On March 18, 2026, Fannie Mae issued Lender Letter LL-2026-03 and updated its condominium lending guidelines. In addition to expanding the waiver of project review in condominiums with 10 or fewer units and retiring the limited review process on August 3, 2026, Fannie Mae’s 2026 condominium lending updates may significantly impact how condominium associations budget for reserves, maintain insurance, and handle investors. A condominium association’s reserve funding, reserve study, insurance coverage, special assessments, litigation, and repair history can affect whether buyers can obtain conventional financing. If a condominium lands on the Fannie Mae “Do Not Lend List”, also known as the Fannie Mae blacklist, sales may become more difficult, buyers may have fewer loan options, and property values may be negatively affected.
This article explains the most important changes in Fannie Mae’s 2026 condominium guidelines, including reserve funding requirements, the retirement of investor concentration limits in established condominiums, and insurance deductible limits. Some changes to the Fannie Mae condominium lending guidelines are effective immediately, while others phase in on July 1, 2026, August 3, 2026, and January 4, 2027.
Reserve Funding
Effective Date: January 4, 2027
One of the most significant changes to the 2026 Fannie Mae condominium lending guidelines was increasing the amount held in the reserve fund from 10% of the association’s annual budget to 15% of the annual budgeted income from assessments. While this requirement does not go into effect until January 4, 2027, it will likely require many condominium associations to increase assessments to make the required reserve fund contributions and maintain lending eligibility under Fannie Mae guidelines.
Reserve Studies
Effective Date: August 3, 2026 (Lenders May Implement Sooner, though)
Alternatively, a condominium is still eligible for lending even if it does not satisfy the 15% reserve funding requirement, provided it demonstrates that it has a reserve study and that the annual budget reflects the “highest recommended reserve allocation” identified in the reserve study. In the past, many reserve studies contained different levels of recommended reserve funding, the most common of which were as follows:
- Full Funding: Full funding is a reserve funding projection that is based on the idea that the reserve balance should always be close to 100% funded, with minor variations from year to year.
- Threshold Funding: Threshold funding is a reserve funding goal used to keep the reserve balance above a specified dollar or percent funded amount. While it is possible that threshold funding could exceed full funding, if an association were conservative and wanted to fund to 110% of recommended levels to be conservative, many community associations will fund to a level that is less than 100% if they believe that full funding will create an immediate financial hardship on community association members.
- Baseline Funding: Baseline funding is when a condominium association establishes a reserve funding goal of allowing the reserve cash balance to approach, but never fall below zero, in the cash flow projection. However, baseline funding is the riskiest option, and the 2026 Fannie Mae lending guidelines no longer permit its use.
Accordingly, based on the new lending requirements, a condominium association must demonstrate that it has funded to the highest recommended level to remain eligible for lending if it does not satisfy the 15% requirement. As a practical matter, funding for a reserve study recommendation is often the safest way to avoid special assessments and underfund future projects, which may also make a condominium unwarrantable, as the 15% funding requirement is often arbitrary and less accurate. For a more detailed explanation of reserve study standards, the Community Associations Institute (CAI) has published an Explanation of CAI’s Reserve Study Standards.
Investor Concentration
Effective Date: March 18, 2026
In Lender Letter LL-2026-03, Fannie Mae retired the 50% investor concentration limit for established condominiums subject to full review. However, individual lenders are free to maintain or establish their own underwriting requirements regarding investor concentration. It is also important to note that this does not apply to new construction condominiums, and the 50% presale requirement of total units or in a legal phase remains in effect. Similarly, the existing limits on single investors owning too many units remain in place. In condominiums with 5–20 units, no owner may own more than 2 units. For condominiums with 21+ units, the limit is 20% of the units that a single investor can own.
Insurance
Effective Date: July 1, 2026 (Lenders May Implement Sooner, though)
Fannie Mae’s 2026 lending guideline updates also change several insurance requirements that will impact condominium associations. For master property insurance policies, Fannie Mae now requires the coverage amount to equal at least 100% of the estimated replacement cost value of the project improvements, including common elements and residential structures. A lender or servicer may rely on guaranteed replacement cost coverage, extended replacement cost coverage, a replacement cost estimate from the insurer, an insurance risk appraisal, or a statement from an insurer or other qualified professional to confirm that the coverage amount is sufficient.
Fannie Mae also revised its loss settlement rules for master property insurance policies. The master policy must generally provide coverage on a replacement cost basis. However, roofs must be insured, but they do not have to be insured on a replacement cost basis. Fannie Mae also retired the prior requirement that project developments maintain inflation guard coverage, even though this may still be advisable from a practical perspective.
The most important change for many condominium associations is the new deductible limit. The maximum allowable property insurance deductible is now $50,000 per unit, providing condominium associations with additional flexibility in obtaining insurance in a difficult market.
Key Takeaways from the 2026 Fannie Mae Condo Lending Guideline Updates
Fannie Mae’s 2026 condominium lending guideline updates are a reminder that a condominium association’s budget, reserve funding, and insurance coverage can impact marketability. Condominium associations should be proactive in complying with the updated lending guidelines, rather than waiting until a sale is delayed or a lender raises concerns. Accordingly, condominium associations should consider the following:
- Reserve Funding. Condominium associations should obtain reserve studies and budget for the maximum recommended reserve fund contribution. Alternatively, condominium associations can budget 15% of their annual budget for reserves to comply with Fannie Mae lending guidelines, but should be aware that this could create shortfalls in the future.
- Investor Concentration. The rollback on the 50% investor concentration makes it easier to satisfy the Fannie Mae condo lending guidelines. However, from a practical perspective, many condominium associations will keep rental restrictions and investor restrictions in place to preserve the residential nature of their condominium. Similarly, the investor rules related to new construction condominiums and having a single investor own too many units remain in place.
- Insurance Requirements. The master property insurance must cover at least 100% of the estimated replacement cost value of the project improvements, including common elements and residential structures. Fannie Mae also revised its loss settlement rules, removed the prior inflation guard requirement, and capped the maximum allowable property insurance deductible at $50,000 per unit. This may give condominium associations more flexibility in a difficult insurance market, but boards should still work with their insurance professionals to confirm that coverage remains adequate.
Condominium associations that want to determine whether their project is currently eligible for Fannie Mae financing can review the Fannie Mae Condo Status Finder. However, boards should not wait until a buyer’s loan is delayed before addressing reserve funding, insurance, or investor concentration issues. Condominium associations should also be aware of other common reasons that can make them ineligible for lending, including special assessments, failure to make critical repairs, and certain types of litigation. While some of the 2026 changes may make certain condominium projects easier to finance, other projects may face lending challenges if they fail to plan for the new requirements before the applicable deadlines.
