2026 Fannie Mae and Freddie Mac Updated Guidelines

Byron Goetting, RS, PRA, NVEBP
GeoReserves

Mindy Martinez, DCAL, CIRMS, NVEBP, CIC, CISR
NFP Property and Casualty Insurance Services, Inc. 
 

2026 Fannie Mae and Freddie Mac Updated Guidelines

Fannie Mae and Freddie Mac have recently updated their lending guidelines for condominium communities. These new guidelines will have a major impact on these associations with respect to obtaining a reserve study as well as maintaining certain levels of insurance.

What are Fannie Mae and Freddie Mac?
Most homebuyers need to obtain financing to purchase their home. This involves a bank or other lender issuing a mortgage on the property. After the loan has been made and the home purchase is finalized, that lender typically sells the mortgage to Fannie Mae or Freddie Mac. Doing so reduces the lender's risk of losing money if the homebuyer defaults on the loan. Many banks and lenders, especially the smaller ones, cannot afford to lose such significant sums of money. This is even more true during periods of recession when more people are forced to foreclose their homes. By having a large institution purchase these loans from the lender, those lenders can then make more mortgage loans and help more people purchase homes.

Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) with a primary goal of maintaining a steady supply of money available for issuing mortgages. Although they are “government-sponsored”, they are both publicly traded corporations. However, they have certain guarantees from the federal government should the need arise.
Neither Fannie Mae nor Freddie Mac are lending to homeowners themselves. They only purchase the mortgages from the banks and other lenders after the loan has been made. Once the bank or lender sells the loans to Fannie Mae or Freddie Mac, they no longer need to worry about the homebuyer foreclosing on the property. That puts most of the long-term risk of foreclosure on Fannie Mae and Freddie Mac. Therefore, they set the underwriting guidelines for all lenders to follow. The mortgage lenders MUST follow these guidelines when issuing loans in order for Fannie Mae or Freddie Mac to purchase them.

What are the new lending guidelines?
These new guidelines specifically target condominiums communities. These changes include:

Elimination of the 50% investor concentration limit
One of the most important changes for most associations, and their community managers, is the elimination of 50% investor limit. Prior to this change, no more than half of the units in a condominium association could be owned by investors. Keeping track of how many units were investor-owned was typically the responsibility of the community manager, and an incredibly difficult metric to track. Also, this requirement prevented many people from purchasing condominium units with a mortgage. Going forward, this should be a welcome change for many associations.

Removal of the limited review process
Another major change is removing the limited review process and requiring most communities to go through a full review. About half of all condominium loans go through a limited review process, which doesn’t require the loan officer to look at the association’s operating budget, which also means the lender does not look at the budgeted reserve contribution as well.

Minimum budgeted reserve transfer
Starting in 2027, condominium communities will be required to budget a minimum of 15% of their operating budget towards reserves. This is up from the current minimum contribution rate of 10%. For most condominium associations, a budgeted reserve transfer of 15% of the total operating budget is lower than what the reserve study is recommending. However, some associations with a staff of employees or other large operating costs may not need to contribute that high of a percentage towards reserves. Therefore, the community may get around this 15% minimum if they can verify their budgeted funding plan follows their reserve study, and that study is less than 3 years old.

Lending institutions have updated their underwriting guidelines to reflect current conditions within the insurance marketplace. The changes include:

Roof Coverage Requirements 
For attached units, roof coverage remains mandatory; however, coverage is no longer required to be written on a Replacement Cost basis. Actual Cash Value (ACV) coverage is now an acceptable alternative. This revision is effective immediately, pursuant to the lender communication dated March 18, 2026.

Inflation Guard Requirement 
The prior requirement for inflation guard has been eliminated. Inflation guard is a policy feature designed to automatically increase coverage limits to account for rising construction and rebuilding costs. Although beneficial, this feature is no longer mandated. Coverage limits should be reviewed on an annual basis. This change is effective immediately.

Deductible Limitations 
Deductibles may not exceed $50,000 per unit. When a per-unit deductible is applied, the borrower is required to maintain a unit owner’s policy. Previously, master policy deductibles were capped at 5% of the Total Insured Value, a standard that rendered many associations ineligible for government funded financing. The updated guidelines are intended to broaden eligibility. This change becomes effective July 1, 2026.

These updates represent the minimum requirements under lender underwriting guidelines. Associations with deferred maintenance, significant claims history, or other elevated risk factors may still face limited coverage options and higher insurance premiums. This information should be used as a general reference to help determine whether your association meets eligibility requirements for government-backed loans when homes are bought or sold within the community.

Conclusion
Going forward, community managers should do several things. First, they can breathe a sigh of relief that they no longer need to track the number of investor-owned units. Then, it is imperative that they with their reserve specialist and insurance agent to make sure they are following these new lending guidelines. They must get a reserve study with site inspection every 3 years. They also must work with their insurance agent to update their policies to fit these new regulations. Ultimately, these guidelines will help ensure that not only is homeownership an attenable goal for many people looking at condominium communities as an alternative to single-family homes, but that these associations are doing what they must to maintain long-term property values without the need for large increases to assessment, or special assessments which can result in foreclosures.