- 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 Requirements 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 requirements, 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 requirements 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 requirements.
- If an association does not satisfy FNMA requirements, 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.
What are Fannie Mae’s New Reserve Funding Requirements?
Fannie Mae has introduced updated reserve funding requirements that impact both associations without a current reserve study and those relying on one.
Baseline Funding Method Without an Updated Reserve Study: Beginning January 4, 2027, the Reserve Funding Baseline used by FNMA will increase from 10% to15%. If your Association does not have an updated (2-3 years) professional reserve study, you must contribute at least 15% of your annual budget toward reserve funding (this is an increase from 10%). Even if your Association raises the annual contribution to 15% without a professional reserve study, the association will still be subject to very strict eligibility reviews. Any mortgage lender considering a loan application for a unit in the association will be required to review the association’s budget, confirm total annual budget and current reserve contributions, check for other red-flags (deferred maintenance, known structural issues, special assessments not reflected in budget) and review additional documentation or inspection reports. For older buildings, lenders sometimes ask for an engineer’s report or recent financials to confirm hidden risks.
Updated Reserve Study Funding Method: Even if your Association has an updated professional reserve study, FNMA has revised reserve funding requirements for condominiums. Typically, if an association has an updated Professional Reserve Study (created or updated within the past 2-3 years), a mortgage lender can use that study to evaluate a condominium association’s reserve status.
Currently, associations who have an updated reserve study rely on the old Baseline Funding Method (10% annual contribution, regardless of what the reserve study suggests). Or if your association has been proactive and your reserve study requires less than 10%, then the annual budget could the lower amount. However, effective August 3, 2026, under the new regulations, this old method is no longer acceptable to FNMA.
After August 3, 2026, lenders must confirm that the association’s budget reflects the highest recommended allocation from the updated reserve study. For example, if your association’s reserves are adequately funded and the reserve study indicates that the highest annual contribution is less than 10%, the association is generally considered to be in a strong financial position. However, if the reserve study provides several different funding levels, the new FNMA regulations will require the association budget to reflect the highest reserve contribution recommendation and the association can longer rely on the Baseline Funding Method percentage (10% and 15% starting 2027).
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 Requirements?
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 Requirements 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 must adjust the association’s annual budget to meet the highest recommended contribution in the reserve study. This may require higher monthly assessments and a reallocation from operating funds.
- Reserve Studies: Association reserve studies must be current and comprehensive. Engineering-based recommendations must be fully implemented in the budget.
- Warrantability: Failure to follow the highest recommendation may render the condo 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 requirements 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, and navigating these evolving requirements.
Do not hesitate to contact our law firm if your association has questions about reserve funding requirements, 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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