Fannie Mae's 15% Condo Reserve Rule

The short answer: for loan applications dated on or after January 4, 2027, Fannie Mae requires a condo association to budget at least 15% of its annual assessment income toward reserves, up from 10%. If a building falls short and can't qualify another way, buyers there may not be able to get a conventional Fannie Mae loan.

If you're buying a condo in Chicago or on the North Shore in the next year, or you own one and might sell, here's what's changing and what to check.

What's changing

Fannie Mae announced the change in Lender Letter LL-2026-03 on March 18, 2026. It ties underfunded reserves directly to buildings that end up needing critical repairs. Here's what's in it:

• The reserve minimum rises from 10% to 15% of the association's annual budgeted assessment income.
• The limited review is gone. Before, lenders could skip the budget and reserve check on many established buildings. Since August 3, 2026, those loans go through a full review instead, so more buildings get their budgets checked.
• The reserve study option is stricter. A building under the minimum can still qualify with a reserve study, but the budget has to include the study's highest recommended reserve amount. The "baseline" funding method, which lets the reserve balance run down toward zero, no longer counts.
• Freddie Mac announced a similar change. Ask your lender how it applies to your loan.

Key dates

Lenders were encouraged to start applying the changes right away, so some may already be using the 15% standard.

How the 15% is calculated

The math is simple: the budget's annual reserve contribution divided by the association's budgeted assessment income.

Some income can be left out of the calculation, such as special assessment income, income already allocated to reserves, small incidental income, and charges for utilities like cable or internet.

An example, with made-up numbers. Say a 24-unit building budgets $500,000 a year in assessment income.

• At 10%, it needed $50,000 a year going to reserves.
• At 15%, it needs $75,000.
• That's $25,000 more a year, or about $87 a month per unit on average.

How that's split depends on each unit's share in the declaration. If the board covers the gap by raising assessments, that's the kind of increase owners might see.

The reserve study path

A building below 15% can still qualify with a reserve study if:

• it was completed within the last three years,
• it was prepared by an independent third party, such as a reserve specialist or an engineer, and
• the budget funds the highest reserve amount the study recommends.

A good reserve study is worth having anyway. It tells you what's coming, like the roof, the elevator or tuckpointing, and whether the building is saving enough to pay for it.

Smaller buildings may not be reviewed at all

This part matters a lot in Chicago. Fannie Mae allows lenders to waive the project review for buildings with 10 or fewer units. Buildings with 5 to 10 units qualify only if they aren't part of a master association or larger development, and a few other conditions apply.

If you're looking at a converted two-flat, three-flat or six-flat, the budget may never get reviewed. That makes your own due diligence more important, not less. A small building with no reserves can still hand you a large special assessment.

What this means if you're buying

• Ask your lender early whether the building needs a full review and whether it's already on their approved list.
• Get the current budget and find the reserve line. Divide it by the assessment income. Under 15% is worth a direct question.
• Ask about next year's budget. Many boards set the coming year's budget in the fall. Find out whether the 2027 budget reaches 15%, or whether the building has a current reserve study.
• Have a backup plan. If a building doesn't qualify, buyers usually turn to portfolio loans, which often come with a higher rate or a larger down payment, or they pay cash.
• Look past the percentage. The full review also checks things like delinquencies. Fannie Mae's guidelines look for no more than 15% of units being 60 or more days behind on assessments.

I'm not a lender, so your loan officer has the final word on whether a building qualifies for your loan.

What this means if you own or plan to sell

• Check your building's budget now. If reserves are under 15%, the board will likely need to raise the reserve contribution, commission a reserve study, or both.
• Go to the budget meeting. If your board is working on the 2027 budget, now is the time to ask how it plans to handle this.
• If you're selling, a building that doesn't qualify for conventional financing can shrink your buyer pool. Knowing where your building stands before you list helps us price and plan around it.

Could the date change?

In July 2026, three trade groups (the Community Home Lenders of America, the Community Associations Institute and the National Association of Mortgage Brokers) asked for a one-year delay. As of early October 2026, Fannie Mae hasn't announced one, and January 4, 2027 remains the date. I'll update this post if that changes.

Keep reading

For how to read a reserve study, budget and board minutes, see my guide to HOA reserves and special assessments in Chicago condos. For a document checklist before you offer, read how to evaluate a condo building's health before you buy. Looking at condos north of the city? See Glenview homes for sale and Evanston homes for sale.

Frequently asked questions

What is the Fannie Mae 15% condo reserve rule?

For loan applications dated on or after January 4, 2027, Fannie Mae requires a condo association's budget to put at least 15% of its annual assessment income toward reserves, up from 10%. A building that falls short can still qualify with a recent reserve study if the budget funds the study's highest recommended amount.

When does the 15% reserve requirement take effect?

It applies to loan applications dated on or after January 4, 2027. Lenders were encouraged to start applying it earlier, so some may already use it.

What happens if my condo building doesn't meet the 15% requirement?

Buyers may not be able to get a conventional Fannie Mae loan for a unit there unless the building qualifies through a reserve study. They would usually need a portfolio loan, often with a higher rate or larger down payment, or pay cash.

Does the 15% rule apply to small condo buildings?

Fannie Mae lets lenders waive the project review for buildings with 10 or fewer units, as long as certain conditions are met. Buildings with 5 to 10 units can't be part of a master association or larger development. Your lender can confirm whether a specific building qualifies.

How do I find out if a building meets the 15% requirement?

Get the current budget and divide the annual reserve contribution by the budgeted assessment income. Then ask whether next year's budget reaches 15% and whether the building has a reserve study from the last three years.

If you're weighing a condo and want a second set of eyes on the budget and reserves before you offer, I'm happy to go through it with you. Michael Beaver

Talk with Michael

Sources

• Fannie Mae, Lender Letter LL-2026-03, March 18, 2026
• Fannie Mae Selling Guide, B4-2.2-02 Full Review Process
• Scotsman Guide, Trade groups ask Pulte to reconsider Fannie and Freddie condo rules, July 2026