined earlier and more carefully.

Many associations rely on a reserve study to estimate the timing and cost of repairing or replacing major common components, such as roofs, siding, paving, plumbing, elevators, balconies, walkways, mechanical systems, and common-area improvements.

A reserve study is a professional analysis of the condition, remaining useful life, anticipated replacement cost, and recommended funding for major association-maintained components.

Beginning with affected applications dated on or after August 3, 2026, when a lender relies on a reserve study to establish that the association has adequate reserves:

• The association's budget must include the highest recommended reserve contribution shown in the reserve study.
• The lender may no longer rely on a baseline funding method that allows the reserve balance to approach zero without falling below zero.

Baseline funding is a reserve-study method designed to keep the reserve cash balance at or slightly above zero during the study period. Fannie Mae and Freddie Mac will no longer permit baseline funding when the reserve study is being used for the applicable alternative reserve analysis.

This could create a problem for an HOA that has a professional reserve study but has chosen to fund reserves below the study's highest recommendation. The existence of a reserve study alone will not necessarily establish project eligibility. The HOA's actual budget and funding plan must also support the applicable requirements.

A separate reserve-related change takes effect for affected applications dated on or after January 4, 2027.

For projects subject to the applicable full project review, Fannie Mae and Freddie Mac are increasing the standard minimum allocation for capital expenditures and deferred maintenance from 10% to 15% of annual budgeted assessment income.

Replacement reserves are funds the homeowners association sets aside for major repairs, replacements, and deferred maintenance rather than ordinary operating expenses.

An association that contributes less than 15% may need to:

• Increase its reserve allocation.
• Reduce operating expenses.
• Increase HOA dues.
• Adopt a qualifying reserve-study funding plan.
• Provide additional documentation.
• Seek an available lender or project-level exception when permitted.

A project contributing less than 15% is not necessarily automatically ineligible. The full analysis depends on the applicable review method, reserve study, budget, lender, project characteristics, and any available exception.

However, realtors should understand that an HOA budget that supported conventional financing in the past may not automatically satisfy the new standard.

Not every change is more restrictive.

Fannie Mae and Freddie Mac expanded certain review-waiver or Exempt from Review opportunities to include qualifying attached condominium projects containing up to 10 units.

Additional restrictions apply, particularly for projects with five to 10 units and projects involving a master association. Property condition, insurance, transaction type, ownership structure, and other general project eligibility requirements may still apply.

Fannie Mae also retired its investor-concentration limit for applicable established projects reviewed under Full Review. Freddie Mac retired its 50% owner-occupancy requirement for investment-property loans in established condominium projects.

Presale and owner-occupancy requirements continue to apply to applicable new condominium projects.

These changes may provide more flexibility for certain smaller or investor-heavy established projects.

A realtor should not assume that a small condo project is automatically exempt. The loan purpose, project size, unit attachment, master-association structure, insurance, property condition, and other requirements still matter.

A conventional condo review can extend far beyond the individual unit and appraisal. Depending on the project, review method, and transaction, the lender may need to evaluate:

A condo listing may appear completely marketable based on its price, condition, location, and comparable sales. However, if the HOA documents or project characteristics do not satisfy current lending requirements, the practical buyer pool may be reduced.

A project-level issue can lead to:

A mortgage preapproval primarily evaluates the borrower. It does not automatically approve every condominium project the borrower may select.

A buyer might be approved for the requested purchase price but find that conventional financing is not available for a particular project because of:

The new condo requirements should not discourage agents from working with condo buyers or sellers. They should change the timing of the financing review.

For listing agents, project review should begin while preparing the listing rather than after accepting an offer.

For buyer agents, project pre-vetting should begin when the buyer identifies a serious property rather than after the appraisal has been ordered.

For buyers, the condo project should be evaluated alongside income, assets, credit, down payment, and monthly payment.

For sellers and HOAs, maintaining organized documents, appropriate insurance, adequate reserves, and a realistic capital plan will become increasingly important to preserving access to conventional financing.