- Community Associations, Legal Updates
- Wisconsin, Indiana, Illinois, Florida
Fannie Mae has updated its Project Standards Requirements guidance, providing additional clarification regarding condominium and cooperative projects and the factors lenders must consider when determining whether units are eligible for Fannie Mae-backed financing.
While much of the guidance is directed toward mortgage lenders, several of the updated FAQs have practical implications for condominium associations, board members, and property managers. In particular, the guidance highlights how an association’s reserve funding, deferred maintenance and critical repairs, responses to lender questionnaires and document requests, use of special assessments or association loans, and overall Fannie Mae project status can affect financing eligibility within a community.
For community association leaders, these requirements underscore an important consideration: decisions involving an association’s finances, maintenance, repairs, and records can extend beyond day-to-day operations and potentially affect an owner’s ability to sell or refinance a unit.
The full Fannie Mae Project Standards Requirements FAQs can be found here: https://singlefamily.fanniemae.com/media/5511/display
Below, we review five key takeaways from Fannie Mae’s updated guidance and what community association board members and property managers should know.
Reserve funding decisions can affect unit financing
Q9. How is the 10% reserve allocation in the budget calculated?
To determine whether the association has a minimum annual budgeted replacement reserve allocation of 10%, divide the annual budgeted replacement reserve allocation by the association’s annual budgeted assessment income. Additional information concerning reserve calculation can be found in the Selling Guide, B4-2.2-01, Full Review Process
Q10. What are the common funding methodologies for reserve studies?
Common funding methodologies for reserves include:
- Baseline funding: Reserve cash balance never below $0
- Threshold funding: Reserve cash balance above a specified dollar amount of percent funded amount.
- Full funding: Reserve cash balance at or near 100%.
If a reserve study is used as an exception to the reserve requirement, then lenders will not be able to utilize the baseline funding methodology to determine adequacy of replacement reserves for loans with application dates on or after August 3, 2026. Additionally, the highest recommendation must be used. For example, if a reserve study uses both threshold and full funding methodology, then the lender must ensure that the budget is funding the recommended reserve amount under the full funding methodology.
Q28. If a project has imposed a special assessment, does the budget also have to include a 10% reserve requirement?
If the lender is completing a Full Review, the budget must show the project has allocated 10% for reserves. Special assessments cannot be used in lieu of the 10% budget reserve allocation.
Deferred maintenance can become a community-wide financing problem
Q16. As outlined in the Selling Guide, B4-2.1-02, Waiver of Project Review, Fannie Mae to Fannie Mae limited cash-out refinances must be reviewed for critical repairs and evacuation orders. Does this apply to all project types?
The requirement only applies to condo and co-op projects consisting of eleven or more attached units, and projects with five to ten attached units that are part of a larger development or master association.
However, lenders are still required to ensure the property complies with our requirements outlined in the Selling Guide, Chapter B2-3, Property Eligibility Requirements, in which the property must be safe, sound, and structurally secure.
Q17. Under the Waiver of Project Review, lenders are not required to determine compliance with the requirements relating to projects in need of critical repairs and special assessments for loans secured by detached condo units. What if the detached condo unit is located in a condo project consisting of both detached and attached condo units, does the lender need to review the condo project for critical repairs and special assessments?
If the subject unit is detached, the lender is not required to comply with the requirement to review projects in need of critical repairs and special assessments. However, lenders are still required to ensure the property complies with our requirements outlined in the Selling Guide, Chapter B2-3, Property Eligibility Requirements in which the property must be safe, sound, and structurally secure. Additionally, if the project is Unavailable in CPM, the detached unit is not eligible for sale to Fannie Mae. Refer to B4-2.1-02, Waiver of Project Review for further requirements.
Q18. As outlined in the Selling Guide, B4-2.1-02, Waiver of Project Review, review for critical repairs and special assessments is not required for loans secured by detached units, 2-4-unit projects, and Fannie Mae to Fannie Mae limited cash-out refinances for projects consisting of less than elven attached units, unless the project consists of five-to-ten units that is part of a larger development or master association. What if the project and property meet the requirements for Waiver of Project Review, but the amenities only, such as the clubhouse, require critical repairs? Is the project ineligible?
Lenders are still required to ensure the property complies with our requirements outlined in the Selling Guide, Chapter B2-3, Property Eligibility Requirements in which the property must be safe, sound, and structurally secure. If the lender discovers during the normal underwriting process, a circumstance that impacts the common areas/amenities, the lender must perform additional due diligence to ensure there is no negative impact to marketability as outlined in the Selling Guide, B4-1.1, General Appraisal Requirements. Additionally, if the project is Unavailable in CPM, the detached unit is not eligible for sale to Fannie Mae.
Q19. Revised Policy states that critical repairs include “any project that failed to pass state, county, or other jurisdictional mandatory inspections, or certifications specific to structural safety, soundness, and habitability.” Are there any exceptions for excluding municipal inspections?
No, municipal inspections are not excluded from the policy. Projects that have failed to pass any local regulatory inspection(s) are not eligible.
Q20. Are there any options if a project has not obtained the required recertification by the local jurisdiction?
No. There certification process must be complete with evidence the project has passed all the required inspections. Typically, the local jurisdiction will issue a letter indicating the project has passed the recertification process.
Q21. What if a jurisdiction classifies a project as unsafe, non-compliant, or other similar rating. Does that mean the project is ineligible?
Yes. Any project that fails to pass state, county, or other jurisdictional mandatory inspections and/or certifications specific to structural soundness, safety and habitability is not eligible as outlined in of the Selling Guide, B4-2.1-03, Ineligible Projects.
Q22. What if a jurisdiction classifies a project as safe or other similar rating, but there are critical repairs that have not been completed. Is the project ineligible?
The project remains ineligible until critical repairs have been completed. Our policy requires lenders to conclude the project is safe, does not need critical repairs, and passes any regulatory inspection. The policy is not specific to any jurisdiction and should be applied consistently across all jurisdictions as applicable.
Q31. What are some examples to help make the determination as to whether an outstanding repair is routine or critical?
Fannie Mae is not prescriptive on what constitutes a critical repair, however some examples include but are not limited to any mold, water intrusion or potentially damaging leaks, advanced physical deterioration of load bearing structures, failure of roof, unsafe balconies, foundation, or parking structure issues, that if left uncorrected, could result in critical element or system failure. Routine repairs are preventative in nature or part of normal capital replacements (e.g., focused on keeping the project fully functioning and serviceable) accomplished within the project’s normal operating budget or through a special assessment and are similar to proactive maintenance repairs. A delay in the repair would not result in critical element or system failure.
Q32. Policy states “if damage or deferred maintenance is isolated to one or just a few units and does not affect the overall safety, soundness, structural integrity, or habitability of the improvements, then this project eligibility requirement does not apply”. Is there a percentage guidance that can be provided to define “few”? If repairs are required to a single building in the project but other buildings do not require repairs, would this be acceptable There is no specific percentage guidance and lenders should evaluate based on the overall size of the projects. For example, if three units are damaged in a 6-unit project the exception would not apply as most of the units in the project are impacted. However, three units in need of repairs in a 600-unit project would indicate the damage or deferred maintenance is isolated to just a few units. Lenders must still ensure that the outstanding repairs do not affect the overall safety, soundness, structural integrity, or habitability of the project. This policy applies regardless of the number of buildings impacted.
Q33. If only a portion of a project is impacted by an insurable loss (such as fire), can we sell loans secured by units in other portions of the project that are not impacted to Fannie Mae?
A project impacted by a disaster must meet our requirements relating to projects in need of critical repairs, which includes material deficiencies, significant deferred maintenance, and special assessments.
Q34. Policy states that lenders must review any structural or mechanical inspection report completed within 3 years. Can Fannie Mae clarify what inspections are included in this requirement? Would it be any inspection completed or only mandatory inspections?
The lender must review a complete and true copy of any structural or mechanical inspection report (not just mandatory inspections) that has been completed within the past three years.
Q35. Is it acceptable for the association to take out a loan to fund critical repairs?
Yes, it is acceptable. Regardless of the means of funding, loans in projects in need of critical repairs remain ineligible until the repairs have been completed.
Boards and managers should take lender questionnaires and document requests seriously
Q23. How can lenders obtain information about critical repairs, material deficiencies, significant deferred maintenance, and special assessments?
There are various sources that may provide the information, including the homeowners’ association’s (HOA’s) meeting minutes, financial statements, engineer’s reports, or other documents as outlined in the Selling Guide, B4- 2.1-03 Ineligible Projects. These sources are neither prescriptive nor exhaustive. Lenders are responsible for determining which documents they need to review. Parties with an interest in the transaction such as the real estate agent, seller, buyer, or unit owner may also provide the documentation.
Q24. When the HOA or management company returns a project questionnaire that does not answer questions related to critical defects and significant deferred maintenance or states the information is unknown or not applicable, are lenders required to obtain additional documentation to support no critical repairs are required?
The GSE Condo Questionnaire and the associated addendum are optional forms.
- Lenders often use their own forms or find other types of documentation to help them complete the project underwriting.
- When a lender is using a questionnaire during their underwriting process and the questionnaire does not provide the information the lender needs to make the representation and warranty that the project meets our eligibility guidelines, then the lender will need to obtain additional information or documentation to make the determination.
- Our Selling Guide, B4-2.1-03, Ineligible Projects, provides examples of additional documentation that may be helpful to review. If the lender is unable to make the determination that the project is not in need of critical repairs, then loans on units in the project are not eligible for sale to Fannie Mae.
Q25. If a lender is reviewing a small project under the Limited Review process that does not have a budget and financial records or a reserve study, how can the lender determine there are no critical repairs or special assessments?
Fannie Mae is not prescriptive on what documentation lenders obtain to make the determination SeeQ23 above for various sources that may provide this information. If the lender is unable to obtain the information to make the determination, loans on units in the project are not eligible for sale to Fannie Mae.
Q26. What options are there if the association or property manager is not willing to provide a copy of any inspection report completed within the past three years, information to confirm the project is not in need of critical repairs, or information on special assessments?
The lender must obtain and review a copy of any inspection completed within the past three years. The lender may be able to obtain the information from parties that have an interest in the transaction: buyer, seller, real estate agent, or unit owner for a refinance. If the lender is unable to obtain the information to make the determination or obtain the required inspection reports, loans on units in the project are not eligible for sale to Fannie Mae.
Q27. Guidelines related to projects in need of critical repairs state lenders must review structural and/or mechanical inspections that have been completed within 3 years of the lender’s project review date. What if an inspection has not been completed? Is the project ineligible?
No. We do not require that an inspection be completed for any project. However, if one has been completed within 3 years prior to the project review date, then it must be reviewed. If an inspection has not been completed, lenders are still required to review other sources of documentation to ensure the project is not in need of critical repairs. See Q23 above for various sources that may provide this information. If the lender is unable to obtain the information to make the determination, loans on units in the project are not eligible for sale to Fannie Mae.
Q34. Policy states that lenders must review any structural or mechanical inspection report completed within 3 years. Can Fannie Mae clarify what inspections are included in this requirement? Would it be any inspection completed or only mandatory inspections?
The lender must review a complete and true copy of any structural or mechanical inspection report (not just mandatory inspections) that has been completed within the past three years
Special assessments and association loans don’t automatically resolve eligibility concerns
Q28. If a project has imposed a special assessment, does the budget also have to include a 10% reserve requirement?
If the lender is completing a Full Review, the budget must show the project has allocated 10% for reserves. Special assessments cannot be used in lieu of the 10% budget reserve allocation.
Q29. When the HOA indicates that a special assessment may be required in the future but is not yet planned or approved, what action must the lender take?
If a special assessment is not yet planned or approved, but it is disclosed that one will most likely be required in the future, the lender must determine the project is not in need of critical repairs as outlined in the Selling Guide, B4-2.1-03, Ineligible Projects. The lender is not expected to evaluate the special assessment details that have not been implemented by the association.
Q30. Policy states, “Any unfunded repairs costing more than $10,000 per unit that should be undertaken within the next 12 months (does not include repairs made by the unit owner or repairs funded through a special assessment).” Can FannieMae provide further definition of © 2026 Fannie Mae August 2026 Page 9 of 22 “unfunded”? Would special assessments that are not yet paid in full be considered funded or unfunded? Are association loans an acceptable source of funding for repairs?
By unfunded we mean the HOA does not have the funds in place to pay for the repairs and must postpone the remediation. It is acceptable if the HOA imposes a special assessment or obtains a loan to fund the repairs. However, if the special assessment is related to safety, soundness, structural integrity, or habitability, all related repairs must be fully completed.
Q35. Is it acceptable for the association to take out a loan to fund critical repairs?
Yes, it is acceptable. Regardless of the means of funding, loans in projects in need of critical repairs remain ineligible until the repairs have been completed.
Associations should understand and proactively address their Fannie Mae project status
Q39. If a loan is eligible for a Limited Review, is the lender required to validate that the project also meets the requirements for another review type?
No. As long as the project and loan meet all of the requirements for a Limited Review, which includes verifying that there are no ineligible characteristics as outlined in the Selling Guide, B4-2.1-03, Ineligible Projects, the lender may use the Limited Review process and is not required to validate that the project also meets the eligibility of another review type. © 2026 Fannie Mae August 2026 Page 11 of 22 However, as stated in the “Note” under the Selling Guide, B4-2.1-03, Ineligible Projects, List of Ineligible Project Characteristics, loans secured by units in projects with an Unavailable status in CPM are not eligible for purchase by Fannie Mae, regardless of project review type. Fannie Mae may update a project status to Unavailable in CPM when we become aware that a project does not comply with our Selling Guide requirements or presents other risk factors. For example, when a loan is eligible for a Limited Review but is secured by a unit in a project with an Unavailable status in CPM due to the project not meeting certain requirements, such as budget reserves or HOA delinquency, the loan is not eligible for sale to Fannie Mae.
Q44. If a project is in the Unavailable status in CPM, can lenders submit documentation to have the status re-evaluated?
If a lender has completed a review of the project and has documentation to prove the eligibility issues are resolved, they can submit it to Fannie Mae for review and possible removal of the Unavailable status. Lenders will need to complete a review of the documentation and explain why they believe the project now meets Fannie Mae guidelines. Refer to the Condo Project Manager User Guide in the CPM Help Center for more information on submitting these requests through CPM.
Legal Resource
Fannie Mae’s updated eligibility and 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.
Please note the material contained in this article is for educational and informational purposes only and does not constitute legal advice. No attorney-client relationship is established by your review or receipt of the information contained in this article. You should not act on the information discussed in this article without first obtaining legal advice from an attorney duly licensed to practice law in your State. While KSN has made every effort to include up-to-date information in this article, the law can change quickly. Accordingly, please understand that information discussed in this article may not yet reflect the most recent legal developments. Material is not guaranteed to be correct, complete, or up to date. KSN reserves the right to revise or update the information and statements of law discussed in the article at any time, without notice, and disclaims any liability for your use of information or statements of law discussed in the article, or the accessibility of the article generally. This article may be considered advertising in some jurisdictions under applicable law/s and/or ethical rules/regulations. © 2026 Kovitz Shifrin Nesbit, A Professional Corporation.
