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, it's likely that the process may take more time and more applications may be disqualified.

Joel Berner, senior economist at Realtor.com, noted that the stricter standards may increase the denial rate. Since the new standards require a full review, it's likely that more issues may be revealed, leading to more denials.

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.

Condos are now required to undergo a full review. In a full review, the condo association's finances, reserves, and insurance coverage are all evaluated in addition to the building's condition. More paperwork may be required for a full review; for example, a condo association may have to provide the entire project's budget as part of the process.

Higher reserve requirements

The changes also impact the amount that condo associations are required to save and spend on maintenance. Previously, associations were required to save at least 10% of their annual assessment income to cover future maintenance and repairs. That figure has been bumped up to 15%, effective January 4, 2027.

To fulfill that requirement, some condo associations charged condo owners higher dues. The Wall Street Journal reported that HOA foreclosures jumped nearly 40% in two years, possibly because of the higher fees.

What "warrantable" now means

For a condo to be eligible for purchase with a conventional loan, the project must be deemed warrantable. As Fannie Mae and Freddie Mac have increased requirements for condo mortgages, they've increased the chances of all of a project's units not being warrantable. Warrantability is granted at the project level, not the level of the individual condo. If a project is determined non-warrantable, then all of the units are also non-warrantable.

Projects must now meet stricter requirements when it comes to reserves, insurance, presale thresholds, and more. If a project fails one single element, the buyers and owners of all of the condos may also lose access to conventional loans. If a building is non-warrantable, then buyers may not be able to use conventional mortgages, so the pool of buyers shrinks to those who have cash or who are using specialty lenders.

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 building loses warrantability once you've purchased a condo, your options for selling the condo dramatically decrease, so be sure you're buying in a building with thorough, well-thought-out financial documents and plans.

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, so you may be able to choose the insurance policy that best meets your needs. 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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