There are some significant changes in condominium underwriting guidelines recently announced by Fannie Mae and Freddie Mac. The changes affect both project review standards and insurance requirements for condominium projects and individual units.
The new changes mean smaller condo projects may benefit from streamlined reviews and improved access to financing, while larger projects will face higher reserve and documentation expectations. The changes bring greater insurance flexibility which may reduce premium pressure on master association policies, but it may also shift costs to unit owners.
Pam Rocco, Sales Manager with Movement Mortgage in Ocean City said, “There are several important changes coming for condominiums between now and January 2027 that are worth paying close attention to. One of the biggest positives is that roofs can now be insured at Actual Cash Value, which is a major win and could help associations better manage insurance costs. On the other hand, reserve requirements will be increasing from 10% to 15% starting in January 2027, so it will be important for associations to begin preparing now to meet those higher thresholds. Overall, these updates create both opportunities and new planning considerations for condo communities.”
Project and Financial Review Changes
• Expanded Waiver of Project Review: New and established condo projects with 10 or fewer units may now qualify for a waiver of project review. Projects with 5–10 units must not be part of a master association or larger development.
• Elimination of the Limited Review process: Projects previously eligible for Limited Review must now undergo a Full Review, unless they qualify for a waiver.
• Higher Reserve Requirements: Required reserves for capital expenditures and deferred maintenance increase from 10% to 15% of the annual budget for projects reviewed under the Full Review process as of January 2027.
• Stricter Reserve Study Use: If a reserve study is used instead of standard benchmarks, lenders must now rely on the highest recommended reserve amount in the study.
Key insurance updates in response to rising premiums and availability challenges include:
• Roofs No Longer Required to Be Insured at Replacement Cost: Roofs must still be insured, but policies may now permit certain roof losses, typically wind or hail, to be settled on an actual cash value (ACV) basis.
• Higher Allowable Deductibles: Master property insurance policies may now include per-unit deductibles of up to $50,000, provided unit owners carry supplemental coverage sufficient to cover the deductible amount.
Lauren Bunting is a Broker with Keller Williams Realty of Delmarva in Ocean City, Maryland.
