Fannie Mae and Freddie Mac introduced major condominium lending updates in 2026 that affect how lenders review condo associations, reserve funds, building condition, and project eligibility.

These changes are especially important for condo buyers, condo sellers, real estate agents, and lenders in Minnesota because a buyer can qualify for a mortgage while the condo project itself may still fail to meet conventional financing requirements.

For buyers in the Twin Cities and Central Minnesota, understanding these condo financing rules early can help prevent delays, denied loans, or unexpected problems before closing.

What Changed With Fannie Mae and Freddie Mac Condo Rules in 2026?

The biggest 2026 condo financing changes include:

• Expanded review exemptions for some condo projects with up to 10 units

• Elimination of the traditional Limited Review and Streamlined Review processes

• Increased scrutiny of HOA reserve funding

• Greater importance placed on reserve studies

• A future increase in minimum reserve contributions from 10% to 15%

• Relaxed investor concentration requirements for some established condo projects

• Continued scrutiny of structural problems, deferred maintenance, and safety concerns

Some of these changes became mandatory for loan applications dated August 3, 2026 or later.

Are Small Condo Associations Easier to Finance Under the New Rules?

Potentially, yes.

Some qualifying new and established condo projects with up to 10 units may now qualify for a simplified project review exemption.

This could make conventional financing easier for buyers purchasing units in smaller condominium developments.

However, not every small condo association automatically qualifies. The lender still needs to determine whether the project meets Fannie Mae or Freddie Mac requirements.

For some projects with five to ten units, additional restrictions may apply if the development is part of a larger master association.

What Happened to the Fannie Mae Limited Condo Review?

Fannie Mae eliminated its traditional Limited Review process for many conventional condo loans.

Freddie Mac also eliminated its similar Streamlined Review option.

Previously, certain condo purchases could qualify for a lighter association review. Under the new rules, many projects will now need to either qualify for an exemption or complete a Full Project Review.

This means buyers and lenders may need to obtain and review more HOA documentation before the mortgage can be approved.

Why Are HOA Reserve Funds So Important for Condo Financing?

HOA reserve funds are becoming one of the most important parts of condo financing.

A reserve fund is money the association saves for major future repairs and replacements.

Examples include:

• Roof replacement

• Siding

• Windows

• Elevators

• Parking lots

• Plumbing systems

• Heating and mechanical systems

• Structural repairs

• Major exterior improvements

Lenders want to know that the condo association is financially prepared for future maintenance.

A condo association can have money in the bank today but still have financing problems if it is not saving enough for future repairs.

What Is the New Condo Reserve Requirement?

For many condo projects reviewed under the Full Review process, the minimum annual reserve contribution requirement is increasing from 10% to 15% of the association's annual budget.

The new 15% requirement is scheduled to become mandatory in January 2027.

For example, if a condo association collects $500,000 annually in HOA assessments:

• Under the old 10% standard, approximately $50,000 would go toward reserves.

• Under a 15% standard, approximately $75,000 would go toward reserves.

This could eventually lead some Minnesota condo associations to increase HOA dues or adjust their budgets.

What Is a Condo Reserve Study?

A reserve study evaluates the long-term financial needs of a condominium association.

It generally looks at major building components and estimates:

↳ What repairs or replacements will be needed
↳ When those repairs may be needed
↳ How much they may cost
↳ How much money the HOA should save each year

Under the updated Fannie Mae and Freddie Mac guidelines, reserve studies can play an important role in determining whether a condo project qualifies for conventional financing.

Lenders may also review whether the HOA is actually following the funding recommendations in its reserve study.

Can a Condo Have Plenty of Money in Reserves and Still Have Financing Problems?

The answer is Yes.

One common misunderstanding is that a large reserve balance automatically means the association is financially healthy.

That is not always the case.

For example, an HOA may have $500,000 in reserves, but if the reserve study shows that the association should be saving substantially more each year for future roof, siding, structural, or mechanical projects, the lender may still have concerns.

The amount currently sitting in the reserve account is only part of the picture.

Are Condos With Many Rental Units Easier to Finance Now?

In some cases, yes.

Fannie Mae and Freddie Mac relaxed certain restrictions involving investor-owned units in established condominium projects.

Historically, associations with a high percentage of rental units could create financing challenges for buyers.

The updated rules may make financing easier in some established condo communities with a large number of investor-owned or rented units.

However, new construction condo developments may still have separate owner-occupancy and presale requirements.

Can Structural Problems Make a Condo Ineligible for Financing?

Yes. Fannie Mae and Freddie Mac continue to place significant importance on the physical condition and safety of condominium buildings.

Financing may become difficult if the project has unresolved issues involving:

• Structural repairs

• Unsafe building conditions

• Water intrusion

• Failed required inspections

• Major deferred maintenance

• Engineering concerns

• Evacuation orders

• Significant unresolved special assessments
  

This is particularly important for buyers considering older condo buildings in Minneapolis, St. Paul, and other established Twin Cities communities.

A beautifully remodeled condo unit can still have financing problems if the overall building has significant unresolved issues.

What HOA Documents Should Minnesota Condo Buyers Review?

Minnesota condo buyers should carefully review the association documents provided during the purchase.

Important documents may include:

– Current HOA budget
– Reserve fund balance
– Reserve study
– Current special assessments
– Proposed special assessments
– HOA meeting minutes
– Insurance documents
– Pending litigation
– Structural or engineering reports
– Planned capital improvement projects
– Recent major repairs
– Association financial statements

These documents can help buyers understand both the financial condition and physical condition of the association.

What Should Buyers Ask Their Mortgage Lender Before Buying a Condo?

One of the most important questions a condo buyer can ask is:

“Has this condominium project been reviewed for Fannie Mae or Freddie Mac financing eligibility?”

Ideally, buyers should discuss condo project eligibility with their lender early in the transaction.

Finding out that a condo project does not qualify after paying for an inspection or appraisal can create unnecessary expense and stress.

How Do the New Condo Rules Affect Sellers?

Condo sellers should understand that the buyer is not the only one being evaluated during mortgage approval.

The condominium project may also need to meet lender requirements.

Before listing a condo for sale, sellers may want to locate current HOA documents, including:

HOA budget
Reserve information
Reserve study
Insurance documents
Recent meeting minutes
Special assessment information
Major repair information

Having these documents available early can help reduce financing delays.

Do These Changes Affect Minnesota CIC Properties?

Many condominium properties in Minnesota are considered Common Interest Communities, commonly called CIC properties.

Depending on the property and financing, buyers purchasing a Minnesota CIC may need to review association financial information, governing documents, insurance coverage, reserve funding, and maintenance issues.

Minnesota also gives buyers an important opportunity to review the association documents.

If the required CIC resale disclosure information was not provided more than 10 days before the Purchase Agreement was signed, the buyer generally has 10 days after receiving the documents to review them.

For sellers, this is especially important to understand because the buyer may have the right to cancel the Purchase Agreement during that review period if something in the association documents does not work for them.

That could include concerns about special assessments, reserve funding, upcoming repairs, HOA restrictions, insurance, litigation, or other association issues.

This CIC review period is separate from the lender's Fannie Mae or Freddie Mac project review. In other words, there can be two different reviews happening at the same time:

1. The buyer is reviewing the association documents to decide whether they are comfortable purchasing into the community.

2. The lender is reviewing the condo project to determine whether it meets financing requirements.

Both reviews are important, and both can affect whether the transaction moves forward.

What Are the Biggest Condo Financing Red Flags?

Some of the biggest warning signs for buyers include:

• Very low HOA reserves

• No reserve study

• Large upcoming special assessments

• Major repairs being delayed

• Structural or engineering concerns

• Significant water intrusion

• Large insurance deductibles

• Pending litigation

• Frequent HOA fee increases

• Association budgets that do not adequately fund reserves

None of these automatically mean that a buyer should walk away, but they deserve a closer look.

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Andover MN 55304

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