Fannie Mae’s New Condo Rules: What Associations, Owners, and Lenders Need to Know
On March 18, 2026, Fannie Mae issued Lender Letter LL-2026-03, introducing significant updates to condominium project standards and insurance requirements. These changes—aligned with Freddie Mac and federal housing guidance—will roll out over the next year and will impact associations, unit owners, and lenders alike.
Higher Reserve Requirements Ahead
Condominium associations should prepare for stricter reserve funding rules. Beginning January 4, 2027, the minimum contribution will increase from 10% to 15% of annual assessment income—unless a current reserve study (within three years) supports a lower amount and the association follows its highest recommended funding level.
Earlier, on August 3, 2026, associations relying on reserve studies must ensure their budgets reflect the highest recommended funding levels. These changes may lead to increased condo fees or special assessments as associations adjust their financial planning.
Project Review Changes
The Limited Project Review option will be eliminated as of August 3, 2026. Only Full Project Review or Waiver of Review will remain, though more projects—including smaller developments—may qualify for a waiver.
Updated Insurance Requirements
Insurance standards are also shifting. Associations must maintain replacement cost coverage (with some flexibility for roofs), and certain prior requirements—like inflation guard—are being removed.
For unit owners, deductible requirements are increasing. Owners must ensure their individual policies adequately cover interior units and any gaps created by the master policy, including per-unit deductibles. The minimum deductible requirement is now the greater of 5% of coverage or $2,500.
What This Means for Lenders
Lenders and servicers will face enhanced monitoring obligations, including annual reminders to borrowers about maintaining adequate property insurance.
How Our Firm Can Help
These changes introduce new compliance risks and financial considerations for condominium boards, property managers, and lenders. PK Boston Law can assist clients by:
Reviewing and updating governing documents and budgets to meet new reserve requirements
Advising on reserve studies and funding strategies
Evaluating insurance coverage for compliance and risk exposure
Guiding lenders and servicers through updated regulatory obligations
With key deadlines approaching in 2026 and 2027, proactive planning is essential. We work with clients to navigate these changes efficiently and avoid costly surprises.
