New conforming loan rules effective January 2027.

In order to back a conforming mortgage loan, Fannie Mae will now require full review of all condominium associations (previously, many condo buildings only required ‘limited review’ which often was a more cursory process), with two important new baselines required for all loan applications January 4, 2027 or later:

• Master insurance for a condominium association must explicitly cover 100% of replacement cost value, and have per-unit deductibles capped no higher than $50,000.

• Reserves contribution requirements will increase, from 10% of ‘assessment income’ (defined as, essentially, monthly condo fees) to 15%, for any condominium association of 5+ units.

  • To quote Fannie Mae, “we have seen a correlation between condo projects with underfunded reserves for capital expenditures and those in need of critical repairs. Condo projects with inadequate reserves typically do not have the requisite resources to maintain the physical condition of the project or to fund unexpected operating expenses. As a result, unit owners can experience substantial financial hardship from unexpected special assessments or higher regular assessments or dues, leading to mortgage default or foreclosure.Our revised requirements are intended to improve the financial health of condo projects and promote long-term sustainable homeownership.”

You can find a helpful guide here: https://governingdocs.dev/blog/fannie-mae-15-percent-reserve-rule-boards/

You can find Fannie Mae’s official lender letter here: https://singlefamily.fanniemae.com/media/44986/display