Fannie Mae and Freddie Mac have once again updated their Selling Guide for those seeking a loan to buy a unit in a condominium regime.
On March 18, Fannie Mae and Freddie Mac issued new updates to project standards and property insurance requirements. The updates, found in Lender Letter LL-2026-03, come in response to industry feedback and evolving market conditions related to higher insurance premiums and inflation.
Condominium developers should be aware of these changes due to their long-term financial impacts on condominium associations and regimes.
Reserve Study Funding Levels
It is recommended that developers conduct a reserve study as they initiate a condominium development. This is now more crucial than ever.
Effective August 3, 2026, lenders who obtain a reserve study to demonstrate that a condominium association has sufficient reserves can no longer use the baseline funding method. They must verify that the association’s budget includes the highest recommended reserve allocation in the reserve study.
On top of this, Fannie Mae and Freddie Mac have revised their reserve allocation requirement for capital expenditures and deferred maintenance from 10% to 15% of the condominium association’s annual budget. This essentially means that, beginning January 4, 2027, associations will have to ensure that 15% of their total annual budget goes towards funding the reserve with the only exception being the association being fully funded per the reserve study when 15% would not be mandated.
Insurance Requirements Adjust to Changing Market
Fannie Mae and Freddie Mac are also responding to changing market conditions in the insurance industry and are adjusting their insurance requirements accordingly.
Going forward, to ensure a condominium is in compliance with the insurance requirements of Fannie Mae and Freddie Mac, developers and condominium associations must ensure that their master property insurance policy coverage amount equals at least 100% of the estimated replacement cost value of the project, including common elements and residential structures. Lenders may now use any of the below to document that the coverage amount is sufficient:
- guaranteed replacement cost coverage, or its equivalent;
- extended replacement cost coverage, or its equivalent;
- a replacement cost value estimate provided by the insurer;
- the project’s insurance risk appraisal; or
- a statement from the insurer or other applicable professional with appropriate expertise to make such a determination.
In addition, going forward, the master policy is no longer required to cover roofs on a replacement cost basis, though roofs still must be insured on no less than actual cash value.
On the association side, the association must have insurance with a maximum deductible of $50,000 per unit.
The condominium industry is facing major changes with a short amount of time to make adjustments as a result of this update. Developers and condominium associations should consult with their attorneys and insurance providers to ensure they meet the new Fannie Mae and Freddie Mac requirements.
