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Condo Headwinds! New Lending Rules Force Condo Associations To Raise Funds — Or Else

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  • 4 min to read

The condo market is facing new headwinds. Updated financing requirements are forcing condominium associations to revisit their budgets — or else.

As of today, Fannie Mae and Freddie Mac have tightened their review process on condominiums for buyers to qualify for conventional loans.  

The mortgage giants are also requiring condo associations increase their reserve funds by next year.

Condos & Docks

Lake area industry experts say the changes could ripple throughout the market, from financing options and HOA dues, to sales timelines and condo listing and sale prices.

The New Requirements

The changes come from new lending standards adopted by Fannie Mae and Freddie Mac, the government-sponsored enterprises that back a majority of conventional mortgages.

Condo associations will be required to dedicate a minimum of 15% of their annual budgeted income assessment to replacement reserves for capital expenditures and deferred maintenance. The current reserve requirement of 10% has been the standard since 2010.

The 15% requirement becomes mandatory for loan applications dated Jan. 4, 2027, and after.

Federal Housing Finance Agency Seal - DC, 2017

Fannie and Freddie have also retired the Limited Review process for condos starting Aug. 3, 2026. So, condominium associations will now have to provide substantially more documentation during the financing process before buyers can obtain conventional loans.

Projects that previously qualified under the Limited Review process may not meet the stricter requirements of a Full Review.

In short, the new standards are designed to ensure condo associations set aside more money for future maintenance and major repairs. According to Fannie Mae, the revisions are "intended to improve the financial health of condo projects and promote long-term sustainable homeownership."

What This Means

The new rules put the Lake-area condo market in a precarious position, according to Jeanne Rackers of On Q Home Loans, a 34-year veteran in the lending industry.

Jeanne Rackers - On Q Home Loans

Jeanne Rackers - On Q Home Loans

In the last 34 years, Jeanne Rackers with On Q Home Loans has helped thousands of people achieve the dream of owning their own home or investi…

As of July 30, 2026, Rackers said she is not aware of any Lake-area condo associations that meet the new reserve requirements right now.

Many associations have already adopted budgets based on the current 10% reserve requirement. Rackers said boards may need to hold special meetings to revise those budgets, which could result in higher HOA dues or special assessments.

Until associations meet the new reserve requirements, some condo projects could temporarily become non-warrantable, making 30-year conventional loan unattainable to buyers.

Rackers said those projects could appear as "Unavailable" or "Caution" in Fannie Mae and Freddie Mac's systems.

Because condos are generally viewed as carrying more shared financial risk than single-family homes, Rackers said lenders remain heavily reliant on financing backed by Fannie Mae and Freddie Mac. If a project doesn't qualify under the new standards, buyers will have fewer loan options.

It's not all doom and gloom, according to local lender Brandi Martin with Flat Branch Home Loans.

"Are these changes going to make an impact? Sure they are," Martin said, "but we're here to help condo boards of directors to make sense of the new rules and implement best practices within their budgets to get them onto the path for federal approval."

Martin also said alternative funding options are out there. "There are local lenders that will step up to the plates," Martin said. Although 3- and 5-year ARMs will be the most likely vehicle, and down payments will vary. 

On a positive note, condo associations that quickly find a way to meet the new requirements will likely see a competitive advantage in terms of condo price stabilization, appreciation, and buyer demand. 

The Condo Market Today

LakeExpo Real Estate owner and broker Jesse Faulstich said the local condo market remains strong today, even as buyers have become more price conscious.

"Right now the Lake condo market is very active, but price sensitive," Faulstich said. "Condo transactions are up 35% over last year, and total sales volume is roughly $30 million higher year to date, but the median sale price is 6% lower than a year ago."

Looking ahead, Faulstich expects the new lending standards to create a divide between condominium associations that adapt and those that don't.

Associations that increase their reserves or follow a strong, up-to-date reserve study should continue to qualify for conventional financing and remain attractive to a broad pool of buyers, he said. Those that fall behind may become more dependent on cash buyers and local portfolio lenders, reducing the number of qualified buyers while putting downward pressure on prices and increasing inventory and time on the market.

Over time, Faulstich expects the market to stabilize as more associations adjust to the higher reserve requirements. Until then, he said, underfunded condominium complexes are likely to face a more difficult transition.

What's All This Mean For Buyers And Sellers?

"For condo buyers, this change makes it more important than ever to evaluate the financial health of the entire association — not just the condition and price of the individual unit," explained Nicole Dorrell, Realtor/LakeExpo Real Estate. "An association that is well-managed and adequately funded may offer buyers greater financial stability, better financing options, and stronger long-term re-sale potential."

Working with a Realtor who understands the Lake condo market can help buyers evaluate which units are worth purchasing. 

LakeExpo Real Estate Agent Haley Glover insists buyers need to understand that qualifying for a loan doesn't necessarily mean they'll be able to purchase the condo they want.

"If a buyer has an interest in a specific condo and that complex does not qualify, the buyer's ability to qualify for a conventional loan becomes irrelevant regardless of credit score and the size of their down payment," Glover said.

For sellers, the financial condition of the homeowners association will become an increasingly important part of marketing a condo for sale.

Dorrell recommends sellers immediately gather association documents — including the current budget, reserve study, insurance information, and assessment history. "Do this before listing so potential financing concerns can be identified early," Dorrell said. 

Glover added that condos not qualifying for conventional financing may appeal to a smaller pool of buyers, relying more heavily on cash purchasers or buyers using specialized financing.

She also expects closing timelines to meet with delays, as lenders spend more time researching whether a condominium project meets the new lending requirements.

"But those condo complexes that qualify early... Those sellers are going to have an advantage, and their condos are likely to sell faster, for more money," Glover said. 

LakeExpo Real Estate sells Lake homes faster and for higher value, well above the market average. The unique fusion of a top-tier Real Estate Company and LakeExpo.com, the #1 Digital Media Company with the largest audience at Lake of the Ozarks, puts LakeExpo Real Estate clients in the best possible position when marketing a Lake Home or Condo for sale. Reach an agent at 573-693-1613. 

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