Fannie Mae’s August 2026 Condo Rule Change: What California Condo Buyers Need to Know

I’m Michael DiVita — DRE #01372066 | NMLS #241655, DiVita Home Finance (DRE #01818285 | NMLS #323700), Tiburon, CA. I’ve been in California mortgage lending since 2000 and founded DiVita Home Finance in 2007. I’m known as a creative mortgage broker: when a bank says no, I find the lender and the loan structure that can say yes. Call (800) 239-1103.

If you own, are buying, or are selling a California condo, the rules for getting a conventional loan approved on that building changed in 2026. Fannie Mae announced the changes in Lender Letter LL-2026-03, Freddie Mac made matching changes, and the biggest one became mandatory for loan applications dated on or after August 3, 2026. On top of that, California’s SB 326 balcony inspection law is turning up repair bills that now feed straight into the lender’s review of the HOA.

Here’s what changed, what it means for buyers, sellers and owners, and what I do when a building doesn’t pass.

What Changed on August 3, 2026

Fannie Mae retired its Limited Review process, and Freddie Mac retired its counterpart, Streamlined Review. Limited Review was the fast-track option many lenders used when a buyer put a larger down payment on a condo in an established project: the lender checked a few items (mainly insurance and a handful of eligibility questions) instead of reviewing the whole HOA.

For loan applications dated on or after August 3, 2026, a condo project now goes through one of two paths:

• Waiver of Project Review — available for detached condo units, projects with 2–4 units, and projects with 5–10 units that are not part of a master association or larger development. The unit still has to meet Fannie Mae’s insurance requirements, the project can’t be marked “Unavailable” in Fannie Mae’s Condo Project Manager, and there can’t be unaddressed critical repairs or evacuation orders.
• Full Review — everything else, which in practice means almost every California condo building of 11 units or more, and smaller buildings that sit inside a master association.

A bigger down payment or a better credit score no longer gets you around the building review.

What a Full Review Looks At

Under Full Review the lender (or a condo review company working for the lender) collects the HOA questionnaire, budget, insurance and often the reserve study, and checks the project against Fannie Mae’s eligibility rules. The items that most often trip up California buildings:

• Reserves — the HOA budget must allocate at least 10% of annual assessment income to reserves for capital repairs and deferred maintenance. That minimum rises to 15% for Full Reviews starting January 4, 2027. An HOA below the minimum can still qualify with a reserve study, but lenders must now confirm the budget funds the study’s highest recommended reserve amount, and the “baseline” funding method (letting reserves run down toward zero) is no longer accepted.
• Critical repairs and special assessments — a project is ineligible if it needs critical repairs that haven’t been completed, including unfunded repairs costing more than $10,000 per unit that should be done within the next 12 months, material deficiencies that could lead to a failure within a year, water intrusion or mold, or advanced deterioration. Lenders must also document every special assessment: its purpose, amount, how much remains, and when the work will be done. A special assessment tied to an unremediated critical repair makes the project ineligible.
• Litigation — pending litigation involving the HOA or developer that relates to the safety, structural soundness, habitability or functional use of the project makes it ineligible. Minor litigation (neighbor disputes, claims the insurer is defending, or suits where expected damages are no more than 10% of funded reserves) does not.
• Master insurance — the HOA must carry the required property and liability coverage. Starting July 1, 2026, the master policy’s per-unit deductible can’t exceed $50,000, and owners must carry their own HO-6 policy. On the positive side, Fannie Mae dropped the requirement to separately document replacement cost value when the policy is written on a replacement cost basis.
• Other ineligible characteristics — condo-hotels, more than 35% commercial space, too many units owned by a single entity, or an HOA earning significant income from outside business activity.

One Rule Got Easier: Investor Concentration

Fannie Mae also retired the old limit on investor-owned units in established projects reviewed under Full Review. A building where most units are rentals is no longer non-warrantable for that reason alone, which helps in rental-heavy markets like Palm Springs and parts of Los Angeles and San Francisco. (New projects still have presale requirements, and a project with hotel-like rental operations is still a condotel.)

Why This Hits California Especially Hard

California’s SB 326 (Civil Code §5551) required HOAs in buildings with three or more attached units to have a licensed structural or civil engineer or architect inspect their wood-supported balconies, decks, walkways and stairways by January 1, 2025, and every nine years after that. Those inspections are now showing up in the HOA documents the lender reviews:

• An SB 326 report that identifies structural deficiencies can put the building into “critical repair” territory until the work is done.
• Repairs are often funded through a special assessment — which the lender must now document in detail.
• Older buildings (30–50 years old) with thin reserves struggle with the reserve test, and that test gets tougher in January 2027.
• Insurance costs have pushed many California HOAs to raise their master deductibles, and some are now above the $50,000-per-unit cap.

Buildings that used to be approved in a few days under Limited Review are now getting the full questionnaire — and some are failing it.

If You’re Buying a Condo Now

• Get the HOA package early: two years of financials, the current budget, the reserve study, the master insurance declarations page, the SB 326 inspection report and any board minutes discussing repairs or assessments.
• Ask your lender to review the building before you remove contingencies, not after. I can usually tell from the HOA documents whether a building is likely to pass Full Review.
• Check the master deductible and budget for an HO-6 policy that covers it.
• Have a Plan B lined up. If the building fails, a portfolio or non-QM condo loan can often still close — but it needs the right lender from the start.

If You’re Selling a Condo

Your pool of conventional buyers shrinks if your building has any of these:

• No completed SB 326 inspection, or deficiencies found but not repaired or funded
• Reserves below the 10% budget minimum (15% for Full Reviews starting January 4, 2027) without a reserve study that supports the funding
• An open special assessment tied to structural repairs
• Litigation over construction defects or safety
• A master policy deductible over $50,000 per unit

Disclose early, price with the financing reality in mind, and work with a listing agent who knows which buyers can actually get financing for your building.

If You Own a Condo and Want to Refinance

A conventional refinance goes through the same project review. If your HOA has any of the problems above, the refinance can be declined because of the building rather than your income or credit. Small projects (10 or fewer units, not in a master association) may qualify for a waiver. Otherwise, a portfolio refinance, or waiting until repairs are finished and documented, are the usual paths.

What I Do When a Building Fails Full Review

This is where being a broker instead of a bank matters. When the building doesn’t qualify for Fannie Mae or Freddie Mac, I shop it to lenders who don’t need agency approval:

• Portfolio and non-warrantable condo loans — lenders that keep the loan on their own books and set their own building rules. Rates are usually higher than conforming and down payment requirements are larger, often 20–25% or more, depending on the building and the borrower.
• Non-QM condo programs — flexible on both the building and the documentation (bank statements, asset-based, and more), with pricing driven by the whole file.
• FHA single-unit approval — possible in some projects that aren’t FHA-approved, if the project meets HUD’s requirements.
• DSCR loans — for investors buying rental condos, qualifying on the rent instead of personal income.

Terms change often, so I price your specific building and file with several lenders before you commit. For more on each option, see my non-warrantable condo mortgage guide and the full SB 326 condo financing guide.

Frequently Asked Questions

What did Fannie Mae change about condo financing on August 3, 2026?

Fannie Mae retired its Limited Review process (Freddie Mac retired Streamlined Review) for loan applications dated on or after August 3, 2026. Condo projects now get either a Waiver of Project Review, which covers detached units, 2–4 unit projects and 5–10 unit projects not in a master association, or a Full Review of the HOA’s budget, reserves, insurance, repairs, special assessments and litigation.

What are the new condo reserve requirements?

Under Full Review the HOA budget must allocate at least 10% of annual assessment income to reserves, rising to 15% starting January 4, 2027. An HOA below the minimum can qualify with a reserve study if the budget funds the study’s highest recommended amount; the baseline funding method is no longer accepted.

Is there a cap on the HOA master insurance deductible?

Yes. Starting July 1, 2026, Fannie Mae limits the master policy deductible to $50,000 per unit, and unit owners must carry their own HO-6 policy. Buildings with higher deductibles don’t meet Fannie Mae’s insurance requirements.

Does a special assessment make a condo non-warrantable?

Not automatically. The lender must document the assessment’s purpose, amount, remaining balance and completion date. If it is tied to a critical repair that hasn’t been fixed, such as structural balcony repairs found in an SB 326 inspection, the project is ineligible until the work is completed.

What are my options if my condo building fails Full Review?

Portfolio and non-warrantable condo loans, non-QM condo programs, FHA single-unit approval in some projects, and DSCR loans for investors. These usually carry higher rates and larger down payments than conforming loans, so it pays to compare several lenders.

Related Resources

• SB 326 Condo Mortgage Guide for California
• Non-Warrantable Condo Mortgages in California
• HOA Special Assessment Loan Options
• SB 721 vs SB 326: Balcony Laws and Financing
• Condotel Mortgages in California
• Palm Springs Leased Land Mortgages
• Non-QM Mortgage Options in California