On March 18, 2026, Fannie Mae and Freddie Mac released updated lending requirements for condominium associations through policy letter LL-2026-03. These changes introduce stricter financial and building review requirements that may affect condominium associations, property managers, board members, and prospective buyers.
The updated standards place greater emphasis on reserve funding, insurance coverage, and the overall condition of condominium properties. Associations that fail to meet these requirements could experience longer closing timelines and additional scrutiny during the lending process.
Why These New Lending Requirements Matter
Mortgage lenders now have additional responsibilities when financing condominium units. Rather than focusing solely on the individual buyer, lenders must evaluate the financial health and physical condition of the entire association.
These changes are intended to reduce lending risk while encouraging associations to properly maintain their communities and adequately fund future capital repairs.
Key Changes for Condominium Associations
The updated policy introduces several important requirements:
1. Expanded Association Reviews
Most condominium sales will now require lenders to perform a more comprehensive review of the association’s:
- Financial statements
- Reserve funding
- Insurance policies
- Overall building condition
This additional review may increase the time required to complete a real estate transaction.
2. Higher Reserve Funding Expectations
Associations are now expected to contribute at least 15% of their annual operating budget toward reserve funding.
In addition, reserve contributions should align with the highest recommended funding level identified in the association’s reserve study. Previous baseline funding alternatives are no longer considered acceptable.
3. Updated Insurance Requirements
The policy now allows associations to carry Actual Cash Value (ACV) roof coverage, which may reduce insurance costs while still meeting lending requirements.
Lenders are also required to verify association insurance coverage annually.
The Growing Importance of Reserve Studies
Reserve studies play an increasingly important role in helping condominium associations prepare for long-term capital expenses.
A professionally prepared reserve study helps boards:
- Plan for future repairs and replacements
- Establish appropriate reserve funding levels
- Support long-term financial planning
- Demonstrate responsible asset management
- Meet evolving lender expectations
As lending requirements become more stringent, maintaining an up-to-date reserve study can help associations make informed financial decisions and support smoother property transactions.
How Condominium Associations Can Prepare
Boards and property managers should consider reviewing their current financial and maintenance practices to ensure they align with the updated lending standards.
Recommended steps include:
- Reviewing reserve funding levels
- Updating reserve studies when necessary
- Evaluating current insurance coverage
- Planning for future capital improvements
- Addressing deferred maintenance before it becomes a larger issue
Taking a proactive approach can help associations remain financially prepared while supporting successful real estate transactions within their communities.
If your condominium association needs assistance with reserve studies, capital planning, or building condition assessments, Forma Engineering provides engineering consulting services for condominium and homeowner associations throughout Central Ohio.
