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In Part I of this series, we covered the insurance‑related updates announced by Fannie Mae and Freddie Mac that may improve mortgage availability for condominium and HOA communities.
In Part II, we turn to the other major lending guideline changes adopted —many of which directly affect condominium project eligibility, reserve funding, and lender review requirements. These updates are significant and will require proactive planning by boards, managers, and community professionals.
Why These lending guidelines matter?
Fannie Mae and Freddie Mac back a large share of conventional mortgages nationwide. When a condominium project does not meet their standards, buyers may be unable to obtain financing—even if the association is otherwise well‑run.
The March 2026 updates, outlined in Lender Letter LL‑2026‑03, are intended to strengthen the long‑term financial sustainability of condominium communities while responding to real‑world market pressures. However, some of these changes will increase documentation and financial expectations for associations. Below are the additional chanes that you should be aware of:
Elimination of the "Limited Review" Process
One of the most consequential changes is the retirement of the Limited Review process for condominium projects. Historically, Limited Review allowed certain condo sales to proceed with reduced documentation.
- Limited Review will be fully eliminated for loan applications dated on or after August 3, 2026
- Lenders will now rely on either:
- Full Review, or
- Waiver of Project Review (if eligible)
This shift means more lender questionnaires, more documentation requests, and more involvement from boards and managers in many transactions
Investor Concentration Limits Eliminated
Another notable update is the removal of investor concentration limits:
- The prior 50% investor ownership cap has been retired
- This applies to projects reviewed under Full Review standards
While this may help some communities remain eligible, lenders will still evaluate overall financial health and risk factors when reviewing a project
Stronger Reserve Funding Expectations
Perhaps the most impactful long‑term change involves reserve funding requirements.
- The minimum reserve funding requirement increases from 10% to 15% of the annual budget
- This change becomes effective January 4, 2027
- When a reserve study is used, associations must follow the highest recommended funding level
- The baseline funding method is no longer permitted
These changes are intended to reduce the risk of underfunded associations and deferred maintenance—but they may also require boards to reassess budgets, assessments, and long‑term financial planning.
What Boards and Associations should do now?
While some requirements take effect later, boards should begin preparing now by:
- Reviewing current reserve studies and funding levels
- Planning ahead for potential budget adjustments
- Expecting increased lender documentation requests
- Coordinating early with management and professional advisors
Importantly, Fannie Mae and Freddie Mac guidelines are not the same as state law or governing document requirements—but they directly affect marketability and financing options for owners.
How Priestley Management Company Supports Your Community?
At Priestley Management Company, we work closely with boards to help navigate evolving lending and compliance standards. These new guidelines underscore the importance of proactive reserve planning, accurate documentation, and early lender coordination.
If your association has questions about how these lending changes may impact eligibility, budgeting, or future sales, our team is here to help guide the conversation and support informed board decisions.
