Condo Loans Can Now Be Denied Over HOA Underfunding

Perfect credit. Twenty-five percent down. Still denied. Fannie and Freddie Won’t Finance Neglected Condos, and most North Texas buyers have no idea.

Last updated: August 13, 2026. Educational content only. Not legal, tax, lending, or insurance advice. Consult qualified professionals about your specific transaction.

A buyer with a 780 credit score, 25 percent down, two years of verified income, and a clean debt-to-income ratio can now walk into a North Texas condo purchase and get turned down for reasons that have nothing to do with the buyer.

That is what changed on August 3, 2026. Fannie Mae and Freddie Mac retired the Limited Review and Streamlined Review pathways for conventional loans on established condo projects. The Community Associations Institute estimates that roughly 40 percent of condo project reviews ran through that faster path. All of it now routes into Full Review unless the project qualifies for a waiver, which means the lender is no longer underwriting the borrower and the unit. The lender is now underwriting the entire homeowners association.

Here is the scale of it. An analysis of more than 100,000 reserve studies across all 50 states found that 74 percent of associations are underfunded, meaning they hold less than 70 percent of what their accumulated deterioration requires. In the most recent two-year sample that figure hit 82 percent, the highest ever recorded by the firm that ran the study.

Different measurement than the one Fannie applies, so not every one of those associations fails the new test. But that is the population these rules just landed on. Roughly three out of four associations in this country were already behind before anyone at the agencies started asking to see the budget.

Reserves. Insurance deductibles. Delinquency rates. Pending litigation. Deferred maintenance nobody wrote down.

Here is the big picture: this is not a paperwork slowdown it is a repricing event. As of two weeks ago, a well-funded association became a measurably more valuable place to own a unit than an underfunded one across the street, because one of them can sell to conventional buyers while the other one is about to have serious trouble. That spread is real and it’s widening on a schedule already published through January 2027. I have yet to see a single North Texas listing priced as though anyone noticed.

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What Actually Changed on August 3, 2026

For loan applications dated on or after August 3, 2026, lenders can no longer use the lighter-touch project review routes on established condo projects. Unless the project qualifies for a waiver, the lender runs a Full Review of the condominium association.

A Full Review is a project-level investigation, not a second look at the borrower file. The lender needs enough documentation to determine whether the association and the development meet agency requirements, and the association has to produce it.

Fannie Mae laid out the policy in Lender Letter LL-2026-03, issued March 18, 2026, covering project review, reserve studies, insurance requirements, and waiver criteria. Freddie Mac’s Bulletin 2026-C landed the same day with matching effective dates. Broader reporting on the rollout is available through CNBC’s coverage of the new condo mortgage rules.

Two agencies issued coordinated policy on the same day with matching effective dates, backed by FHFA, which is not what a trial balloon looks like, this is permanent policy.

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Why the Agencies Moved

Follow the line back to June 24, 2021, and Champlain Towers South in Surfside, Florida. Ninety-eight people died.

Then follow it forward to June 2026, eight weeks before these rules took effect, when the National Institute of Standards and Technology released its technical findings on the collapse. Investigators concluded that punching shear failure at two garage column connections beneath the pool deck, occurring in early June 2021, transferred load to structural elements that could not carry it causing collapse. Design deficiencies, construction deviations, added loads, and long-term corrosion had collectively narrowed the building’s margin against failure from the start. One of the investigation co-leads described those margins as too narrow from the beginning. See NIST’s release of its technical findings.

Nobody has connected those two events publicly, so connect them. The federal government spent five years determining that a condominium failed because of accumulated structural neglect that was visible and documented before it happened, and eight weeks after publishing that conclusion, the entities guaranteeing most conventional mortgages in the country stopped taking building condition on faith.

Fannie Mae’s own reasoning in the Lender Letter is blunt about the mechanism. Since 2023 the agency has observed a correlation between projects with underfunded capital reserves and projects needing critical repairs. Underfunded projects lack the resources to maintain physical condition or absorb unexpected expenses, so owners get hit with special assessments or dues spikes, and those hits produce mortgage default and foreclosure.

Most special assessments will range between $2500-$7500, but if a large structural project is needed each unit could see a special assessment of over $30,000.

Thin reserves become deferred repairs, deferred repairs become emergency assessments, emergency assessments become defaults. The agencies broke the chain at the first link, which is precisely why the financial health of an association is now a pricing input rather than a footnote.

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The Dates That Govern Everything

One timing detail decides real transactions. Agency guidance points to the loan application date, not the closing date, so a buyer whose application was dated before a policy transition date can be processed under the former rules even if the loan closes months after the new rules take place. Confirm it with the actual lender on every file, because assuming is how deals die. Individual lenders can also impose overlays stricter than agency minimums.

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What the Lender Is Actually Looking At

During a Full Review, the lender or the condo review vendor can request and evaluate:

• Current HOA operating budget
• Recent financial statements
• Reserve fund balance
• A current professional reserve study, where one exists, along with which funding method it uses
• Board minutes and evidence of planned or pending special assessments
• Known deferred maintenance, critical repairs, structural concerns, or evacuation orders
• Master insurance declarations, limits, deductibles, and coverage type
• Delinquency data on owners behind on assessments
• Active or recent litigation involving the association
• Owner-occupancy and presale status for new or newly converted projects
• Commercial space allocation and project use details
• Project status in Fannie Mae’s Condo Project Manager database

One item came off that list in March, and it cuts in your favor. Fannie retired the 50 percent investment property concentration limit for established projects reviewed under Full Review on investor loans, though the 50 percent presale requirement still applies to new and newly converted projects. Any agent still telling clients that a heavily rented established building is automatically disqualified is working from last year’s guidance.

Read the rest of that list as a seller and the repricing becomes obvious. Every line is something your board either has, has not updated, or would rather not hand over, and the associations that can produce a clean package in 48 hours now carry a marketing advantage no listing photo can replicate.

A lender’s project review remains an eligibility screen, not a substitute for the buyer’s inspection, attorney review, or insurance consultation.

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Sellers: This Is a Pre-Listing Issue Now

Your buyer can be qualified, your unit can appraise at contract price, and the deal can still collapse because the project cannot qualify for conventional financing.

HOA due diligence used to be a post-contract chore and it is now a pre-listing requirement, because a seller who waits for the buyer’s lender to order a project questionnaire has already surrendered the timeline. The reserve shortfall or pending special assessment surfaces after the option period is running, when the buyer has leverage and you have none.

Gather this before the sign goes in the yard:

Now the part your neighbors’ agents are not going to say.

If your association funds reserves at 10 percent with no adopted plan to reach 15, or relies on a reserve study while budgeting below its highest recommended allocation, your unit is more financeable today than it will be after January 4, 2027. The conventional buyer pool for your building narrows on a date that is already published, and it narrows whether or not your board ever discusses it.

That is a listing timing argument, and I will make it plainly: sell into the wider pool rather than the narrower one. If your board is actively raising reserve contributions to clear the threshold, the opposite may be true and waiting may serve you. Either way the decision belongs on the table before you pick a list date, because it is worth more than anything you will negotiate over a countertop credit.

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The Waiver Is Real, and Smaller Than People Think

One piece of this moved in buyers’ favor, and it has gotten almost no attention.

A Waiver of Project Review means exactly what it sounds like. The lender does not review the association at all. No budget, no reserve study, no delinquency rate, no litigation search. The file is underwritten on the borrower and the unit, the way condo lending worked before August 2026.

Fannie Mae previously only waived HOA reviews for condominium projects with four or fewer units. As of March 2026, the threshold jumped to ten. This means, a nine-unit conversion that would have been pulled into Full Review last year can now skip the process entirely, in the same season that everything larger got significantly harder.

The current condition sits in the five-to-ten unit range. Those projects qualify only if they stand alone, meaning the building cannot be part of a master association or one phase of a larger development. A ten-unit building inside a hundred-unit master-planned community is not a small project, and it gets reviewed like the hundred-unit community it belongs to.

A waiver also is not a free pass. The unit and project still must meet insurance and property requirements, and a project carrying an “Unavailable” status in Fannie Mae’s Condo Project Manager stays ineligible no matter how few doors it has.

Here is the opportunity. Small boutique buildings, older conversions, and site condos just became materially easier to finance than mid-rise product in the same submarket. Meanwhile the rest of the condo market absorbed the opposite shock. Buyers who cannot get comfortable with a Full Review timeline still have a category to look at and sellers in small standalone projects have a selling point their competition does not.

Ask the lender to determine the review route before the option period expires. Small does not automatically mean easy, and easy is worth confirming in writing.

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The 15 Percent Reserve Requirement Is Where the Repricing Happens

Beginning with Full Review applications dated on or after January 4, 2027, the replacement reserve requirement rises from a minimum of 10 percent to a minimum of 15 percent of the association’s annual budgeted assessment income.

The reserve study rule that already took effect on August 3, 2036 is the sharper blade, and almost nobody is discussing it. When a lender uses a reserve study to demonstrate sufficient reserves, the lender must now verify that the project’s budget includes the highest recommended reserve allocation in that study. Not a reasonable allocation. The highest one. The baseline funding method, which allows a reserve balance to approach zero without technically falling below it, is now prohibited outright.

That combination ends a very common practice, where an association commissions a reserve study, receives a range of funding scenarios, adopts the cheapest one, and calls itself funded. That association is now unfinanceable under the reserve study pathway.

Run it forward and the spread appears. An association holding dues flat for six years has four options: raise regular dues, impose a special assessment, defer repairs further, or accept reduced mortgage marketability. Three of those four cost owners money and the fourth costs them buyers, which is the same thing arriving later with interest.

Meanwhile the association down the street that has been funding reserves properly, absorbing the higher dues, and taking criticism from owners for it, just had that decision validated by federal underwriting policy. Their units sell to conventional buyers. Their neighbors’ units start needing portfolio financing, larger down payments, and a smaller pool of people who can write the check.

Two buildings, comparable units, comparable finishes, comparable location. Different buyer pools as of two weeks ago. That gap is going to show up in closed sale prices over the next several quarters, and right now it isn’t showing up in most seller’s list price.

Which reframes the question every condo buyer should be asking. Not “what are the HOA dues today,” but:

Q: “What do the financials, reserves, insurance renewals, planned capital expenses, and reserve study tell me these dues are going to become?”

The cheapest monthly HOA fee in a comparison set is either evidence of excellent management or evidence that somebody has been kicking a very expensive can down a very short road. Those two situations look identical on a listing sheet and completely different in the financial details that matter.

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Texas Deductibles Deserve Their Own Conversation

Two rules collide here, one Federal and one Texas, and the collision is where buyers get hurt.

Start with Federal. The maximum allowable per-unit deductible on a master property insurance policy is $50,000, and above that figure the project is ineligible for conventional agency financing. No borrower profile fixes it.

The corollary is the part almost nobody in this market knows yet. When a master policy carries any per-unit deductible at all, the borrower is required to carry a unit owner policy, and that policy must provide coverage at least equal to the deductible amount. A $40,000 per-unit deductible means your buyer needs an HO-6 built to absorb $40,000, not the cheapest quote their insurance agent can pull in fifteen minutes. The maximum deductible on the HO-6 itself is the greater of 5 percent of the coverage amount or $2,500.

Now Texas. Property Code Section 82.111 governs condominium association insurance, and under Section 82.002(c) it applies to every condominium in the state regardless of whether the project was formed under the Uniform Condominium Act or its predecessor. Associations must maintain property insurance on insurable common elements covering at least 80 percent of replacement cost or actual cash value, while boards may set commercially reasonable deductibles as they determine appropriate.

Section 82.111(l) belongs in every buyer conversation. When damage to a unit or the common elements results wholly or partly from the act or omission of a unit owner or that owner’s guest or invitee, the association may assess the deductible expense, plus any expense exceeding insurance proceeds, against that owner and that owner’s unit.

Assemble the pieces. A supply line fails in a third-floor unit, water finds the two units below it and the common hallway, and the master policy carries a $40,000 per-unit deductible the board adopted to hold premiums down. Under Texas statute the association can assess that deductible against the owner whose unit caused it, and that owner either holds an HO-6 with loss assessment coverage sized to absorb it or writes a check.

The statute also confirms that an association policy does not prevent an owner from carrying their own coverage, and that a mortgage holder retains the right to require additional insurance from the unit owner. Which is exactly what Fannie is now doing.

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The Buyer Playbook

Treat project eligibility as a parallel track running alongside mortgage pre-approval rather than a step that comes afterward. Before the offer goes out, or immediately after:

• Ask whether the lender has already reviewed or approved this specific project
• Ask whether the project will require Full Review or can use a waiver
• Confirm which loan program governs, because these Full Review changes apply to conventional financing tied to Fannie Mae and Freddie Mac while FHA and VA run entirely separate condominium approval systems, and approval in one confers nothing in the other
• Request the HOA resale certificate, budget, financials, governing documents, insurance declarations, reserve study, and recent meeting minutes during the option period
• Read the special assessments and planned capital projects rather than the summary
• Get an HO-6 quote before closing with a loss assessment limit sized to the master policy deductible
• Build enough time into the contract for project review
• Never rely on a verbal assurance that a building is approved without written confirmation from the lender making your loan

That last one causes most of the damage. The listing agent heard it from the board president who heard it from a lender who financed a unit there in 2023 under Limited Review, and none of that is current or binding on your underwriter.

Now the harder half, because diligence without a decision rule is just paperwork. Here is where I tell clients to walk away and start looking at other options.

The board cannot produce a current budget and financial statement. Not will not, cannot. An association that does not know its own numbers within a reasonable timeframe is telling you exactly how it manages everything else, and no lender is going to build a Full Review out of goodwill.

The reserve study exists and the budget funds a lower tier with no adopted plan to close the gap. That is a project on a countdown to January 4, 2027, and your client would be buying the exit liquidity problem along with the unit.

The per-unit deductible exceeds what your client can realistically insure against. Under $50,000 the project stays eligible, and your client still carries the exposure. A $45,000 deductible on a buyer with no reserves is a financial event waiting for a plumbing failure.

Any one of those warrants a tough conversation. Two of them together and I am showing my client something else, because talking someone out of a bad purchase is how trust is built.

Getting in front of all of this starts with a lender who has actually worked condo project reviews. Four I recommend:

• Andrew Bryan, Miramar Mortgage: andrewthelender.com
• Rachael Carter, My Texas Mortgage Team: mytxmortgageteam.com
• Jennifer Nelson, Eustis Mortgage: eustismortgage.com
• Taylor Fruge, Lower Mortgage: lower.com

I recommend these lenders based on their expertise and service. I do not receive compensation for referrals.

If you are earlier in the process, the guide to pre-approval and financing options covers the borrower side before you reach the project side.

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Non-Warrantable Is a Financing Label, Not a Verdict

A non-warrantable condo sits in a project that does not meet Fannie Mae or Freddie Mac eligibility standards for conventional agency financing. The trigger might be:

• Reserve funding below the applicable minimum, or a reserve study the budget does not fully fund
• High assessment delinquency
• A master policy per-unit deductible above $50,000, or other insurance failing agency requirements
• Material litigation
• Critical repairs, significant deferred maintenance, or an active evacuation order
• Ineligible commercial use or hotel-like operations
• An “Unavailable” status in Fannie Mae’s Condo Project Manager
• Incomplete or unobtainable project documentation

Non-warrantable does not mean the unit is a bad purchase, only that the conventional financing door is closed or narrow. Portfolio lenders and non-QM lenders finance some non-warrantable projects, usually at higher rates, with larger down payments, and with fewer options.

For a seller that shrinks the buyer pool, and for a buyer it affects their cost, timeline, future refinancing, and eventual resale. Both sides should price it accordingly, which is where a buyer who understands the math finds genuine value that financed competitors cannot reach. That is the opportunity sitting inside this entire rule change.

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The Appraisal Change Is Separate, and People Are Already Confusing Them

UAD 3.6, the redesigned Uniform Appraisal Dataset and dynamic Uniform Residential Appraisal Report, becomes mandatory on November 2, 2026. After that date every appraisal report on a loan sold to Fannie Mae or Freddie Mac must use the new format, and UAD 2.6 submissions are no longer accepted for new appraisals. The legacy pipeline stays open until May 3, 2027 solely to clear appraisals already in progress.

UAD 3.6 replaces the entire library of legacy forms, including the 1073 condo form, with a single report that expands or contracts based on property type. It changes how appraisers report data. It is not a condo project financing rule, and it does not mean condos are about to appraise lower. Anyone telling your clients otherwise is guessing.

Keep the gates straight:

Question	Primary focus
Is the buyer qualified?	Income, credit, assets, debt, loan program requirements
Is the unit worth the contract price?	Appraisal and collateral review
Is the condominium project eligible?	HOA finances, reserves, insurance, maintenance, litigation, project characteristics

A transaction can clear two of three gates and still die at the third. Before August 2026 that third gate was usually a formality, but now it’s required.

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What This Means for North Texas Specifically

Condominiums represent roughly 5.6% of active inventory in this market, which is exactly why this change is going to catch people flat-footed. A rule that arrived twelve days ago, governing a property type most agents here touch only occasionally, is a recipe for somebody’s client learning about Full Review from a denial letter.

The exposure is not evenly distributed. Condo product tends to concentrate in Dallas proper, the urban core, and the mid-rise developments north along the corridor, while the I-35E corridor south of Dallas skews heavily toward detached single-family. For agents working Ellis County, that means this reaches you through relocation clients and investors buying north rather than through local inventory, and it reaches you at the worst possible moment, when you are outside your daily territory and moving fast.

Ask the project eligibility question on the first showing rather than the first contract. If you are working buyers in North DFW, the Plano and McKinney area, or specifically Plano, it belongs in every condo conversation now.

Whether a condo fits was never a question of monthly payment alone and is even less so now. Total housing cost means principal, interest, property taxes, insurance, HOA dues, projected dues increases, reserve funding trajectory, special assessment exposure, and maintenance responsibility. Buyers weighing attached versus detached can start with the North DFW area quiz, and clients arriving from out of state will find their context in the North Texas relocation guide.

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Frequently Asked Questions

Why did Fannie Mae and Freddie Mac eliminate Limited Review for condos?

The agencies moved toward comprehensive project evaluation after years of concern about underfunded reserves, deferred maintenance, insurance gaps, and building safety, accelerated by the 2021 Surfside collapse and the federal findings that followed. Project-level diligence is now central to most conventional condo loans.

What is a Full Review for a condo mortgage?

A lender evaluation of the condominium project itself, not just the borrower. It can examine HOA budget, reserves, insurance, delinquency rate, litigation, special assessments, maintenance condition, and other factors tied to agency eligibility.

Does the 2026 condo rule change affect loans already in process?

The governing date is the loan application date, not the closing date. A buyer who applied before the effective date may be processed under the prior rules. Confirm with the actual lender, since circumstances and lender overlays vary.

What is the baseline funding method, and why does it matter now?

Baseline funding allows an association’s reserve cash balance to approach zero without dropping below it. As of August 3, 2026, lenders can no longer accept it. When a lender relies on a reserve study, the budget must fund the highest recommended allocation in that study, which disqualifies many associations that considered themselves adequately funded.

Should I sell my condo before the 15 percent reserve requirement takes effect?

It depends on your association. If your board funds reserves at 10 percent with no adopted plan to reach 15, or budgets below the highest tier in its reserve study, your conventional buyer pool narrows after January 4, 2027, which argues for listing sooner. If your board is actively raising contributions to clear the threshold, waiting may serve you better. Get the budget and reserve study in front of your agent and lender before choosing a list date.

What is a non-warrantable condo?

A unit in a project that does not meet Fannie Mae or Freddie Mac standards for conventional agency financing. The cause may be reserves, insurance, litigation, delinquency, commercial use, maintenance, or documentation.

Can I still get a mortgage on a non-warrantable condo?

Often yes. Portfolio lenders and non-QM lenders finance some non-warrantable projects, typically with higher rates, larger down payments, fewer lender choices, and tighter underwriting.

How many units can a project have and still qualify for a waiver?

Fannie Mae’s expanded waiver covers certain detached condos and qualifying projects with 10 or fewer units, up from four. Projects of five to ten units belonging to a larger master association or phased development may not qualify.

Will HOA dues increase because of the 15 percent reserve requirement?

In many communities, yes. Associations needing to raise reserve contributions to stay conventionally financeable can increase regular dues, levy special assessments, cut spending, or make other budget adjustments.

What insurance documents should a condo buyer request?

At minimum, the master policy declarations page, proof of coverage, deductible information, recent claims history, and the governing document language on deductible allocation. Then get an individual HO-6 quote with loss assessment coverage sized to the master policy deductible.

Do these rules apply to FHA and VA condo loans?

Not directly. FHA and VA operate separate condominium approval systems, and approval in one program confers nothing in the other. Buyers using those programs should verify the specific project with their lender.

How do I find out if a condo building is mortgage eligible?

Ask your lender to check the project in Fannie Mae’s Condo Project Manager and identify whether it requires Full Review, qualifies for a waiver, or has prior approved documentation. Do it before the offer if possible, immediately after if not.

How many HOAs are actually underfunded?

An analysis of over 100,000 reserve studies by Association Reserves, spanning all 50 states from 1986 through 2025, found that 74 percent of associations were less than 70 percent funded, the threshold at which an association is considered underfunded. The most recent two-year sample showed 82 percent. Percent funded measures reserve savings against accumulated deterioration, which is a different test than the contribution minimum Fannie Mae applies, so an underfunded association does not automatically fail conventional review. It does mean the majority of associations were already behind when these rules took effect.

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Compliance and Buyer Representation

Project eligibility conversations have to be delivered identically to every client, which is easier now that the criteria are financial and documented rather than impressionistic. Reserves, deductibles, delinquency rates, and litigation are objective facts about a building that apply the same way to every buyer who walks through it.

An agent should not point a buyer toward or away from a community based on protected characteristics and should present property and financing considerations consistently. The federal Fair Housing Act prohibits housing discrimination based on race, color, national origin, religion, sex, familial status, and disability, detailed in HUD’s Fair Housing Act overview.

The 2024 NAR settlement reshaped industry practice around offers of compensation and written buyer agreements. Buyer agent compensation is negotiable, and buyers should understand services, scope, and compensation terms before signing anything, per NAR’s consumer explanation of the settlement changes. Texas real estate advertising must also comply with TREC’s advertising rules.

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The Bottom Line

The 2026 changes made condominium project health a central underwriting question, which means the association’s records, reserves, insurance posture, and financial governance now matter as much as the borrower and the appraisal, and they sit entirely outside your client’s control.

The deeper consequence is the one the market has not priced. Two comparable units in two comparable buildings no longer carry comparable liquidity. The building that funded its reserves sells to the full conventional pool, and the building that did not is drifting toward portfolio financing, larger down payments, and a buyer pool that shrinks again on January 4, 2027. That spread is going to appear in closed sale prices across the next several quarters.

For sellers, the move is preparation and timing. Assemble the HOA documentation before listing, find the financing problems before a buyer’s lender does, and know which side of the January threshold your association is standing on before you pick a list date.

For buyers, the move is early diligence and a decision rule. Project eligibility and insurance review belong in your offer strategy, and you should know what a walk-away looks like before you fall in love with a floor plan.

If you are evaluating a condo purchase or sale anywhere in the DFW Metroplex or Ellis County, start with an honest read of the whole project. Not the photos. Not the price. Not the dues line on the MLS sheet.

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Bobby Franklin, REALTOR® | Legacy Realty Group – Leslie Majors Team | 214-228-0003 | North Texas Market Insider