Condo Financing Is Getting More Difficult Last month, we warned that major changes were coming to condo financing. Those changes are now taking effect, and buyers, sellers, real estate agents, and HOA communities need to be prepared. As of July 1, 2026, Fannie Mae and Freddie Mac changed the rules for deductibles on condo master Insurance policies. Beginning August 3, 2026, they are also ending the easier Limited Review process for many condo projects. These changes could make some condos harder to finance, even when the buyer has excellent credit, high income, and a large down payment. Insurance Deductibles Are Now Limited For required property insurance coverage, the deductible on the HOA's master policy is generally limited to $50,000 per unit. This may sound like a small insurance change, but it can have a major effect on financing. Many California condo associations have faced large increases in insurance costs. To keep HOA dues from rising too much, some associations have chosen policies with higher deductibles. That may lower the HOA's monthly insurance bill, but it can now create a financing problem. If the deductible is too high or the coverage is too low, the project may not qualify for conventional financing. We are also seeing other insurance problems, including: Not enough coverage Large water or fire deductibles Missing types of required coverage Policies that exclude certain risks HOAs that cannot provide the full policy Insurance has already been one of the biggest problems in condo lending, and these new rules will bring even more attention to it. Limited Review Is Going Away Beginning August 3, 2026, (Monday) Fannie Mae and Freddie Mac are ending Limited Review for many condo projects. Limited Review allowed certain buyers, usually those making larger down payments, to qualify with a shorter review of the condo project. More projects will now require a Full Review. A Full Review looks much more closely at the financial condition and safety of the entire condo community. The lender may need to review: The HOA budget Reserve funds The master insurance policy Special assessments Pending lawsuits Major repairs Deferred maintenance Safety or structural concerns Owners who are behind on HOA payments This means more documents will be needed, and condo reviews may take longer. SB 326 Is Another Major Issue California's SB 326 requires many condo associations to inspect balconies, decks, stairs, walkways, and other raised structures supported by wood. The inspection itself is not always the biggest lending problem. The main concern is what the inspection finds. An inspection may uncover: Dry rot Water damage Unsafe balconies Waterproofing problems Damaged stairs or walkways Major repairs that need to be completed These repairs can lead to large special assessments. If the inspection finds a serious safety or structural problem, the condo project may not qualify for conventional financing until the repairs are completed or an acceptable repair plan is in place. Some HOAs have completed the required inspection but have not completed the recommended repairs. Others may not have enough money saved to pay for the work. These issues will receive much more attention under a Full Review. Reserve Rules Are Getting Stricter Fannie Mae and Freddie Mac also want condo associations to save more money for future repairs. If an HOA has a reserve study, its budget may need to follow the funding recommendations in that study. Beginning January 4, 2027, the minimum reserve contribution for many Full Review projects will increase from 10% to 15% of the HOA's annual budgeted assessment income. This could cause some associations to: Raise monthly HOA dues Approve a special assessment Reduce other expenses Delay improvements Change their yearly budget Having stronger reserves may help the condo community over time, but the change could be difficult for owners in the short term. There Is One Positive Change There is some good news for investor buyers. Fannie Mae and Freddie Mac are removing the old 50% investor concentration limit for certain investment-property loans in established condo projects receiving a Full Review. In the past, financing could become difficult when more than half of the units were investor-owned. Under the new rules, some investor condo loans may qualify even when more than 50% of the units are rented. The project must still meet the other insurance, reserve, repair, and Full Review requirements. What Buyers, Sellers, and Agents Should Do The most important step is to review the condo project early. Do not wait until the buyer is deep into escrow, has paid for an appraisal, or is ready to remove contingencies. Buyers should make sure their lender reviews the HOA's insurance, budget, reserves, special assessments, litigation, inspection reports, and major repair issues as early as possible. Sellers should ask their HOA or management company whether the project currently meets Fannie Mae and Freddie Mac guidelines. They should also ask about insurance problems, SB 326 repairs, special assessments, and reserve shortages. Real estate agents should treat condo approval as a major part of the transaction. It should not be something that is checked at the last minute. A condo may look great inside, but the buyer is also buying into the entire HOA community. The HOA's finances, insurance, and building condition can be just as important as the condition of the unit. Lastly and most important, have a lender that keeps up to date with all of the condos, and if his name is Mike Meena, then you are in good hands! At Augusta Financial, we have a system in place to review condo projects early. I am not sure every lender is prepared to do this, but early review is now more important than ever. Our goal is to find potential problems before the buyer spends too much money, removes contingencies, or gets too far into escrow. Some projects may no longer qualify for standard conventional financing. When that happens, we can also review non-warrantable condo loan options. These new rules are meant to protect buyers and lenders from condo projects with weak reserves, poor insurance coverage, major repairs, or serious financial problems. That is the positive side. The negative side is that more condos may become difficult to finance. Reviews may take longer, HOAs may need to provide more documents, and some sellers may have a smaller group of qualified buyers. Last month, we said these changes were coming. They are now here. What is the old saying? Things sometimes get worse before they get better. Let's hope the "better" part comes along soon! Interest Rates Mortgage rates moved up a little yesterday as the Federal Reserve wrapped up its meeting. Interestingly, three Fed members voted to raise interest rates because there is still concern about inflation. Ultimately, the Fed decided to leave rates unchanged. For those of us hoping for a rate cut, that was a little disappointing, but we will get there eventually. The only question is when! Rates are looking a little better today, but it has definitely been a rough month. I am staying positive and hoping August brings us some improvement. The glass is half full! Loan Programs Snapshot Government loans (FHA/VA/USDA): in the 5s – Conventional (≤ $832,750): low 6s High-balance: mid to high 6s Jumbo: Mid 6s Bridge Loans 7.75-7.99 Additional options: Bank statement loans (10% down+) P&L loans (20% down, no bank statements) 0% down options (620+ score) DSCR loans (15% down) Buydowns Available (3/2/1, 2/1, 1/0) Private Money loans – Hard Money Construction Loans 203K loans Commercial Loans Fix and Flip Loans Rates subject to change without notice. Condo Update Good news: Nothing this week! Bad news: Nothing this week! We love your Non-Warrantable Condo loans!! Need help checking a condo? Call me, and we can look it up in real time. Also: Full California "naughty list" available here: https://mikemeena.com/non-warrantable-condos/ Let's Connect If you or your clients, friends, or family need guidance, I'm here. 📞 661-291-2222 (Direct) 📞 661-714-6258 (Cell) 📞 661-260-2970 ext. 2222 (Office) 📧 Mike@AugustaFinancial.com Sincerely, Mike Meena President | Loan Officer Click to Call or Text: (661) 714-6258 This entry has 0 replies Comments are closed.
