When mortgage underwriters require reserve studies from condominium associations

HOA Detective™ | September 29, 2026: For years, a condominium building could have included a host of aging common elements when a prospective buyer came calling – many approaching the end of their service life, and nobody cared.  If the Association had a reserve account, it was more often than not funded at a level that was well short of the recommended funding levels – if they had a reserve study at all. 

The operating budget was politically palatable and pleasantly low. The mortgage underwriter might even find a loan approval path through a “limited project review.”

Those were the “good old days!”

The path for almost certain mortgage approval of condominium loans narrowed sharply in the summer of 2026. The mortgage market sleeping giant known as “Fannie Mae” has awoken and is now asking harder questions about condominium associations behind the unit – and the answers will affect how readily units can be financed and sold.

What Changed: Fannie Mae retired its Limited Review process for loan applications dated August 3, 2026, or later. Established condominium projects that once qualified must generally go through Full Review unless a separate waiver of project review applies. Freddie Mac retired its comparable Streamlined Review for applications received on or after the same date. The agencies also expanded certain exemptions for smaller projects, so “every condo now gets Full Review” would overstate the change.[1]

A Full Review examines the project as well as the borrower: its budget and reserves, assessment delinquencies, insurance, project condition, and other eligibility questions. A borrower can have strong credit and ample income yet encounter a loan problem because of the condominium association. Conversely, an eligible project is not a certification that the building is sound or that the purchase is prudent. 

• The lender is deciding whether its loan meets an agency’s sale requirements. 
• The buyer still needs independent due diligence. [2]

The reserve rules sharpen the point. Current conventional loan underwriting under Fannie Mae’s ordinary Full Review budget test calls for an annual replacement reserve allocation of at least 10% of annual budgeted assessment income. 

• Full Review applications dated January 4, 2027, or later, that minimum rises to 15%; 
• Freddie Mac has announced the same effective date and increase. 

The common denominator is assessment income under the applicable guide, not simply every dollar shown as revenue, and a budget’s “reserve transfer” label does not establish whether the association can meet its future bills. [3]

The Reserve Study is No Longer an Easy Escape Hatch: A condominium that budgets less than the required reserve percentage may still qualify if its lender relies on an acceptable reserve study. For loan applications dated August 3, 2026, or later, the association’s adopted budget must fund the highest annual reserve contribution recommended in that study. The study alone is not enough; the budget must reflect its recommendation.

A baseline funding method – one that lets the projected reserve fund balance to approach zero, but not negative – cannot be used to waive the percentage requirement. Freddie Mac’s guidance gives a clear example: 

• where a study offers both threshold and full funding recommendations, the lender must look to the full funding contribution if it is the higher recommendation.  [4]

This does not mean that federal law now commands every condominium to fund 100% of its fully funded balance, or that every board must adopt a full funding model. It means a board should understand the mortgage consequences of the funding option it adopts. 

• A low contribution that looked politically comfortable at the annual meeting may no longer help a lender clear the agency’s project test. 

The exact treatment depends on the project, loan application date, review path, current agency guidance, and lender analysis.

• Nor is 15% a magic measure of adequacy. 

A new, uncomplicated project may need less than 15% of assessments for a particular period. An aging tower with elevators, façade work, waterproofing, and mechanical renewal may need vastly more. The percentage is a mortgage eligibility screen. 

• A credible reserve study must still identify the association’s actual components, realistic replacement costs, timing, starting balance, inflation and earnings assumptions, and the annual contributions needed to execute the plan.

Consider a simple illustration. A condominium collects $1 million a year in regular assessments and budgets $100,000 for reserves. That meets the current 10% arithmetic, but it will fall short of the coming 15% screen by $50,000 if Full Review applies to a new application in January. 

More seriously, suppose the current study calls for $240,000 annually to renew the actual property. Raising the transfer to $150,000 may address the percentage while leaving a $90,000 annual planning gap. Neither figure pays for a component missing from the study. 

• Directors should work backward from the building’s obligations, not forward from the smallest percentage a lender might accept.

What Buyers and Realtors Should Expect: A transaction may become more difficult after the parties agree on a price. The lender asks for a current budget, reserve study, questionnaire, insurance details, and information about repairs or assessments. A missing study, an outdated component inventory, a budget below the required threshold, or an unresolved critical repair can send the file into further review. 

A lender may seek clarification, use another eligible review path, or determine that it cannot deliver the loan to that agency. Other financing might exist, often on different terms, but it should not be assumed. [5]

For buyers, the financing question is only the beginning. Related questions include:

• Ask how much cash is actually available for replacements after existing spending commitments are considered. 
• Does the forward plan rely on borrowing by the Association? 
• Does the current budget reflect a reserve contribution that matches the chosen funding scenario? 
• What major capital projects are likely during the buyer’s expected period of ownership? 

A special assessment may be a sensible way to resolve an identified shortfall; but the buyer needs to know the amount, purpose, payment schedule, and relationship to the remaining capital spending obligation. 

Passing the Fannie Mae underwriting test does not answer whether assessments are affordable or whether the building’s future costs have been accurately measured.

• For a listing agent, the practical move is early document gathering. 
• Obtain the adopted budget, current reserve study, recent financial statements, insurance evidence, and a plain explanation of planned or ongoing repairs and assessments before marketing claims harden into promises. 
• Ask the buyer’s lender early which project review applies. 

A Word About Attached PUDs: Planned unit developments (PUDs) with attached homes also have shared assets and future bills. Their boards should review the funding plan with equal seriousness, especially where the association maintains roofs, siding, private streets, or other expensive common property. But legal project form matters. Fannie Mae places PUD eligibility in a different guide section; the new 15% condominium Full Review rule should not be advertised as a blanket test for every attached PUD. 

Units legally created as condominiums are subject to condominium requirements, even if they are located within a larger PUD or master association. [6]

The distinction should not become an excuse for a PUD board to ignore reserve risk. Underfunding can still lead to special assessments, deferred work, insurance problems, owner hardship, and tougher transaction questions. The board should know what it owns, what it must maintain, and whether the adopted contributions will pay the bills. The consequences of getting that wrong are real even when a particular mortgage rule is different.

Where the Rubber Meets the Road: The era of indefinitely kicking the can down the road is ending for many condominium associations. Mortgage eligibility is becoming another point where a paper plan meets the physical building maintenance plan. Yet the agencies have not replaced informed board judgment with a universal funding formula. An association can technically clear a minimum and still be heading toward a large assessment. It can also have a well-reasoned plan that a particular loan review requires it to document more carefully.

The board’s job is to reconcile the reserve study with the adopted budget and the building’s actual condition, then explain the funding choice to owners. The buyer’s job is to look beyond loan approval. The Realtor’s job is to surface the documents and potential financing issues before the closing clock starts to run. The cost of delay was always there; the mortgage file is making it harder to keep that cost out of view.

Closing Advisement: More money flowing into reserves is welcome, but it does not make the underlying reserve study more accurate than it has ever been. The Community Associations Institute (CAI) first published its National Reserve Study Standards in 1998. The standards were revised in 2023, as a direct result of the Champlain Tower collapse in 2021, at which time the “national” reference was dropped by CAI. The 2023 Reserve Study Standards® (RSS®) now reflect the organization’s self-positioning as the international influencer in the common interest/privatized residential development arena.   

The RSS® provides the framework for more than 500 CAI-certified Reserve Specialists®(RS®, but they do not require independent validation of any reserve study conducted according to the standards.   The component inventory, replacement costs, useful lives, and funding forecasts are often subjective, unvalidated opinions. 

Even a study updated for 15 years by a firm with considerable technical resources may carry forward assumptions that no one has separately tested. Fannie Mae requires a qualified, independent preparer and lender review, but its criteria do not require a new provider or independent peer review of any reserve study at any point in time. 

Nor is there a uniform national licensing and oversight system for reserve study practitioners. Boards and buyers should therefore treat an accepted study as a planning document to examine critically – not proof that the building’s future capital renewal costs are verified or adequately funded.

Notes

1. Fannie Mae, Lender Letter LL-2026-03, “Updates to Project Standards & Property Insurance Requirements” (March 18, 2026), 2–3, https://singlefamily.fanniemae.com/media/44986/display; Freddie Mac, Guide Bulletin 2026-C (March 18, 2026), 2, https://guide.freddiemac.com/ci/okcsFattach/get/1010529_7. 

2. Fannie Mae, Selling Guide, B4-2.2-01, “Full Review Process” (August 5, 2026), https://selling-guide.fanniemae.com/sel/b4-2.2-02/full-review-process. 

3. Fannie Mae, LL-2026-03, 3; Freddie Mac, Bulletin 2026-C, 3. Fannie Mae, Selling Guide, B4-2.2-01, “Full Review Process,” reserve calculation (current 10% rule pending January 2027 implementation).   

4. Fannie Mae, LL-2026-03, 3; Freddie Mac, “Condominium Unit Mortgage FAQ,” “Financial Condition of Condominium Projects,” https://sf.freddiemac.com/faqs/condominium-unit-mortgage-faq. 

5. Fannie Mae, Selling Guide, B4-2.1-03, “Ineligible Projects,” and B4-2.2-01, “Full Review Process,” https://selling-guide.fanniemae.com/. 

6. Fannie Mae, Selling Guide, B4-2.3-01, “Eligibility Requirements for Units in PUD Projects” (August 5, 2026), https://selling-guide.fanniemae.com/sel/b4-2.3-01/eligibility-requirements-units-pud-projects. 

BECAUSE YOU’RE BUYING MORE THAN A HOME!™