Reminder: HOA Condo Mortgage Rules Are Changing for Condo Sales

Pool and spa area of HOA condos

Effective August 3, 2026, Fannie Mae and Freddie Mac have new rules for their mortgage underwriting in condominium buildings. 

The California balcony inspection law was one measure enacted after the condo building collapse in Florida just a few years ago. Now Federal Housing Finance Agency (FHFA) is addressing the insurance issues and repairs getting done when reserves are underfunded. 

There used to be a "limited review process" allowed in as many as 40% of loans nationwide, but no longer. The Full Review process is now required which requires lenders to look at the HOA's financial position, budgeted reserves and owner dues delinquencies.

The new review process means that the HOA budget must must include the highest reserve allocation in the HOA reserve study (required under California law) to cover costs identified.

Therefore, starting January 4, 2027, lenders must review the budget and confirm that 15% of annual assessment income is allocated to reserve fund for future maintenance and repairs. That doesn't mean that the entire 15% must actually be in the account, because some may have already been spent for annual repairs, but they must see the 15% allocation in the budget.  This is an increase from the 10% which was in effect for many years previous.

So buyers and sellers must be prepared for loan approval to take longer than before, and ideally, the HOA property manager will be as prompt as possible in getting the HOA documents to the lender, or the HOA Board will if there is no property manager.  Sellers will want to be aware of timelines and be in touch with their Boards about any compliance issues during this period, and buyers should be in touch with their lenders about any approval questions.

This is one of the biggest changes to come along in HOA approval process, and this, along with insurance, are reasons for some units needing a little more time to get through escrow. It's important for sellers to know that should their HOA not have the budget properly reflect the 15% reserve amount, as well as outstanding balcony inspection and repair issues, that it may mean a buyer will not qualify for conventional or even FHA loans, until the requirements are met.  

If you  would like more information about these requirements, this would be a good time to consult with your mortgage lender (some are conducting webinars about this topic), or go to https://singlefamily.fanniemae.com/media/44986/display. 

Julia Huntsman, REALTOR, Broker | http://www.abodes.realestate | 562-896-2609 | California Lic. #01188996