Why Is It So Hard to Get a Mortgage on a Condo? The 2026 Rule Changes, Explained

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The biggest condo lending change in over a decade

Welcome to Mortgage Mom Radio. I'm Debbie Marcoux, the Mortgage Mom, and today we're talking about condos — I've been promising this for the last couple of weeks. If you own a condominium and have been thinking about selling it, if you're thinking about buying one, if you're a real estate agent who sells condos, or if you're a management company or an HOA property manager, this is definitely information to know. This is the biggest condo lending change in over a decade, and it starts August 3. We are right around the corner from these changes, and they're going to make a very large impact on which condominium complexes can be lent on and which cannot.

We're talking specifically Fannie Mae and Freddie Mac today. VA and FHA have their own guidelines — completely different — and there's always non-QM, non-qualified mortgages, to pick up where Fannie and Freddie would leave you stranded, though those require larger down payments.

On March 18, 2026, Fannie Mae dropped Lender Letter LL-2026-03, and Freddie Mac followed with a parallel bulletin. So it's not going to be “hey, we can't go Fannie, let's go Freddie” — they're going to mirror each other. There are a couple of beneficial changes, and then some pretty significant ones that will impact condos and their ability to get financing.

The “unavailable” list grew 20-fold

What's the number-one issue with condominiums right now? If you've been in the condo market at all, you know many complexes are having a very difficult time getting financing. It's very prevalent in California, where I do the majority of my business, and Florida has significant condo issues too — but these changes will affect condominiums across the nation, which is what a lot of people don't realize.

Look at this number: Fannie Mae's “unavailable” condo project list grew twenty-fold in four years. Unavailable is basically Fannie's way of saying the complex is declined for financing — and it has jumped since 2022 from roughly 200–300 complexes to 5,175. Why? Balcony issues and critical repairs, especially in California and Florida, and complexes that haven't carried the right fire or homeowners insurance coverage. That list is going to continue to grow. So we want to get out ahead of this in advance — helping owners, future buyers, and agents get deals closed instead of running into financing issues two or three weeks into a transaction.

Change #1: the project-review waiver goes to 10 units

Small condominium buildings just got easier to finance. It used to be that if a complex was four units or fewer, conventional financing didn't have to go through the full review process — no HOA cert, no budgets, no financials; we just had to verify the complex carried the correct insurance. That waiver has now been expanded up to 10 units, which is fantastic. We're really hoping they re-evaluate and push it to 20 units, but at this point it's 10.

One catch: if the complex is already on Fannie Mae's unavailable, do-not-lend list, it is not eligible for the waiver. We'll still have to prove the critical repairs have been fixed, or that the insurance shortfall that got it declined has been corrected — those are noted on Fannie's site. But if it's never been on that list, things just got easier.

Change #2: insurance — good news first

Some of the paperwork is getting loosened up, and some of the deductibles are getting tighter. Good news first: actual cash value coverage is fine now — the replacement-cost mandate is gone. We used to have to go to the master policy's insurance company for a replacement cost estimator proving replacement cost was part of the plan; that's no longer required, which helps complexes reduce premiums. The inflation guard requirement is retired completely — another premium saver. And instead of documents that were irritating the insurance companies, Fannie will now accept an insurer statement confirming the mandated coverages are in place.

On the waiver deals — 10 units or fewer — general liability and fidelity insurance are no longer required. For those wondering: fidelity coverage protects homeowners in big complexes if a management company mismanages or steals reserve funds; general liability covers things like a slip-and-fall on the common grounds. Not requiring them on small buildings will help those complexes cut premiums too.

The insurance catch: deductible caps and the $50,000 trigger

Now the catch. Deductibles are capped. Quick primer: the master insurance policy covers the building; an HO6 policy covers the walls-in — your personal belongings, the stove, the appliances. Sometimes the master coverage includes “betterments and improvements,” meaning everything inside, and you don't need your own HO6 — but most HOAs don't include that, so you're required to get your own policy.

When you get that HO6 policy now, the maximum deductible is the greater of 5% or $2,500 — honestly, $2,500 is going to be the maximum you can get. We used to use $5,000 or $10,000 deductibles to squeeze the premium down for a buyer trying to qualify; that's gone. In practice it's not a huge deal — most of my clients get $750 deductibles anyway.

Here's the bigger deal: a lot of master policies carry a deductible per unit. If that per-unit deductible is $50,000 or more, then even if the HOA's policy covers betterments and improvements — which before would have meant no HO6 needed — you are now required to carry an HO6 anyway. The way Fannie and Freddie look at it: if there's a fire and this person loses everything, and the master policy has a $50,000 deductible, do they personally have $50,000 in the bank to cover it? Probably not. The HO6 is there to offset that huge deductible.

Change #3: the limited review is dead

This is where it gets difficult. And again, so nobody gets confused: this is not VA, this is not FHA — this is Fannie Mae and Freddie Mac, good old-fashioned standard conventional loans. The majority of jumbo and non-conforming lenders will very likely follow suit as well.

The limited review used to save our butt. If a client had at least 10% down on a conventional condo purchase, the budget, reserves, and bylaws didn't necessarily have to be provided and reviewed. A limited review was exactly what it sounds like: we got an HOA cert completed, checked the limited items on it, verified the insurance, and we were good to go. That limited review is now dead. Every single deal moving forward, regardless of down payment, gets a complete full review of the complex.

This is where the paperwork tsunami starts. Every condo file will now need the following stack: the HOA certification, the CC&Rs, the articles of incorporation, the current year's budget, the financials — no more than three months old, a balance sheet and a P&L — the preliminary title report, the flood certification, and the appraisal. That's a lot of items, and it takes a long time to get there.

So if you're selling a condo, do not wait. Open your escrow or title order early and have the seller order the condo document package day one — you're paying for those documents regardless, because whatever buyer comes in, you have to deliver them. Get them to your lender and let us get the complex approved in advance. I love condos, I love doing condo approvals, I love working through issues and finding solutions — bring me the documents. It saves so much time, energy, and wasted cost versus the alternative: a buyer three weeks into escrow, the HOA docs finally arrive, the lender says no-go, the client doesn't have enough down to switch products, the escrow cancels, and the property goes back on the market. And every agent will confirm what happens next — when a home goes pending and comes back active, the first conclusion buyers jump to is “what's wrong with that property?” It resells, but it can take longer the second time around. If it's already on the unavailable list and can't come off yet, we'll at least identify in advance what financing can be done and how much down it takes, so you know exactly which offers you can accept.

Change #4: reserves jump to 15% in January 2027

On top of the full reviews, the reserve requirement is jumping to 15% — a 50% increase. Effective January 4, 2027, the reserve allocation in HOA budgets moves from 10% to 15%. We've already had a hard time with numerous complexes that aren't allocating even 10% — part of why we leaned on limited reviews — and now it's all out in the open on every file. I'm going to go out on a limb and say close to 90% of condominium complexes across the United States are not allocating 15% to reserves.

And this has to be planned in advance: the annual budgeting, a reserve study, an HOA meeting with the homeowners, a vote to increase dues — because if more of the monthly fee has to go to reserves, the fee has to go up. We're already in July, and HOA meetings don't happen every month. Some owners will vote no because they don't want their dues to rise, so it might not even pass the first vote. That's why that unavailable list is going to keep climbing: complexes won't figure out they're no longer lendable until it stings.

If you own a condo: go to the next HOA meeting. Get in your car and go, and ask — the Mortgage Mom said guidelines are changing. Is our insurance coverage right? Does our budget allocate 15% to reserves?

Also banned as of August 3: the accounting sleight of hand where the reserve balance is technically funded but always trending down toward zero. There's no specific dollar amount required in the reserve account, and a big outflow is understandable — balconies, roofs, termites happen. But it cannot keep dropping month after month and never get replenished. That's no longer allowed.

The one escape hatch: a professional reserve study. Fannie will allow less than 15% only if the HOA has a reserve study done and is collecting at the very highest number that study recommends. When these studies come back, they recommend a range — and the HOA has to fund at the top of it. That's going to be very far and few between.

Change #5: balcony inspections — SB 326 and its cousins

California's SB 326 has to do with balconies — and this isn't only California. Think about the disaster in Florida where the balconies came crashing down; Florida and other states have their own versions of this law. But California is where I close the majority of my loans, so let's use it: any wood-supported elevated element — balcony, deck, walkway, stair, railing — must be inspected at least every nine years by a licensed structural engineer or architect, or the complex loses access to conventional financing. It took effect for pre-2019 buildings with a three-year window that's getting close to up, so almost all of these complexes have had their inspections done by now.

When the inspection is done and the report comes back, if units in the complex are called out for critical repairs, we as the lender have to prove those repairs have been completed. I get this question from real estate agents constantly: “but the unit we're selling is done.” It does not matter. It does not matter — you can keep asking me until you're blue in the face. If 10 units in the complex need repairs, we need evidence all 10 have been repaired. Twenty units, fifty units — same answer: repaired by a licensed contractor, and cleared by the engineer or architect who wrote the report. If there's a balcony report with open critical repairs — and almost every complex has a report by now — you are not getting financed with Fannie Mae or Freddie Mac.

The fixes: repair programs, FHA/VA, and getting approved in advance

We have solutions. We have a critical condo repair program — a non-QM product — that typically requires 20% down; we can get an exception to 15%, and we are currently pushing our investors hard to allow 10%. Who does the requirement hurt? The first-time buyer coming in with 3%, 5%, or 10% down — which is one more reason to get the complex reviewed before you list.

Also remember: the insurance updates and the reserve allocation changes haven't touched FHA or VA. A complex that loses Fannie and Freddie may very well qualify for FHA — I think we're going to see a lot more FHA financing in these complexes, and we may need to start getting more complexes FHA- and VA-approved for those first-time buyers. What's important to know is that getting a complex approved FHA or VA is not an easy task. You want a lender who has done it before, knows the paperwork, and can get the package in and out without the complex getting suspended — because once it's suspended, everything slows down. My team and I, through JMJ Financial, have done many FHA and VA complex approvals, and we've turned numerous Fannie/Freddie unavailable complexes back into approved ones. We go to bat, we grab the documentation, and we know what we need.

Bottom line for sellers and agents: work with a lender and an agent who really know condos, get the documents ordered up front on day one, and know before you accept an offer exactly what financing works on your unit — because the last thing you want is to accept an offer from a buyer who can't qualify for the only loans available on your property.

Q&A: refinancing a rental condo

Mary asks: “Are the rules more strict when refinancing a rental unit?”

The rules are exactly the same whether you refinance or purchase. A loan is a loan is a loan, and the same exact guidelines apply — owner-occupied, second home, or investment property. These rules are the rules.

Q&A: are the backup lenders private lenders?

Another question came in: “The backup lenders — are they private lenders?”

No, they are not private lenders. They're big investors we work with — large mortgage companies offering non-qualified mortgages. They write their own guidelines, and they've worked with us and approved the guidelines we want to underwrite and lend around — which is why we're at 20% down even with critical repairs outstanding, with a 15% exception available and a push for 10% underway. It is not a one-on-one private person. Everything closes the same way, mortgage statements come the same way, you pay online the same way, and the loan is serviced just like a regular mortgage.

Mark your calendar

One more time, let's mark the calendar. As of today: we're already doing the waivers on complexes of 10 units or fewer — no more HOA certs and full doc stacks on those, just insurance — and we're already accepting the loosened insurance requirements. July 1: the deductible caps went into effect, so HO6 deductibles can no longer exceed $2,500. August 3: the limited review dies, and we're back to a complete full review of every complex — and the trending-to-zero reserve accounting is banned. January 4 of next year: the 15% reserve allocation has to be in the budget — or there needs to be a reserve study in place with the HOA funding at its highest recommended number — or you can say bye-bye to Fannie Mae and Freddie Mac.

Wrap-up

If you want to know when I go live so you don't miss a show, text the word LIVE to 844-935-3634 — that's 844-WE-LEND-4 — and you'll get one text a week with the topic and a link to join. At mortgagemomradio.com you can watch the show live, submit a question for me to answer on next week's episode, search past episodes by topic — 1031 exchanges, using Bitcoin to buy a home, fix-and-flip loans, reverse mortgages, first-time buyer workshops — sign up for the weekly newsletter, and use all the calculators and tools. We're here to get you into the property you need, refinance what you need, and get you out of the debt you need out of — and for real estate agents, we're here to make your life easier and get your deals closed fast. I'll be back next Wednesday at 3 PM. Have a great day. Bye-bye.