Fannie Mae August 3 Condo Review Changes: What Sellers and Buyers Need to Know

How the August 3 Limited Review Elimination Impacts Condo Approvals

As if condo projects haven't been scrutinized enough....We have yet, another change. August 3rd of this year Fannie Mae and Freddie Mac officially retired the "Limited Review" (Streamlined Review) shortcut for conventional mortgage loans on condominium properties.

This change represents a major shift in how lenders evaluate condo purchases and refinances nationwide.

Previously, buyers putting down 10% or more on a primary residence could use a "Limited Review," allowing lenders to fast-track approvals without thoroughly auditing the HOA's financial records.

Now...For conventional loan applications dated on or after August 3, 2026, all condo projects with more than 10 units must undergo a Full Review, regardless of how much money the buyer puts down.

Instead of just evaluating the buyer's credit and income, underwriting must examine: HOA Financials & Budget: Current year-to-date and prior two years' financial statements. Reserve Funding: Reserve studies, account balances, and annual contribution allocations. Insurance Policies: Master property coverage, fidelity bonds, and per-unit deductible limits (deductibles over $50,000 make projects non-warrantable). Maintenance & Assessments: Deferred maintenance, structural integrity reports, and pending or active special assessments. Delinquencies & Litigation: Percentage of unit owners 60+ days past due on dues, and active lawsuits involving the association. 

Keep in mind! January 4, 2027 (15% Reserve Requirement): The minimum required reserve allocation rises from 10% to 15% of annual HOA assessment income (unless supported by a recent 3-year professional reserve study).

Here's what to expect: 

Longer Closing Timelines: Expect underwriting to take an extra 1–2 weeks while lenders wait for HOA management companies to fill out lengthy questionnaires and provide full financial packages.

Non-Warrantable Risk: Condo buildings with low reserve funds, deferred maintenance, or inadequate master insurance policies will lose "warrantable" status, making them ineligible for conventional Fannie/Freddie financing.

Two-Tier Condo Market: Well-managed, highly-funded HOAs will maintain strong market value and fast sales, while underfunded or aging buildings may face price pressure and require cash or portfolio loan buyers.

What You Should Do

• For Buyers: Ask your mortgage broker or lender to verify building warrantability before writing an offer. Always make sure your purchase contract includes a condo document review contingency.

• For Sellers: Request your HOA board’s financial package, reserve study, master insurance declaration, and completed lender questionnaire prior to listing so you can address red flags early.

• Expect longer escrow periods due to the full condo review as well as obtaining all the necessary HOA documents. 

If you're wondering why this came about. These policy updates stem from a combination of catastrophic safety events, unmanaged financial risk, and regulatory loopholes in the condo mortgage market.

1. The Catalyst: Surfside Condo Collapse (2021)

In June 2021, the Champlain Towers South condo building in Surfside, Florida, collapsed, killing 98 people. The subsequent investigation revealed that the building suffered from decades of severe, unaddressed structural deterioration, water corrosion, and delayed maintenance-issues the HOA board repeatedly postponed because they lacked adequate reserve funds.

This disaster exposed systemic vulnerabilities across thousands of aging residential buildings nationwide, prompting government regulators and mortgage giants (Fannie Mae and Freddie Mac) to overhaul their condo underwriting guidelines.

2. Closing the "Limited Review" Loophole

Before these updates, buyers putting down 10% or more could use a Limited Review (Streamlined Review). Under a Limited Review, lenders only checked the buyer’s personal credit and income, bypassing any thorough audit of the HOA’s financials or physical condition.

• The Problem: Buyers were unknowingly purchasing units in buildings with crumbling infrastructure, looming multi-million-dollar special assessments, or empty reserve funds simply because they made a larger down payment.

• The Fix: Retiring the Limited Review ensures that every condo project with more than 10 units undergoes a Full Review to verify its physical safety and financial solvency before a mortgage is issued.

3. Protecting Buyers, Lenders, and Taxpayers from Financial Ruin

When an HOA delays critical repairs or fails to maintain adequate reserves:

• Unit values collapse when emergency special assessments ($50,000–$150,000+ per unit) are passed.

• Unit owners who cannot pay these assessments default on their mortgages.

• Fannie Mae and Freddie Mac, which guarantee billions in conventional loans end up holding toxic, non-salable mortgage debt.

By requiring strict audits of reserve budgets, special assessments, insurance deductibles, and engineering reports, Fannie Mae and Freddie Mac protect borrowers from buying into insolvent HOAs while mitigating financial risk for the broader housing market.

Our team is experienced in condo sales and are up to date on the constant changes surrounding them. Whether you're a buyer, seller, or investor. Don't hesitate to reach us, we would love to help you navigate through this.