Hey folks, welcome to this month’s Breaking Down the Mortgage. I wanted to bring you up to speed on some big changes that are coming to condominiums and how this affects you, especially on the listing side when you’re going to list a condo, and the things you’re going to want to get ahead of. If you’ve got buyers that are looking to own condos, these are good things to be aware of as well. You can go to Google and search for Fannie Mae changes to condo guidelines. They reference review material from NAR and some other sites. I wanted to hit three changes that I see as a big deal. The first is the end of limited reviews.
As I’m filming this, we’re doing a condo purchase whereby the buyer is able to get a limited review. If they’ve got good credit and are putting about 10% down, you don’t have to do a full review. The limited review is a little three-pager, super easy to fill out, not a big deal, and doesn’t have too much information that can cause problems. They’re ending that in August, so everyone’s going to have to do a full-blown review, which could be a bit more problematic and will definitely take more time. A couple of these changes aren’t as big a deal. If it’s a smaller project with 10 units or less, you don’t even need a review anymore. They’re also getting rid of the 50% investor concentration rule. We very rarely run into condo projects where there’s more than 50% investors. Another big change is the reserve allocation. Most of you know that condos have to have a 10% reserve for expenditures, deferred maintenance, and normal expenses. That’s going to 15%. You’re going to want to get out ahead of that with any listings that you have and make sure that message is getting out there. That’s a big deal.
Another change involves roofs. In the past, they had to use the full replacement cost. That’s gone away, and they can now use actual cash value, which is a little better for us. Also, because deductibles are higher, they’re allowing a higher deductible in the master policy to keep premiums down. Master policies can now carry per-unit deductibles up to $50,000, provided that the unit owner obtains supplemental insurance to cover the gap. Similar to how clients get their own insurance for the walls in, called an HO6 interior policy, they can have a rider that covers a deductible. If something happens, that insurance could kick in to pay their portion of the deductible that goes against the master policy. This is all coming down the pipe and is effective August 3, 2026. It’s something you’re going to want to get ahead of. When you’re doing a listing, get a review of the financials and make sure the reserves are at least 15%. Otherwise, ask them to get out ahead of that so it doesn’t cause problems later.
Lastly, if it doesn’t fit in Fannie Mae’s bucket, we do have a lot of non-qualified mortgage options and non-warrantable condo financing that will probably be able to get around some of this. You won’t be dead in the water, but it will not be ideal. Thanks for watching. If you have questions, always reach out to me. I’m never too busy to help. I hope you have a great month, and we’ll talk to you soon. Take care.
