Fannie and Freddie tighten condo rules, shrinking buyer pools in an already soft market

Selling a condo has been hard enough. Starting now — and through early 2027 — it is about to get harder. Fannie Mae and Freddie Mac, which together back roughly 70% of the U.S. mortgage market, are rolling out the most significant overhaul of condo financing standards in years, eliminating a widely used shortcut for approving loans and raising the bar on how much money condo associations must keep in reserve.

The first major change is already in effect. Limited reviews that allowed many well-qualified buyers to obtain mortgages after only a cursory look at a building's financial and structural health were eliminated last month for most established condo projects. All but the smallest buildings must now undergo full project reviews, requiring far more documentation on HOA finances, insurance coverage, and reserve levels.

The second change arrives in January 2027: condo associations will be required to allocate at least 15% of their assessment income to reserves, up from the current 10% threshold.

Both changes stem from the federal government's response to the 2021 collapse of an aging condo building in Surfside, Florida, which killed nearly 100 people. The Federal Housing Finance Agency, which oversees Fannie and Freddie, announced the updates in March, framing them as a way to reduce long-term costs for homeowners by ensuring buildings are better maintained and funded. But the practical effect, industry participants warn, is more complexity and more deals falling through.

The biggest issue with the recent changes to the condo rules is the elimination of limited process review, which allows many established condo projects to qualify more easily. It could shrink the buyer pool and slow down closings.— Mat Ishbia, President and CEO, United Wholesale Mortgage

The stakes are significant. Condos and other common-interest communities represent roughly 35% of the nation's housing stock, according to a 2025 report from the Foundation for Community Association Research cited by trade groups. About 78 million people live in the 373,000 community associations across the country, including planned communities, condo associations, and co-ops.

The new rules land on a market already under strain. Nationally, condo prices have fallen 2% from their peak, according to Zillow data cited by Yahoo Finance. In some markets the damage is far worse: Punta Gorda, Florida, is down 35% from its September 2022 peak; Tampa is down 24%; Austin, Texas, is down 28%; and Denver and Raleigh have each fallen more than 16%. Condo sales dropped 2.7% in August compared to a year earlier, outpacing the 1.1% decline in single-family home sales, according to National Association of Realtors data. There are now 6.6 months of condo supply nationally — a buyer's market — versus 4.7 months for single-family homes.

Condos have historically been more volatile than single-family homes, with prices quicker to fall and slower to recover, partly because their buyer base is smaller. That gap has widened as housing affordability has deteriorated and buyers have grown resistant to HOA fees that can add hundreds or thousands of dollars a month to housing costs. Many associations have already been forced to hike fees or levy special assessments to comply with state-level safety and reserve laws passed after Surfside — adding another layer of sticker shock for prospective buyers.

When a building fails to meet Fannie and Freddie's standards — due to pending litigation, insufficient insurance, too many owners delinquent on HOA dues, or now, inadequate reserves — it becomes 'non-warrantable,' meaning it is ineligible for conventional financing. Buyers of non-warrantable condos must either pay cash or turn to specialized, higher-rate mortgages. In practice, many simply walk away.

If the building doesn't qualify, people are usually walking away, even if they're cash (buyers). They don't want to deal with it.— Griffin Wallace, South Florida-based real estate agent

A well-run, established HOA with solid reserves, acceptable finances, no major items like maintenance or litigation…should still be fine. But it absolutely does create more places for it to fail.— Michael Belfor, mortgage banker and branch manager, American Pacific Mortgage

United Wholesale Mortgage, the Pontiac, Michigan-based wholesale lender, is moving to fill the gap. The company announced this week that it is expanding financing options for non-warrantable condos on conforming conventional loans and select jumbo, investor flex, and bank-statement products. It is also launching a Condo Eligibility Tool that lets brokers enter a condo address and instantly see whether a project might qualify and which loan products could be available. UWM's expanded program targets borrowers with FICO scores of 680 or higher, maximum 90% loan-to-value ratios, and debt-to-income ratios up to 45%. Under the program, non-warrantable characteristics such as commercial space making up as much as 50% of a project, or up to 25% of owners being 60 or more days delinquent on dues, can still be accommodated — though a full project review is required.

For buyers and sellers trying to navigate the new landscape, agents and lenders say the single most important step is to start gathering HOA financial documents as early as possible. In markets like Texas, where state law has not yet imposed new condo safety or reserve requirements, the learning curve may be steeper.

The biggest bottleneck is the HOAs themselves producing these studies.— Justyn LeFebvre, Realtor, Christie's International Real Estate, Austin, Texas

I think there will be some scramble, for sure.— Justyn LeFebvre, Realtor, Christie's International Real Estate, Austin, Texas

In Florida, where state law already pushed many buildings to conduct inspections and shore up reserves after Surfside, some agents are more sanguine. Wallace says buildings that have already done the work should be positioned to weather the new rules — and that buyer appetite for well-maintained condos remains real.

There is still a lot of appetite for condos that are taken care of. If the building has been taken care of, they've been budgeting for this.— Griffin Wallace, South Florida-based real estate agent

Why it matters — For the millions of Americans who own or want to buy a condo, tighter Fannie and Freddie standards mean more deals could fall through, more buyers could be pushed into expensive non-agency loans, and sellers in already-soft markets face a shrinking pool of eligible purchasers.

Reported by yahoo.com, finance.yahoo.com, floridarealtors.org, housingwire.com