New Rules Just Made It Harder to Get a Mortgage on a Condo - Here's Why

Owning a home is one of the signs of financial success, but purchasing a condo may become more difficult because of lending changes that went into effect. On August 3, Fannie Mae and Freddie Mac, companies that purchase mortgages from lenders and create mortgage-backed securities, implemented new lending policies that could lead to increased scrutiny before a loan is approved.

The changes are designed to help identify potential issues with the condo buildings and help reduce risk for the owners, but industry experts have voiced concern about the changes. It's important news for anyone considering buying, selling, or refinancing a condo to follow.

Why changes are being implemented

The 2021 condominium collapse in Surfside, Florida killed 98 people and led to changes in Florida condominium laws. In turn, HOA fees skyrocketed.

These new mortgage rules are designed to help make condos safer. Fannie Mae and Freddie Mac have also already implemented additional condo underwriting requirements and generally won't purchase mortgages secured by units in projects with significant deferred maintenance, critical repairs, or other disqualifying conditions.

How the changes could affect condo financing

As Fannie Mae and Freddie Mac implement new, stricter standards for condo financing, the process could take more time for some borrowers, and some projects may face additional eligibility hurdles.

Joel Berner, senior economist at Realtor.com, noted that the stricter standards may increase the denial rate. For loans that now require a more comprehensive project review, additional scrutiny could reveal issues that affect a project's eligibility for financing.

Condo buyers may need to be prepared for a longer and more difficult process because of the numerous changes taking effect.

Elimination of the limited review shortcut

Previously, up to 40% of loans underwent a limited condo review, which was a faster but less thorough process. As of August 3, limited reviews are eliminated, except for projects that qualify for a waiver.

For loans that previously qualified for Streamlined Review, lenders may now need to use Freddie Mac's more comprehensive Established Condominium Project review, unless the project qualifies for another review pathway or an exemption.

Higher reserve requirements

The changes also impact the amount that condo associations are required to save and spend on maintenance. The minimum share of annual budgeted assessment income allocated toward replacement reserves will rise from 10% to 15% beginning Jan. 4, 2027, though qualifying reserve studies can provide an alternative method of demonstrating adequate reserves.

What "warrantable" now means

For many conventional mortgages that lenders intend to sell to Fannie Mae or Freddie Mac, the condo project must meet applicable project eligibility requirements. These requirements are generally evaluated at the project level, meaning issues with a condo association's finances, insurance, building condition, or other factors can affect financing eligibility for units throughout the project. However, eligibility can vary depending on the loan and available review or approval pathway.

Projects must meet applicable requirements for reserves, insurance, presale thresholds, and other factors. If a project doesn't meet the requirements for a particular review pathway, buyers may need to pursue another eligible review or approval option. If the project ultimately doesn't qualify for Fannie Mae or Freddie Mac financing, buyers may have fewer conventional financing options and may need to consider other lenders or loan programs.

What to ask an HOA before making an offer on a condo

Before you make an offer on a condo, ask to see the HOA's reserve study, budget, and insurance certificate. Request these materials as early as possible. If the HOA doesn't submit the materials during the deal, or if they're not acceptable, it may cause your mortgage application to be denied. These items may also affect a building's warrantability. If a project later becomes ineligible for certain conventional financing, some prospective buyers may have fewer financing options, which could make the unit more difficult to sell.

Look into condo insurance, too. Your insurance policy should cover the gap between what the building's policy pays out and what any necessary repairs might actually cost you. Consider getting estimates ahead of time to ensure that you can cover your mortgage, your HOA fees, and your condo insurance.

Be ready for the unexpected. HOA fees and insurance costs may increase, so leave some wiggle room in your budget to absorb those increases. Given the changes to condo mortgage requirements, be prepared for the approval process to take longer, too.

Bottom line

The 2026 changes aren't all bad news for condo buyers. They include more flexibility for roof insurance, which may save buildings money and result in lower HOA fees. They also include clearer per-unit deductible rules, which may give condo associations more flexibility in meeting insurance requirements. But the rules may also create some extra challenges in the mortgage application process that condo buyers should be aware of.

Buying a condo is a big decision, but taking the time to plan ahead and ensure you're prepared may increase your chances of a successful purchase. If you're ready to start investing in real estate and buy a home of your own, then buying your first condo or home may be an exciting and rewarding process.

This article is for informational purposes only and should not be considered investment advice.

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