Fannie Mae and Freddie Mac Update Condo Lending Requirements

Fannie Mae and Freddie Mac, which finance roughly half of all U.S. home purchases, have updated their rules for condominium mortgages. The changes—effective this spring—aim to streamline some lending processes while tightening requirements in other areas, with mixed implications for HOAs and condo buyers.

Some of the new rules should ease the lending process. The GSEs eliminated a complex "limited review" option that had created inconsistent standards. They also waived full reviews for small buildings with 10 or fewer units and removed a cap on the percentage of investor-owned units in a project, which could boost demand. Additionally, Fannie Mae introduced a new Condominium Project Manager database that allows lenders to avoid redundant reviews once a project has been approved once, potentially reducing fees for HOAs and buyers.

However, one significant change has raised affordability concerns: Fannie Mae and Freddie Mac raised the minimum HOA reserve requirement from 10% to 15%—a 50% increase. HOAs may alternatively conduct a reserve study but must use the highest reserve estimate from that study. This change comes with a tight timeline for transition and could strain both existing homeowners and prospective buyers, particularly those with fixed incomes, lower incomes, or in regions already facing rising insurance and tax costs.

These rule updates follow stricter requirements implemented in 2021 after the Surfside condominium collapse in Florida, which prompted lenders to require engineering studies and financial documentation. The new changes represent an attempt to balance safety and financial stability with practical lending standards based on several years of experience.

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