- Community Associations, Finances
- Wisconsin, Indiana, Illinois, Florida
On March 18, 2026, Fannie Mae (FNMA) changed their mortgage lending guidelines concerning reserve funding for condominium associations. These revisions will significantly impact condominium board and management decision-making and directly affect an association’s eligibility designation for mortgage loans.
How Will These New Reserve Lending Guidelines Impact a Community Association?
Fannie Mae, Freddie Mac, and Ginnie Mae are semi-governmental agencies that establish minimum standards for mortgage lending in order to stabilize the housing market and make homeownership affordable in the U.S. Fannie Mae plays a critical role in condominium mortgage eligibility, impacting both buyers and associations.
If your association does not meet the FNMA mortgage lender guidelines, the association may be considered “ineligible” or “unwarrantable” by FNMA and that immediately depresses the market value for units within your association. Failing to plan for these new Reserve Funding guidelines will have an immediate and long-term impact on the market value of dwelling units in your community.
- Approximately 75% of U.S. condominium mortgages are governed by Fannie Mae standards, making FNMA a primary gatekeeper of mortgage eligibility.
- Mortgage approval depends not only on the buyer, but also on whether the condominium association meets FNMA eligibility guidelines.
- If an association does not satisfy FNMA guidelines, buyers may be unable to obtain conventional financing for units in that community.
- Most mortgages (approximately 80%–90%) are sold on the secondary mortgage market shortly after closing.
- Mortgages tied to ineligible associations cannot be sold on the secondary market, reducing lender willingness to issue loans.
- Associations with a negative FNMA status (e.g., “unwarrantable” or “ineligible” collectively aka “blacklisted”) may experience a 5% to 30% decrease in market value.
Elimination of Limited Review Process
For mortgage applications submitted after August 3, 2026, Fannie Mae is eliminating the Limited Review Process for associations. Instead, associations will be subject to the Full Review Process.
The Limited Review Process has been in effect for more than 20 years and approximately 40% of association classifications were completed using the Limited Review Process. We anticipate that the elimination of the Limited Review Process will have a significant impact on the association classification determinations.
The Full Review Process requires the lending underwriter to carefully examine all key factors of the association: deferred maintenance, engineering reports, structural conditions, special assessments, reserve study conclusions, reserve fund balances and annual contributions, maintenance history, insurance adequacy and other key factors concerning the association.
What are Fannie Mae’s New Reserve Funding Guidelines?
Fannie Mae has introduced two (2) important reserve funding guideline changes. One beginning August 3, 2026, and the other beginning January 4, 2027.
First, effective August 3, 2026, Fannie Mae is eliminating the minimum 10% annual reserve fund contribution as the only underwriting requirement for associations reserves. For many years, mortgage underwriters simply identified a minimum 10% annual reserve fund contribution and stopped at that. However, beginning with loan applications received after August 3, lenders must review more than just the minimum annual contribution, but also examine the over-all reserve health of the association before approving the association’s reserve condition. As a result, the old days of the underwriter relying on the minimum 10% annual contribution as the sole reserve analysis is over.
Next, beginning January 4, 2027, FNMA has increased the minimum annual reserve fund contribution from 10% to at least 15% of the total annual budget and that 15% minimum cannot be the sole factor upon which underwriters can rely to approve an association’s reserves. Mortgage underwriters will be required to examine the combination of the minimum 15% annual reserve fund contribution, the association’s budget, confirm the existing reserve fund balance and check for other red-flags (deferred maintenance, known structural issues, special assessments not reflected in budget) and other factors.
Whether Fannie Mae or mortgage lending underwriters will slip back to using the 15% minimum annual reserve contribution as the end-all analysis of an association’s reserve-health is yet to be seen. However, based upon all the information and communications we have from FNMA and underwriters, the emphasis is clearly on the over-all reserve health of the association taking into account many factors, not just a minimum annual contribution like they used to.
In very rare circumstances, FNMA has recommended that underwriters consider the “most conservative reserve study recommendation” as a guideline for over-all reserve health. Again, we anticipate that those situations will be very rare. But, we have received some comments from board members that suggest avoiding a recent professional reserve study would seem to be an expeditious method “around” that possibility even occurring. We strongly disagree, however. In fact, we suggest that a recent, professional reserve study along with a strong history of steady annual reserve fund contributions are often considered the best method of satisfying the mortgage underwriters in making that important over-all reserve health determination of the association. FNMA’s reference to “the most conservative reserve study option” is applicable only when an underwriter is relying solely on the reserve study to make their determination (and not reviewing all the other available information about the association) or possibly when an association is trying to justify an annual reserve funding contribution of less than 15% (post-01/01/2027). Again, very rare situations indeed.
Our recommendation is to obtain a professional reserve study (or update if 3-5 years old), expect to contribute at least 15% if not more and for the Board to work closely with management, association’s counsel and other professionals to present the best case to mortgage underwriters classifying your association’s mortgage eligibility. This will help maintain and improve the market value of units within your association.
Read the full Fannie Mae update here: https://singlefamily.fanniemae.com/media/44986/display
What if An Association Does Not Comply with Fannie Mae’s New Reserve Funding Guidelines?
The practical implications for FNMA ineligibility or unwarrantability are varied and profound, including:
- Prospective purchasers are far less likely to obtain conventional mortgage financing.
- Low down payment options (e.g., 5%–10%) largely disappear.
- Buyers are often required to put 20%–30% down and face higher interest rates.
- Reduced financing options place immediate downward pressure on unit market values.
- Buyer pool shifts from owner-occupants to cash investors or higher-risk borrowers.
- Higher-risk buyer profiles may increase the likelihood of assessment delinquencies.
- Overall market demand for units declines.
- Pending real estate transactions are more likely to fall through mid-contract.
- Units may need to be re-listed, increasing time on market.
- Sellers are often forced to offer concessions or accept below-market pricing.
Collectively, these factors create a compounding “domino” effect that depresses property values across the association.
What are the Practical Implications of Fannie Mae’s New Reserve Funding Guidelines for Condo Boards?
Under Fannie Mae’s updated reserve funding framework, condominium boards must evaluate how these changes impact budgeting, reserve planning, loan eligibility, and overall risk exposure.
- Budgeting: Board members may have to adjust the 2027 association’s annual budget to meet the minimum required 15% contribution or possibly higher depending upon physical factors of the association. This may require higher monthly assessments and a reallocation or re-prioritization of operating funds.
- Reserve Studies: Association reserve studies must be current and comprehensive. The Board should have a clear plan to implement Engineering-based recommendations depending upon the severity and urgency.
- Warrantability: Failure meet the minimum annual contributions and have plans to implement reserve study recommendations can designate the condo as non-warrantable for FNMA loans. Accordingly, buyers may be unable to obtain conventional financing.
- Property Values: Associations that fail to meet these standards may be deemed “non-warrantable,” limiting buyer access to conventional financing and negatively affecting property values.
- Legal Risk Considerations: Boards that fail to plan for foreseeable funding and maintenance needs may face owner disputes, special assessment challenges, and even potential fiduciary duty claims.
Legal Resource
Fannie Mae’s updated reserve funding guidelines are not just financial guidelines. They are now a critical component of an association’s overall marketability and long-term stability.
Boards that proactively review reserve studies, adjust budgets, and align with these standards will be better positioned to preserve property values and maintain lending eligibility. Conversely, failure to act may expose the association to financing limitations, declining demand, and increased legal risk. The association attorney can assist boards in evaluating legal compliance, updating policies, navigating these evolving guidelines and rectifying your association’s classification, if necessary.
Do not hesitate to contact our law firm if your association has questions about reserve funding guidelines, collection policies, special assessments, owner disputes, or other legal concerns.
Please call 855-537-0500 or visit www.ksnlaw.com.
Since 1983, KSN has been a legal resource for condominium, homeowner, and townhome associations. Additionally, we represent clients in real estate transactions, collections, landlord/tenant issues, and property tax appeals. We represent thousands of clients and community associations throughout the US with offices in several states including Florida, Illinois, Indiana, and Wisconsin.
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