Condo mortgage underwriting is changing. Some updates should make financing easier, while others will require condominium associations to provide stronger financial and insurance documentation.
These changes primarily affect conventional mortgages backed by Fannie Mae and Freddie Mac. The changes will affect mortgage underwriting for condos in Washington DC, Maryland, Virginia, and all over the U.S.
What is getting easier?
More small condo projects may avoid a full project review
Eligible condominium projects with 10 or fewer units may now qualify for a Waiver of Project Review. Previously, this option was generally limited to projects containing two to four units.
Projects with five to 10 units must meet additional conditions, including not being part of a larger development or master association. A waiver is not automatic; the loan and project must still satisfy the applicable requirements.
Investor-concentration limits are being removed
For investment-property loans in established condo projects, the previous 50% investor-concentration limit has been eliminated.
This could make financing easier in projects containing a large percentage of tenant-occupied units. Separate owner-occupancy and presale requirements may still apply to new or newly converted projects.
Some insurance requirements are more flexible
Condo master policies are no longer required to insure roofs at replacement cost. The roof must still be insured, but coverage may use another acceptable loss-settlement method, such as actual cash value.
Fannie Mae and Freddie Mac have also eliminated the requirement for inflation-guard coverage on condo master insurance policies.
What is getting harder?
Limited Review is being eliminated
The streamlined Limited Review process is being retired. For loan applications dated on or after August 3, 2026, an established condominium project generally must qualify through a Full Review or an available waiver or exempt-review option.
This means lenders may need more information from the condominium association before approving the loan.
Reserve-study standards are becoming stricter
When a reserve study is used to demonstrate that a project has adequate reserves, the association’s budget must include the study’s highest recommended reserve-allocation amount. The baseline funding method—under which reserves may approach but not fall below zero—is no longer acceptable.
This requirement applies to loan applications dated on or after August 3, 2026.
The minimum reserve contribution is increasing
For Full Reviews, the minimum annual contribution to replacement reserves will increase from 10% to 15% of the association’s annual budgeted assessment income.
This change applies to loan applications dated on or after January 4, 2027.
HO-6 deductible limits have changed
When an individual unit-owner policy, commonly called an HO-6 policy, is required, its deductible generally cannot exceed the greater of:
- 5% of the policy’s coverage amount; or
- $2,500.
What should condo buyers do?
Before making an offer, ask a lot of questions about a condo you may be interested in.
A well-qualified borrower can still encounter financing problems if the condo association has inadequate reserves, unresolved repairs, insufficient insurance or incomplete documentation. Identifying those issues early can help prevent delays or surprises after you are under contract.
If you are purchasing or refinancing a condominium in Washington, D.C., Maryland or Virginia, contact me before you make an offer. I can help you understand both the mortgage and the condominium-review requirements.
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Guidelines vary by loan program, transaction and project. This overview is based on the 2026 Fannie Mae and Freddie Mac updates and is not a commitment to lend.
Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.
