With a higher condo reserve requirement taking effect Jan. 4, loan originators preparing for early-2027 business should bring association budgets into the financing conversation now. A project that supported an earlier closing may need another look before the next buyer applies.
Fannie Mae and Freddie Mac announced the increase in March, raising the minimum annual replacement-reserve allocation from 10% to 15% under applicable project reviews. Originators should work with their project-review teams to determine whether an association’s budget supports financing under the new requirements or another available review pathway.
The deadline approaches during a weaker market for condo transactions. Homes.com’s September housing report, released Oct. 21, shows condominium sales fell 10.1% from a year earlier, compared with a 6% decline across all housing types. The median condo sale price declined 1.4% to $345,000.
For originators helping buyers pursue those lower prices, association dues and project eligibility belong alongside the purchase price in the initial financing conversation. Reviewing both early can help identify payment or financing obstacles before buyers spend money on a transaction.
California adds a separate timeline: its newly enacted HOA reserve-funding duties begin in 2032, five years after the agency increase. Meeting the state’s requirements will not, by itself, establish eligibility for agency financing.
The Application Date Controls
Fannie Mae’s lender letter applies the higher allocation to Full Review loans with applications dated on or after Jan. 4, 2027. Freddie Mac’s bulletin uses the application received date.
Freddie also says an unexpired project review completed before the effective date does not excuse a lender from confirming compliance with the new requirements for later applications.
For originators, a project’s financing history should prompt a request for current documentation and confirmation of the review pathway for the next loan. An earlier closing offers useful background, but the next application needs its own eligibility determination.
The 15% standard concerns the annual budget allocation for reserves, calculated against budgeted assessment income. It is not a requirement to hold 15% of the property’s value in a reserve account.
Stronger Reserves, Potential Cost Pressure
The agencies have linked underfunded reserves with critical repairs and warned that inadequate funding can expose owners to unexpected special assessments or higher dues.
That creates an affordability calculation for buyers: stronger reserves can support future maintenance, while the contributions needed to build them can increase ownership costs.
Lenders have raised concerns about financing access. In July, AD Mortgage said approximately 30% of manually reviewed condo projects in its Florida analysis had reserve funding below the revised 15% threshold. The wholesale lender urged the Federal Housing Finance Agency to monitor the changes’ effects on access to conventional financing.
Reserve Studies Still Matter
Fannie permits a qualifying reserve study to demonstrate sufficient reserves when a project does not meet its standard budget allocation. For applications beginning Aug. 3, 2026, that alternative requires the budget to include the study’s highest recommended allocation and prohibits baseline funding that merely keeps the projected balance from falling below zero. Freddie adopted corresponding reserve-study requirements.
The January increase follows the August retirement of Fannie’s Limited Review and Freddie’s Streamlined Review, which NMP covered ahead of implementation. Applicable waiver and exemption options remain available.
Originators should have the lender’s review team establish whether a project meets the percentage requirement, qualifies through a reserve study, or is eligible for another review pathway.
California Has A Separate Timeline
Gov. Gavin Newsom signed AB 2050 on Sept. 29, establishing new reserve-funding obligations for California associations beginning Jan. 1, 2032.
The law requires annual funding at least at the minimum contribution level identified in the applicable reserve study, designed to prevent a projected negative balance over 30 years.
If the balance is projected to fall below zero during that period, the law requires an annual transfer of at least 15% of the association’s gross annual budget until the projected shortfall is eliminated. It also establishes special-assessment procedures when budget funding is insufficient, subject to specified limits and voting provisions.
California’s conditional 15% transfer uses a different calculation base from the agencies’ standard. Its minimum funding objective also differs from the agencies’ restrictions on baseline reserve-study funding.
For California LOs, the immediate financing deadline remains January 2027. The state’s longer timeline should not delay a conversation with the lender’s project-review team about an association’s current eligibility.
Bring Project Finances Into The Deal Early
For upcoming condo transactions, originators should request the current association budget, any available upcoming budget, and relevant reserve documentation early enough for the lender’s review team to identify issues.
If an association plans higher dues or a special assessment, bring those costs into the borrower conversation promptly. Buyers need a realistic picture of ownership expenses alongside their available loan options.
Establishing project eligibility early gives the LO, buyer, and real estate agent more time to address documentation gaps or reconsider financing. Waiting until the final weeks leaves less room to resolve a problem that the borrower’s credit score and down payment cannot fix.
