Tougher Condo Lending Rules from Fannie Mae and Freddie Mac: What You Need to Know

The Backdrop: Why the Rules Are Changing

The collapse of Champlain Towers South in Surfside, Florida, in 2021 was a tragic reminder of what can happen when structural maintenance is deferred and reserves are underfunded. In response, Fannie Mae and Freddie Mac began tightening their underwriting standards to reduce exposure to risky condo projects. These updates are not short-term adjustments—they represent a fundamental shift in how condo risk is evaluated by the secondary mortgage market.

What’s Changed: Key Points of the New Guidelines

1. Deferred Maintenance & Special Assessments
2. Reserve Requirements
3. Expanded Condo Project Questionnaires
4. Insurance Scrutiny
5. No Exceptions for Spot Approvals

Who Is Most Affected?

Buyers

• First-time and middle-income buyers, many of whom rely on conventional loans, may find themselves unable to buy in their desired buildings.
• Buyers using FHA or VA loans may run into separate hurdles, but the GSE changes create additional pressure on the lower end of the market.

Sellers

• Sellers in non-compliant buildings are losing buyer interest—or facing price reductions to attract cash or portfolio buyers.
• Some are pulling listings until repairs or reserve issues can be addressed.

HOAs

• Associations are under pressure to boost reserve funding and tackle deferred maintenance proactively.
• Many are enacting special assessments or increasing dues, which can deter both current owners and prospective buyers.

Lenders and Agents

• Lenders are spending more time vetting condo projects and often declining to issue pre-approvals without full project documentation.
• Real estate agents must now screen buildings early in the process and prepare clients for possible setbacks or disqualifications.

The Market Impact: Short- and Long-Term Effects

1. Tighter Inventory for Financeable Condos
2. Pricing Divergence
3. Affordability Squeeze
4. Shift Toward Townhomes and Single-Family Residences
5. Pressure on Associations

How to Navigate the New Rules

For Buyers

• Ask lenders early if the condo is “warrantable.”
• Request the full condo questionnaire and budget up front.
• Be prepared to pivot to a portfolio loan or cash if needed—but understand that rates and terms may be less favorable.

For Sellers

• Before listing, get clarity on your building’s eligibility.
• Work with your HOA to gather reserve and maintenance documentation.
• If your building is non-warrantable, price accordingly or target cash buyers.

For HOAs

• Order a reserve study and start contributing accordingly.
• Maintain full insurance coverage that meets GSE standards.
• Be transparent with owners about structural concerns, assessments, and financing impacts.

Looking Ahead

These changes from Fannie and Freddie are not going away anytime soon. In fact, they may become even more stringent as more buildings age and climate risks increase. While these measures aim to protect homeowners and the broader financial system, they are undeniably creating short-term challenges for market participants.

Education, preparation, and transparency are key. Whether you’re buying, selling, lending, or managing a building, now is the time to adapt to the new landscape.

PRO TIP: Make sure you hire a real estate agent pre-screens before showing units, aligns closely who understand condo financing nuances and prepares you for additional steps and longer timelines when buying and selling. And most importantly, make sure there is collaboration with the HOA to ensure all necessary documentation are available and up-to-date.