Navigating condominium financing can feel like trying to hit a moving target. For Condominium Owner Associations (COAs), board members, and prospective buyers, staying on top of lending criteria set by federal regulators is crucial.

Recently, the Federal Housing Finance Agency (FHFA)—which oversees mortgage giants Fannie Mae and Freddie Mac—introduced key policy shifts that directly impact condo project eligibility, market liquidity, and board budgeting.

Below is a breakdown of what these changes mean for your community, existing owners, and future buyers.

The Big News: Retirement of the 50% Investment Concentration Limit

Historically, one of the biggest roadblocks preventing established condo projects from obtaining Fannie Mae and Freddie Mac eligibility was the 50% investment property concentration limit. Under the old rule, at least 50% of the units in a project had to be owner-occupied. If investor ownership crept above half, the entire project risked becoming “non-warrantable,” shutting out buyers who relied on conventional, lower-cost financing.

What Changed?

Effective May 18, 2026, Fannie Mae officially retired the 50% investment concentration limit for established projects.

• For Existing Owners: Projects previously disqualified due to high rental rates now have a clearer path toward FHFA and conventional loan eligibility—including Freddie Mac and Fannie Mae. Opening up conventional financing increases the pool of potential buyers, which helps protect unit values and overall liquidity.
• For Investors: Existing owners looking to acquire additional units within an established project can now do so under standard financing terms without triggering project-wide disqualification.

Note on New Construction: The old rules still apply to new developments. For brand-new projects, the presale requirement remains: at least 50% of unit sales must be to principal residence or second-home purchasers (Lender Letter LL-2026-03).

Stricter Financial & Review Standards (August 2026)

While the removal of investment caps offers relief, Fannie Mae has simultaneously tightened financial scrutiny in other critical areas:

1. Elimination of “Limited Reviews”: Initially introduced under temporary guidelines in the wake of the Surfside collapse, the limited review policies and updates regarding structural integrity, deferred maintenance, and special assessments have been eliminated. This applies only to Fannie Mae/Freddie Mac conventional lending standards, not all mortgage types across the board. Starting August 3, 2026, limited reviews for Fannie Mae/Freddie Mac are a thing of the past. Every condominium project must now undergo a Full Review, regardless of the size of the buyer’s down payment. Lenders will now consistently require:
   • A full COA budget
   • A completed condo project questionnaire
   • Proof of adequate insurance coverage
   • Verification of reserve funds
   • Details on delinquent assessment accounts and pending litigation
2. Tighter Reserve Study Rules: If a lender relies on a Reserve Study to evaluate a project’s financial stability (often necessary when a COA’s regular budget falls short of standard requirements), Fannie Mae now mandates that the board’s operating budget include the highest recommended reserve allocation specified in that study.

Looking Ahead: Reserve Requirements Hike (January 2027)

COA boards need to start planning now for upcoming changes to operating reserve floors. Note that these changes apply to conventional mortgage financing backed by Fannie Mae/applFreddie Mac (FHFA), and do not alter government-backed loan programs like FHA or VA:

• 15% Reserve Requirement: Beginning January 4, 2027, mandatory reserve allocations will increase from 10% to 15% of the COA’s operating budget.
• Action Required for Boards: Communities currently maintaining their reserve contributions at the minimum 10% floor will need to adjust their budgets—which may require raising member assessments to meet the 15% threshold. Failing to adjust could render the project non-warrantable unless it meets the strict Reserve Study criteria outlined above.

What Should COA Boards Do Next?

1. Review Your Budget Early: Examine your current reserve contributions. If you are funding at or near 10%, plan for the jump to 15% before 2027.
2. Obtain or Update Your Reserve Study: Ensure your reserve allocations align with professional recommendations to keep financing options open for buyers.
3. Prepare Your Documentation: Because all sales will now require a full review, ensure your association’s financial statements, questionnaire records, and litigation disclosures are organized and up to date.

If you have questions about how these updated FHFA guidelines impact your association, legal obligations, or financial planning, reach out to the legal team at Miller Harrison for guidance.