Starting Aug. 3, new underwriting rules from Fannie Mae and Freddie Mac will make lenders scrutinize condominium projects more closely — not just individual buyers. The changes aim to surface buildings with financial or maintenance risks, but they also raise the prospect of slower mortgage approvals and, in some cases, loan denials for condo buyers.
Fannie Mae and Freddie Mac buy mortgages from banks and other lenders and package them for investors; to sell loans to those agencies, mortgages must meet their standards. The recent updates tighten how condominium associations are evaluated before a lender can sell a mortgage to the government-sponsored enterprises.
What the new reviews mean
One of the biggest shifts, effective Aug. 3, is the end of the streamlined “limited review” for many condo projects. In its place, most transactions will require a full review of an association’s finances, reserves, insurance and building condition — unless the project qualifies for a narrow waiver.
The agencies say the steps are designed to reduce the risk of unexpected special assessments or sharply higher dues for owners by flagging projects with deferred maintenance or weak reserve funding.
- More documentation: Lenders will request detailed association budgets, reserve studies and maintenance records.
- Longer timelines: Loans that once cleared under limited review may now need a manual, time-consuming full review.
- Potential denials: If a project fails the full review, lenders selling loans to Fannie or Freddie may be unable to approve the mortgage.
- Higher reserves soon: Beginning Jan. 4, associations seeking Fannie/Freddie-eligible financing generally must hold at least 15% of their annual budget in reserves (up from 10%).
Why regulators tightened the rules
The policy shift traces back to the 2021 collapse of the Champlain Towers South condominium in Surfside, Florida, which killed 98 people and exposed long-standing maintenance and design problems. Investigations found construction flaws and decades of deterioration; local and state governments have since pushed for stricter inspections and funding requirements for older buildings.
Nationally, Fannie and Freddie broadened underwriting restrictions after the disaster to exclude projects with significant deferred maintenance or certain special assessments. What began as temporary limits has been solidified into longer-term policy changes this year.
How this could affect buyers and sellers
Industry groups warn the changes will slow closings. Dawn Bauman, CEO of the Community Associations Institute, says about 40% of condo mortgages that previously used limited review might now need full reviews — increasing the need for “manual human engagement” from lenders, associations and closing teams.
Some mortgage professionals foresee a rise in mortgage denials tied to association shortcomings rather than buyer credit or income. Max Slyusarchuk, CEO of AD Mortgage, told regulators the new expectations could disqualify applications and urged a delay to ease the transition.
That said, a failed full review doesn’t always end a sale. Some lenders may retain the loan in their own portfolios rather than sell it to Fannie or Freddie, though that often comes with trade-offs such as higher rates or larger down payments. Cash buyers could gain an edge because they can close without waiting on the extra reviews.
Practical numbers and context
Condos remain an affordable option for many buyers: the National Association of Realtors reported a median condo or co-op price of around $380,000 in June, below the median for single-family homes. The U.S. also has millions of condominium units, making these policy shifts relevant to a large segment of the housing market.
Fannie Mae has framed the reserve increase as a consumer-protection step — projects with thin reserves can struggle to cover major repairs or unexpected operating costs, potentially exposing owners to assessments that could push some toward mortgage default.
What buyers should ask now
Buyers considering a condo should ask sellers and association boards for recent
- reserve studies and current reserve balances,
- the association’s annual budget and recent audits, and
- details on ongoing or planned major repairs and special assessments.
For lenders and boards, the near-term scramble will be to gather paperwork and understand the new thresholds. Once a condo project passes a full review and is entered into Fannie’s or Freddie’s systems, subsequent loans tied to the same project typically won’t require the same full assessment — reducing repeated delays for future buyers.
Ultimately, the rules aim to make condo ownership less risky over time, but they also add new hurdles for buyers and associations to clear in the months ahead.
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Jordan Keller specializes in analyzing the US financial markets. With concrete recommendations, he helps you secure and boost your investments by providing strategies that adapt to market fluctuations.