Condo buyers lose a mortgage shortcut as Fannie, Freddie rules start
Starting with loan applications dated August 3, most condo buildings need a full project review before Fannie Mae or Freddie Mac will buy the loan. A higher reserve floor for associations follows in January.
By American Policy WireFiled
The bottom line A condo buyer's loan now depends more on the building's paperwork and reserves, which can add time and cost and may knock some buildings out of Fannie and Freddie financing.
A condo buyer whose mortgage application was received on Sunday could still qualify under the old, lighter building review. One received on Monday, August 3, could not: Fannie Mae and Freddie Mac retired their limited and streamlined condo project reviews for applications from that day on [1, 2].
Why it matters: The project review decides whether loans in a building can be sold to the two companies [1, 2]. About 40% of condo purchases with a mortgage have used the limited review, according to Dawn Bauman, chief executive of the Community Associations Institute [2]. Those deals now need a full look at the association’s budget, reserves and upkeep, unless the project qualifies for a waiver [2].
How we got here: Both companies announced the change on March 18, with Freddie Mac saying it acted “in consultation with FHFA and in alignment with Fannie Mae” [1]. Freddie tied the move to what it found after tightening repair rules in 2023: a correlation between buildings with underfunded reserves and those needing critical repairs [1]. Rules were first tightened after the 2021 Champlain Towers South collapse in Surfside, Fla., which killed 98 people [2]. FHFA, led by Director Bill Pulte, oversees both companies [4], whose second-quarter results we covered on Monday.
By the numbers
- August 3, 2026: Freddie’s Streamlined Review ends, and budgets must carry the highest reserve amount a reserve study recommends [1].
- 15%: The new minimum reserve allocation, up from 10% of annual assessment income, for applications received on or after January 4, 2027 [1].
- 2 to 10 units: Freddie’s expanded “Exempt from Review” range for new and established projects [1].
- More than $1,000: The added cost some borrowers could face for a full review, according to a July 8 letter from three industry groups [3].
- $380,000: The June median condo or co-op price reported by the National Association of Realtors, against $446,400 for a single-family home [2].
What changed besides the review? Some rules eased. Freddie dropped its requirement that half the units in an established project be owner-occupied when the loan is for an investment property [1]. In Florida, new projects with attached units no longer need an “Approved by Fannie Mae” status in Fannie’s Condo Project Manager to be reviewed for Freddie [1].
The reserve study rule tightened. A building’s budget must include the highest recommended allocation, and that amount can’t come from a baseline funding method in which the reserve balance “approaches but never falls below zero” [1].
What it means for buyers and owners:
- Closings may take longer. Max Slyusarchuk, chief executive of AD Mortgage, told CNBC the change “will make the [application] process take much longer” [2].
- Some buildings may drop out. Bauman said some that passed a limited review will fail a full one, adding: “But it won’t mean the building is unsafe or structurally compromised” [2].
- One review can cover many sales. Once a full review is done, the project shows as approved in Fannie and Freddie systems, and “It is not needed for every loan,” a Mortgage Bankers Association spokesperson told CNBC [2].
- Old reviews aren’t a free pass. Lenders holding an unexpired review must still confirm a project meets the new requirements for applications received after each effective date [1].
Mortgage rates: Freddie Mac’s survey put the 30-year fixed at 6.66% and the 15-year at 6.04% on July 30 [5]. The Fed held its target range at 3.50% to 3.75% the day before [6].
What’s next: The 15% reserve floor arrives in five months, on January 4, 2027 [1]. Kimber White, president of the National Association of Mortgage Brokers, has warned that the January deadline “will force many boards to choose between a sizable dues increase and a special assessment” [4].
The other side: Brokers and condo associations asked Pulte for at least another year [3, 4]. White wrote in June that “We are not asking that these goals be abandoned,” only for “a realistic, workable transition period” [4]. A July 8 coalition letter warned that “These operational burdens will fall on lenders, community managers, volunteer boards and homeowners” [3]. An FHFA spokesman’s answer in June: “Fannie and Freddie are implementing their new policies on time so that more Americans can afford to buy a home” [4]. FHFA did not respond to CNBC’s request for comment [2].
Q&A Quick answers
- Q1When did Fannie Mae and Freddie Mac stop allowing limited condo reviews?
- For loan applications received on or after August 3, 2026 [1, 2]. Freddie Mac's bulletin lets lenders apply the change earlier, and an application received before that date is not covered by it [1].
- Q2Does a full condo review apply to small buildings?
- Not always. Freddie Mac exempts condo projects of 2 to 10 units from review, though projects of 5 to 10 units must not be part of a master association and must meet other conditions [1].
- Q3How much do condo association reserves have to be in 2027?
- At least 15% of annual budgeted assessment income, up from 10%, for loan applications received on or after January 4, 2027 [1, 2].
- Q4Does every condo loan need its own full review?
- No, according to a Mortgage Bankers Association spokesperson quoted by CNBC: once a project passes a full review, it is recorded as approved in the companies' systems [2].