Condominium Law Update:
New Reserve Requirements and More! Fannie Mae and Freddie Mac Condominium Mortgage Lending Standards are Changing

by Erik Shaughnessy, Esq. & Ryan Severance, Esq. | Mar 23, 2026

On March 18, 2026, Fannie Mae and Freddie Mac, the government entities responsible for the secondary mortgage market, released updated standards for condominium loans that can be sold on their markets (See links below to the updated standards). These Fannie/Freddie standards are generally what major mortgage lenders check as part of their condominium mortgagee questionnaires, so it is important to be aware of these new changes, especially for board members and property managers who have been completing mortgagee questionnaires in compliance with the past standards.

The changes cover broad categories, including the standards for the lender review process, reserve and reserve study requirements, investor requirements, and insurance requirements.

Reserve Contributions and Reserve Study Requirements:

• Reserve contribution requirements have been increased from 10% of the annual budget to 15% of the annual budget.
  • This change must be effective for the 2027 annual budget, but represents a fairly significant increase that must be accounted for in 2027 budgeting.

• Associations must now use the highest recommended reserve fund allocation amount from a reserve study if the association does not otherwise meet the 15% reserve contribution requirement.
  • The reserve allocation amount in the reserve study must not be based on a baseline funding method where the cash balance of the reserves approaches, but never falls below zero.

Lender Review Standards:

• The limited association review process has been removed, requiring lenders to complete a full association review each time.
  • A full association review typically requires a condominium mortgagee questionnaire to be completed and documents to be produced by the association.

• Condominiums of ten units or less may now be eligible for a waiver of review of the condominium.
  • This change for smaller condominium associations increases the availability of a waiver of review from four-unit associations to ten-unit associations.

Investor Ownership Requirements:

• The 50% owner occupancy requirement for all established condominium associations has been removed.

• New condominium associations will still be required to meet the investor standards. New condominiums generally mean those that have not yet been turned over to unit owners or which are still controlled by the developer.

Insurance Requirements:

• The maximum per unit deductible requirement for association master property insurance policies has been capped at $50,000.  This cap goes into effect on July 1, 2026.
  • This change eliminates the more complicated deductible calculation process previously required which included determining the total of all unit deductibles and whether the policy met certain criteria.

• The property (casualty) insurance requirement has changed to allow condominium building roofs to be covered on an actual cost value.
  • Previously, condominium roofs were required to be covered on a replacement cost basis. A property insurance policy must still cover the rest of the condominium property on a replacement cost basis.

• Individual unit insurance coverage is now required for the most common insurance scenarios.
  • Specifically, if an association’s master policy has a per unit deductible or any portion of the unit or improvements to the unit are not covered by the master policy, unit owners will be required to have HO-6 unit insurance. The required unit HO-6 insurance policy must cover the greater of the cost to replace the portion of the unit not covered by the master insurance policy or the per unit deductible.

Recommendations:

Reviewing these changes, we have the following recommendations for board members and property managers:

1. Review your condominium association budget for the year 2026 and determine what changes are needed to bring your reserve contribution to 15% of the 2027 annual budget.
2. Confirm that association records, especially maintenance and financial records, are available to provide in a neat format for mortgage lender review, and clarify any necessary process changes, including waiver and indemnification documents, to be used in the provision of that information.
3. As always, address association maintenance and repair issues promptly so that they do not become deferred maintenance.
4. Consider conducting a reserve study or having your reserve study updated, especially if the association does not want to raise reserve contributions to 15% of the 2027 annual budget.
5. Consider amending your association documents to prohibit your association from being owned entirely by investors, as there may be a spike in investor ownership interest in condominium units.
6. Discuss the new insurance requirements with your association insurance agent and determine whether any policy changes are necessary or recommended.
7. Discuss the current association deductible requirements with your association insurance agent and association counsel and determine whether they should be changed, including whether revisions to an association resolution or policy or to the condominium’s governing documents is needed.
8. Consider amending the association’s governing documents to include a requirement that unit owners carry HO-6 insurance, as the new guidelines effectively require all unit owners to do so.

If you have questions regarding these new condominium association lending requirement changes from Fannie Mae and Freddie Mac, including as to potential waiver for smaller associations, please contact our office to discuss.

If you wish to review the guidelines released on March 18, 2026, in their entirety, click here for Fannie Mae Lender Letter LL-2026-03 and click here for Freddie Mac Bulletin 2026-C.

We will continue to keep our association clients and property manager partners updated about changes that affect association governance.