Fannie Mae & Freddie Mac Condominium Project Eligibility: Changes to Standards & How it Impacts You

Fannie Mae & Freddie Mac Condominium Project Eligibility:

Changes to Standards & How it Impacts You

On March 18, 2026, Fannie Mae and Freddie Mac announced updates to its condominium project eligibility standards, some of which are taking effect immediately while others will not be effective until later this year or early 2027. If you manage or lead a condominium (or own a condominium unit) anywhere in the United States of America, these changed standards are likely to have a substantial impact  whether units are marketable and eligible for loans backed by Fannie Mae and Freddie Mac.

Wait, let’s first answer the question – What are Fannie Mae and Freddie Mac? These are government-sponsored entities created by Congress to support the country’s housing market, which they do by operating in the secondary mortgage market to purchase existing mortgages from banks and lenders. Purchasing mortgages allows those banks and lenders to have more capital to issue new loans for more borrowers. The critical piece though is that Fannie and Freddie then bundle up the mortgages they purchase and trade them to investors as a government-guaranteed security (similar in some respects to a Treasury note) – investors should receive the benefit of the government’s backing of the mortgage securities if borrowers default on the mortgage. The money investors give to Fannie and Freddie are then used by them to go back and purchase more new mortgages – and the cycle continues.

Given that mortgages are inherently risky – the risk being that a borrower is not able to fulfill the terms of their mortgage – Fannie and Freddie have stablished certain standards that lenders must be able to satisfy in order for a mortgage to be purchased by Fannie and Freddie.. Enter the condominium.

Condominiums are a unique housing model that truly illustrates the importance of community – condominiums succeed and fail based on the unit owners’ collective efforts to govern and operate the community. In light of this specific housing market and the risks attendant in a housing model that requires so much cooperation among a group of individual owners, Fannie and Freddie have developed separate standards that much be met in order for a loan involving a condominium unit to be eligible for purchase by Fannie and Freddie. These are the standards which are now changing, specifically associated with their requirements for reserve funding and insurance.  However, keep in mind that these new Fannie and Freddie standards are not mandatory legal requirements being imposed on condominium associations; instead, associations are only obligated to comply with their own governing documents and state law.  Even so, we strongly encourage boards to consider the feasibility of meeting these standards as soon as possible given that it can benefit the marketability of units by preserving or increasing the pool of potential buyers.  Let’s dive in…

Reserves. In order to be eligible for Fannie and Freddie purchase, lenders will need to verify that the unit is part of a condominium that is operating consistently with certain reserve funding standards. Management agents and homeowner leaders will soon be asked to answer questionnaires and demonstrate that a condominium is reserving for capital components in accordance with the following standards:

• Formally effective August 3, 2026 but can be implemented immediately by lenders – With respect to reserve studies and funding, Associations will need to be able to verify that their budgets reflect the “highest recommended reserve allocation” as specified in the reserve study. Note, following the baseline funding method described in a reserve study will not be accepted.
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• Effective January 4, 2027 – Associations must contribute a minimum of 15% of the annual budgeted assessment to reserves for capital expenditures and deferred maintenance. This is up from the current requirement of 10% funding.

Insurance. Fannie and Freddie are implementing significant changes to master insurance policy requirements in their standards. Moving forward, condominiums will be considered Fannie and Freddie eligible if their master insurance policies show the following:

• Effective Immediately – Associations must have master insurance policies which provide coverage for at least 100% of the replacement cost value of the building. Proof that the association has (i) insurance coverage for roofs at actual replacement cost and (ii) inflation guard is no longer required.
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• Effective July 1, 2026 – Associations may not carry a policy which provides for a per unit deductible that exceeds $50,000 per unit.
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• Effective Immediately – Small condos (4 or fewer units) must have master insurance policies which provide coverage on a replacement cost basis, roofs excepted.

Note, the Fannie Mae and Freddie Mac standards necessitate, for the first time, that lenders require all borrowers (i.e., purchasing unit owners) to obtain their own individual property insurance policies (i.e., HO-6 policy). The standards detail further the coverage and deductible requirements and limits for unit owner insurance policies. While lenders can require that borrowers obtain individual unit owner insurance policies, these new standards do not authorize associations to mandate such coverage – associations still must rely on their recorded condominium instruments and applicable state law for such authority.

So, how should we react as managers and leaders of a condominium? Consider whether it feasible and desirable for your association to comply with these new standards and, if so, whether you can achieve compliance this year or gradually over a couple of years.  Steps to consider taking include the following:

• When evaluating budgets that carry into 2027, ensure that the Board is budgeting for reserve contributions in an amount that is at least 15% of the total assessment budget.
• Review your reserve studies and current reserve budgeting formula to ensure the Board is not funding reserves based on the baseline funding method (where the reserve cash balance approaches but never falls below zero).
• Confer with insurance professionals to ensure that the master insurance policies in place with your condominium satisfy the minimum standards to comply with the new Fannie and Freddie requirements. Consider consulting with insurance brokers holding a Community Insurance & Risk Management Specialist (CIRMS®) designation. You can find a local CIRMS professional using Community Associations Institute’s Directory of Credentialed Professionals (https://www.caionline.org/directory-of-credentialed-professionals/).
• If your condominium instruments or state law do not require unit owners to have their own insurance or to have insurance of sufficient types to cover the deductible associated with the master insurance policy, consult with legal counsel on the pros and cons of amending your condominium instruments.
• Consider looking up to make sure that your condominium is listed as eligible or ineligible with Fannie Mae (https://condostatus.fanniemae.com/) and HUD (https://entp.hud.gov/idapp/html/condlook.cfm).

In the current housing market, with house prices and mortgage rates as high as they are, it is critical that owners be able to obtain loans to finance their purchases. In evaluating whether to lend money for a condominium purchase, lenders will carefully comply with the lending standards established by Fannie Mae, Freddie Mac, and HUD. To continue to have a large pool of potential buyers for condominium units, it is critical that managers and homeowner leaders take reasonable steps to try to avoid having a condominium declared ineligible for failing to attain standards which are within board control. Given the changing standards outlined here and the upcoming spring housing sale season, now is  a great time to be proactive on these matters.