Housing Watch: condo buyers face a tougher mortgage filing

New Fannie Mae and Freddie Mac condo-lending policies taking effect Aug. 3 will require greater scrutiny of some condominium associations’ finances, reserves, insurance coverage and building maintenance, CNBC reported.

The government-sponsored enterprises buy qualifying mortgages on the secondary market, so the rules can affect whether a lender is willing to approve a buyer’s loan.

The most immediate change eliminates a limited or streamlined review for some condo buildings unless a project qualifies for a waiver. Roughly 40 percent of condominium purchases involving a mortgage previously used that limited review and could now require a full review, said Dawn Bauman, CEO of the Community Associations Institute, CNBC reported.

The full review is designed to identify buildings with structural or financial problems before those problems become a buyer’s special assessment or higher association dues. But Max Slyusarchuk, CEO of AD Mortgage in Fort Lauderdale, Florida, said the change “will make the [application] process take much longer and will result in a lot of disqualifying applications.”

Higher reserves required

The rules also point to a second change scheduled for Jan. 4: Condo associations seeking Fannie or Freddie financing generally will have to reserve at least 15 percent of their annual budget for major repairs and replacements, up from 10 percent. Fannie Mae said inadequate reserves can leave owners facing “substantial financial hardship” from unexpected assessments or higher regular dues.

That creates a trade-off for buyers. A more rigorous review may reduce the odds of purchasing into a building with hidden repair liabilities, but it can also add days or weeks to a closing and make some units ineligible for conventional financing.

Condo boards are always under pressure to keep assessments down, and it's easy to shave a few points off the reserve fund, even though it weakens the association's financial health and can leave individual owners open to catastrophic special assessments when major repairs are necessary.

Now, under the revised federal lending standards, the consequences of letting reserves dwindle can land heavily on unit owners: "a seller whose buyer's loan falls through, an owner who cannot refinance out of a high rate, a unit that sits on the market while comparable buildings move, warned Governingdocs.dev, a site that provides guidance to HOA boards.

The problem of inadequate reserves isn't new. As of March 2025, more than 5,000 condo and co-op projects were on Fannie Mae's ineligible list, up from a few hundred before the 2021 Surfside collapse, according to Real Estate News.

In a market where mortgage rates are already above 6.5 percent, another layer of underwriting can turn a marginal purchase into a failed one.