New Fannie Mae and Freddie Mac Condo Rules: What HOA Boards Need to Know Before January 2027

A lending rule is now a building condition rule

On March 18, 2026, Fannie Mae and Freddie Mac released matching updates to how they review condominium projects before buying a unit loan. Most coverage has focused on the money side: reserves, budgets, review types. For HOA boards and managers in older multifamily communities, the part that deserves the closest read is the one that was already on the books and now carries more weight: a project with unresolved critical repairs is not eligible for conventional financing, and a lender can find that out from a three-year-old inspection report.

That matters because most condo buyers borrow. When a community falls out of eligibility, buyers in that building lose access to the conventional loan market, which narrows the buyer pool and puts pressure on values for every owner, not only the seller. Freddie Mac says plainly why it tightened the rules: it has seen a correlation between underfunded reserves and projects in need of Critical Repair, and the owners in those projects end up facing surprise special assessments or higher dues ( Freddie Mac Bulletin 2026-C, page 1).

This article walks through what changed, what did not, and how a board that is planning reconstruction work can keep its community financeable through the January 2027 deadline and beyond.

What changed, and when

The changes came out together in Fannie Mae Lender Letter LL-2026-03 and Freddie Mac Bulletin 2026-C, both dated March 18, 2026. They roll out on three dates.

Source: Freddie Mac Bulletin 2026-C, pages 1 to 3. Fannie Mae's letter sets the same dates, and its Selling Guide section on the Full Review process ( B4-2.2-01) still reads 10% as of November 4, 2026 because the 15% figure does not take effect until January.

The critical repair rules themselves did not change in 2026. They were written into the permanent guides in 2023, after the temporary post-Surfside requirements of 2021 and 2022 ( Fannie Mae, The Future of Condo Lending, July 2023). What changed is how many projects now get the full review that applies them.

The 15% reserve test, and the reserve study path around it

Starting with loan applications dated January 4, 2027, a lender reviewing a condo project must see a budget that sets aside at least 15% of annual budgeted assessment income for replacement reserves, up from 10% today. The math is the reserve line divided by annual assessment income. Fannie Mae lets the lender leave out a few income types before dividing: incidental income the project does not rely on, utility income collected on behalf of owners, income already allocated to reserves, and special assessment income ( Fannie Mae Selling Guide B4-2.2-01).

Two things boards often mix up:

• 15% of the budget is not the same as 15% funded. The test looks at what the current budget contributes each year, not at how full the reserve account is compared with the study.
• The application date controls, not the closing date. A buyer who applies in December 2026 is reviewed under 10%; a buyer who applies the first week of January 2027 is reviewed under 15%, even if the association's fiscal year has not turned over.

A community that contributes less than 15% can still qualify through a reserve study, but the bar on that path rose on August 3, 2026. Under both agencies' rules the study must:

• be no more than three years old at the time of the lender's review
• be prepared by an independent third party with reserve study expertise (a credentialed reserve specialist, a construction engineer, a CPA who specializes in reserve studies, or a similarly experienced professional)
• cover every major common-area component, its condition and remaining life, repair or replacement cost, and a funding plan
• show the budget funding the study's highest recommended reserve allocation, not the baseline level where the reserve balance is allowed to approach zero

For an association with a large reconstruction project on the horizon, that last point is the one to plan around. A current study that prices the balcony, deck, stair, or building envelope work accurately is what lets the board show a lender a credible funding plan instead of a round percentage.

Critical repairs: the rule that is about the building itself

Fannie Mae will not buy a loan on a unit in a project that needs critical repairs, and the project stays ineligible until the repairs are completed and documented. The Selling Guide defines a critical repair as one that significantly affects the safety, soundness, structural integrity, or habitability of the buildings, or the financial viability or marketability of the project ( Fannie Mae Selling Guide B4-2.1-03, Projects in Need of Critical Repairs). Freddie Mac applies a parallel Critical Repairs standard in its Guide Section 5701.3.

The guide lists five conditions that count:

1. Material deficiencies that could cause a critical element or system to fail within one year if left uncorrected
2. Any mold, water intrusion, or potentially damaging leaks in the buildings
3. Advanced physical deterioration
4. Failure to pass a state, county, or local mandatory inspection or certification for structural safety, soundness, or habitability
5. Unfunded repairs costing more than $10,000 per unit that should be done within the next 12 months (repairs covered by a special assessment, or made by individual owners, do not count against this)

The examples the guide names are the building elements reconstruction contractors work on every day: sea walls, elevators, waterproofing, stairwells, balconies, foundations, electrical systems, parking structures, and other load-bearing structures.

Two boundaries keep this from sweeping in every repair:

• Damage or deferred maintenance isolated to one or a few units, with no effect on the overall project, does not trigger the rule.
• Routine repairs are not critical. The guide describes those as preventative work or normal capital replacement that keeps the project functioning, paid for within the normal operating budget or through a special assessment that is within guidelines.

A project under a full or partial evacuation order for an unsafe condition is ineligible until the condition is fixed and the building is declared safe for occupancy.

For boards in California, item 4 connects directly to the state's exterior elevated element inspection law for condominiums ( Civil Code 5551, SB 326). An inspection report that identifies balconies, walkways, or decks needing repair is exactly the kind of document a lender will now ask to see, which is covered in the next section.

Inspection reports, special assessments, and what the lender will ask for

Lenders are told to look past the questionnaire. Fannie Mae's guide says they may need a combination of documents to confirm a project's physical condition and lists the usual ones: board meeting minutes, engineer reports, structural or mechanical inspection reports, reserve studies, the association's list of needed repairs, and its list of special assessments ( B4-2.1-03). Three rules in that section shape how a board should handle its paperwork.

Inspection reports have a three-year reach. If a structural or mechanical inspection was completed within three years of the lender's review date, the lender must obtain and read it. If the report shows unaddressed critical repairs, the project is ineligible until the work is finished and an engineer's report (or a substantially similar document) confirms the concern is resolved. A report that is completed but never acted on is, from a lender's point of view, a standing finding against the building.

Special assessments get their own review. For each current or planned special assessment the lender must document its purpose, when it was approved, whether it is planned or already being collected, the original and remaining amounts, and the expected payoff date. If the assessment is tied to a critical repair and the repair is not yet done, the project is ineligible. Passing the assessment is not the finish line; completing and documenting the work is.

Delinquencies are checked too. No more than 15% of units may be 60 or more days past due on regular assessments, and the same 15% limit applies to each special assessment ( B4-2.2-01). A large assessment that a meaningful share of owners cannot keep up with can cost the project its eligibility on that ground alone.

The practical takeaway: a board that commissions an inspection, votes an assessment, and then lets the project drift for two years has created a paper trail that works against every seller in the building. The inverse is also true. A completed project, with an engineer's close-out letter in the file, answers the lender's question before it is asked.

Insurance: the same bulletins loosened a few things

The March 2026 updates were not all tightening. Both agencies acknowledged that premiums and limited availability are creating problems for associations in some markets, and they relaxed several master policy requirements in the same bulletins ( Freddie Mac Bulletin 2026-C, pages 3 to 5):

• The master policy must still cover the buildings on a replacement cost basis, but roofs no longer have to be insured on a replacement cost basis. They must be insured, and actual cash value is acceptable.
• A guaranteed or extended replacement cost endorsement now counts as evidence of 100% replacement cost coverage.
• The inflation guard endorsement requirement was retired.
• The per-occurrence deductible may not exceed 5% of the building coverage limit, and a deductible buy-back policy can be used to meet that.
• Effective for applications on or after July 1, 2026, a per-unit deductible in the master policy may not exceed $50,000 per unit, and when a per-unit deductible exists the borrower's HO-6 policy must cover at least that amount.

For a board, the near-term job is to hand the current declarations page to the broker and ask which of these changes apply. For a reconstruction project specifically, roof and envelope work completed this year is worth reporting to the carrier, since an updated replacement cost valuation is part of what the lender checks.

What a board can do between now and January 4, 2027

1. Run the reserve math on the 2027 budget now. Divide the budgeted reserve contribution by annual assessment income, after excluding the income types Fannie Mae allows. If the result is under 15%, the board needs either a dues adjustment or a qualifying reserve study before buyers start applying in January.
2. Check the date and the funding plan in the reserve study. A study older than three years at the time of a loan review does not qualify. Neither does a budget built on the study's baseline funding plan. If the study is current but the board adopted a lower funding level, that gap is now a lending problem, not only a planning one.
3. Pull every inspection report from the last three years and list the open items. Balcony and elevated element inspections, structural reviews, elevator and parking structure reports, and any municipal notices. Anything that reads as a safety, soundness, or habitability finding needs a repair plan with a date.
4. Scope and price the unfunded repairs. The $10,000 per unit test looks at unfunded work due within 12 months. A board that has an engineer's scope and a contractor's number can decide whether to fund through reserves, a special assessment, or an association loan, and can show the lender the plan.
5. Close out completed work properly. When reconstruction finishes, obtain an engineer's report or equivalent confirming the original concern is resolved, and keep it with the minutes and the paid invoices. That document is what moves a project from ineligible back to eligible.
6. Tell owners why. Fannie Mae's project review requirements are published and lenders apply them to every conventional loan in the building. Owners who understand that a reserve increase or an assessment protects resale for everyone are more likely to support it, and less likely to fall delinquent on it.

EmpireWorks works with boards and managers at every stage of this list, from pre-construction scoping and budgeting through completion documentation, across California, Nevada, Arizona, Texas, and the other markets we serve.

Frequently asked questions

Does the 15% rule apply to HOAs with detached homes, or planned unit developments?

The replacement reserve test and the critical repair rules sit in Fannie Mae's condo and co-op project standards. Loans on detached units and in 2 to 4 unit projects are not reviewed for critical repairs or special assessments under the project review waiver, per Fannie Mae's guidance. A master-planned community with shared structures should still expect lenders to ask about them, but the 15% budget test is a condominium rule.

Is 15% a state law?

No. It is a secondary market eligibility rule from Fannie Mae and Freddie Mac. State reserve statutes (Florida's structural integrity reserve rules, California's Davis-Stirling reserve provisions, and others) are separate and may be stricter or looser. A community has to satisfy both.

If our reserve study recommends less than 15%, are we fine?

Only if the budget funds the study's highest recommended allocation, the study is less than three years old, it was prepared by a qualified independent party, and that highest recommendation is not based on a baseline funding method. If any of those fail, the lender falls back to the percentage test.

We passed a special assessment for the repairs. Does that restore eligibility?

Not by itself. The lender looks at whether the critical repair has been completed and documented. An approved but unfinished assessment for a critical repair leaves the project ineligible.

Can a lender find out about an inspection we did not share?

Lenders are responsible for gathering enough documentation to confirm the project's condition, and the project questionnaire asks about inspections and known deficiencies. Withholding a report creates a different problem for the association. The better answer is to pair the report with a repair plan.

What happens to owners if the project becomes ineligible?

Buyers in the building lose access to Fannie Mae and Freddie Mac eligible loans, which Inside Mortgage Finance reported made up 44.1% of all mortgage originations in 2023. Buyers can still use portfolio or non-conforming loans, which typically cost more, or cash. Freddie Mac's own stated concern is that owners in underfunded projects end up facing special assessments and higher dues, and in some cases default.

Sources

Every figure and date in this article comes from one of the following, each opened and read on November 5, 2026.

This article is general information for community association boards and managers. It is not legal, lending, or financial advice. Lending eligibility is determined by the lender under the agencies' published guides, and state law varies.