Fannie Mae & Freddie Mac Changed the Rules on Condo Financing — Here’s What Seattle Buyers Need to Know

If you’re shopping for a condo in Seattle, Bellevue, Kirkland, Tacoma, or anywhere in King, Pierce, or Snohomish County, there’s something you need to know: the rules just changed. On March 18, 2026, Fannie Mae and Freddie Mac issued Lender Letter LL-2026-03 and Guide Bulletin 2026-C — a coordinated update to how condominiums qualify for conventional financing. Some of the changes expand access to more buildings. Others will make it harder for some projects to qualify. And a few will affect what happens at closing. Here’s a breakdown of what changed, what it means for buyers, and what questions to ask before you make an offer on a condo. These guideline changes also impact homeowners who are planning on refinancing their condo with a conventional mortgage.

Why Condo Financing Is Different in the First Place

When you buy a single-family home, the lender evaluates you and the property. When you buy a condo, the lender evaluates you, the unit, and the entire association — its finances, insurance, reserves, maintenance history, and ownership mix. Fannie Mae and Freddie Mac set the standards that most conventional lenders follow. If a condo project doesn’t meet their guidelines, it can’t be financed with a standard conventional loan. That affects buyers, sellers, and property values alike. These guidelines have been in flux since the 2021 Surfside collapse in Florida. The March 2026 updates are the most significant revision since then — and they affect condo buyers across the country, including here in the Seattle metro area.

What Changed: The Big Picture

The updates fall into three buckets: reserve requirements, insurance requirements, and how projects get reviewed. Some changes are already in effect. Others phase in through mid-2026 and into 2027.

1. The 50% Investor Limit is Gone

Previously, conventional loans in established condo projects required that no more than 50% of units be investor-owned (rented out). That limit has been eliminated on established projects — effective immediately. What this means for buyers: More buildings in urban cores — including many Seattle and Bellevue high-rises with higher rental concentrations — may now qualify for conventional financing that previously didn’t. If you’ve heard that a building was ineligible because of investor concentration, it’s worth asking your lender to take another look. There is still a limit as to how many units a person or entity can own in a development.

2. Small Projects Get a Streamlined Path

Condo projects with 10 or fewer units are eligible for a “Waiver of Project Review” — meaning buyers in these smaller buildings (up to 10 units) can skip the full project eligibility review. Previously, this waiver applied only to projects with 4 or fewer units. What this means for buyers: If you’re considering a smaller condo building — boutique developments, converted fourplexes, small urban infill projects — financing may be simpler than it used to be.

3. Limited Review is Being Retired

This is the change that will have the most operational impact on buyers and their agents. Fannie Mae and Freddie Mac are eliminating the “Limited Review” process, which was a streamlined documentation path used for roughly 40% of all conventional condo loans. Going forward, established projects will need either a Full Review or a Waiver of Project Review. Full Reviews require more documentation from the association — including questionnaires, budgets, insurance certificates, and meeting minutes. Limited Review is already being retired by many lenders. It must be fully retired for all loan applications dated August 3, 2026 or later. What this means for buyers: Expect more paperwork, more back-and-forth with HOAs, and potentially longer timelines during the loan process. If an association is slow to respond to lender questionnaires, it can delay closing. When you’re writing an offer on a condo, this is worth factoring into your contingency timeline.

4. Reserve Requirements are Increasing

Effective for budgets starting January 4, 2027, condo associations will need to allocate at least 15% of their annual budget to reserves — up from the current 10%. Associations that have completed a reserve study within the last three years have a pathway to use the study’s funding recommendation instead, but baseline funding (essentially budgeting for $0 in reserves) is no longer allowed. What this means for buyers: If an association’s reserves are underfunded, it may not qualify for conventional financing after January 2027. Underfunded reserves also correlate with deferred maintenance and special assessments — things that can affect your monthly costs after you move in. When reviewing HOA documents, pay close attention to reserve funding levels. What this means for buyers: If an association’s reserves are underfunded, it may not qualify for conventional financing after January 2027. Underfunded reserves also correlate with deferred maintenance and special assessments — things that can affect your monthly costs after you move in. When reviewing HOA documents, pay close attention to reserve funding levels.

Read: Condo & HOA Red Flags Before You Buy in Washington State for a deeper look at what percent funded a healthy reserve study should show, how pending litigation can affect financing, and how HOA dues factor into your qualifying ratio — whether you’re buying or refinancing.

5. Insurance Rules are More Flexible — But HO-6 Requirements are New

The updates make some insurance requirements easier to meet, which should help more buildings qualify and potentially lower HOA costs:

• Roof coverage no longer needs to be replacement cost value (RCV). Actual cash value (ACV) is now acceptable — effective immediately.
• The maximum per-unit deductible on the master insurance policy increases to $50,000 per unit, giving associations more flexibility in structuring their coverage. Effective July 1, 2026.

However, there’s a new requirement for individual unit owners: if the master policy includes a per-unit deductible, or if any interior improvements aren’t covered by the master policy, you’ll be required to carry an HO-6 (condo unit owner) insurance policy. Also effective July 1, 2026. What this means for buyers: If you’re buying a condo with a high master-policy deductible, budget for an HO-6 policy. This isn’t unusual — many condo buyers carry HO-6 coverage anyway — but it’s now a lender requirement in certain situations.

Key Dates at a Glance

What to Ask Before You Make an Offer on a Condo

Before writing an offer on any condo in the Seattle area, it’s worth doing a quick project-eligibility check. Here are the questions I ask on behalf of buyers:

• Is this project currently approved/eligible in Fannie Mae’s Condo Project Manager (CPM)?
• What percentage of units are investor-owned vs. owner-occupied?
• What percentage of the annual budget goes to reserves?
• Has the association completed a reserve study in the last three years?
• Are there any known special assessments pending?
• Is there any deferred maintenance flagged in the association’s meeting minutes?
• Does the master insurance policy have a per-unit deductible? If so, what is it?

Some of this information comes through the HOA questionnaire during the loan process. But some of it — especially the reserve study and meeting minutes — is available in the seller disclosure documents. The sooner you review them, the fewer surprises you’ll have.

Frequently asked questions

When do the 2026 condo guideline changes take effect?

It’s staggered. The investor concentration limit, expanded Waiver of Project Review, and ACV roof coverage took effect immediately on March 18, 2026. The $50,000 per-unit deductible cap and HO‑6 requirement took effect July 1, 2026. Limited Review must be fully retired for loans dated August 3, 2026 or later. The 15% reserve requirement applies to association budgets starting January 4, 2027.

Do these changes affect refinancing, or only purchases?

Both. Any conventional loan on a condo — purchase or refinance — goes through the same project review. If your association’s reserves, insurance, or investor concentration have changed since you bought, a refinance can run into the same eligibility questions a new purchase would.

What is a Waiver of Project Review?

It’s a streamlined path that lets a condo project skip full eligibility review. As of March 2026, it applies to projects with 10 or fewer units (expanded from 4), which can simplify financing for buyers in smaller buildings.

What happens to condo loans once Limited Review is retired?

Established projects will need either a Full Review or a Waiver of Project Review. Full Reviews require more documentation from the association — questionnaires, budgets, insurance certificates, and meeting minutes — which can add time to the loan process if the HOA is slow to respond.

Will my condo need an HO-6 policy under the new rules?

Only if the association’s master policy has a per-unit deductible, or if interior improvements aren’t covered by the master policy. This has been a lender requirement in those cases since July 1, 2026.

Still Have Questions About Buying a Condo?