Why Your Condo Sale (or Purchase) Might Be Delayed: New Fannie & Freddie Rules Explained

In recent months, many condominium communities across the country — including here in the DMV — have faced unexpected roadblocks when it comes to financing. Both Fannie Mae and Freddie Mac have tightened their lending requirements for condos, causing significant delays and complications for buyers and sellers alike. As I work with buyers and sellers to try to get conforming loans through the association review, I am reminded of a scene from a famous movie:

Lloyd: “What are my chances?”
Mary: “Not good.”
Lloyd: “You mean “not good” like… one out of a hundred?”
Mary: “I’d say.. more like one out of a million.”
Lloyd: (slowly reacts) “So you’re telling me there’s a chance? … yeah!!”

Yes, a positive attitude and optimism is needed when you keep submitting document after document, hoping that THIS ONE is the one that will convince Fannie Mae and Freddie Mac the condominium community is NOT about to spontaneous combust.

What’s behind these changes? And how might they impact your ability to close on a condo unit? Let’s break it down.

The Trigger: A Tragic Florida Collapse

After the Champlain Towers South condominium collapse in Surfside, Florida in 2021, Fannie Mae and Freddie Mac quietly began re-evaluating their risk exposure when backing loans for condo units.

In 2022 and beyond, they implemented new policies to better assess the structural safety and financial stability of condo communities. The goal: prevent lending on units in buildings that may have deferred maintenance or insufficient reserves for future repairs.

The 5-Year Reserve Study Requirement

One of the most impactful changes is the requirement for a reserve study completed within the past 5 years, with clear budgeting for recommended capital improvements.

Many HOAs — especially older or self-managed ones — were caught off guard. Communities that had not recently conducted a reserve study or that had deferred large-scale repairs suddenly found themselves non-warrantable — meaning lenders using Fannie Mae or Freddie Mac guidelines could not approve loans for those units.

What “Non-Warrantable” Means

If a condo is non-warrantable, it does not meet the criteria for Fannie Mae or Freddie Mac financing. This often translates to:

• Higher interest rates

• Larger down payment requirements

• Fewer available loan options (some lenders won’t lend at all)

• Appraisal issues

• Delayed closings or terminated contracts

Even communities that were previously approved may lose their status during routine recertification.

Rising Insurance Costs Add Another Layer

Another trend affecting condo communities: skyrocketing insurance premiums. Due to inflation, natural disaster risks, and regulatory changes, HOA master policies are becoming far more expensive — and sometimes, harder to secure.

This drives up HOA fees for unit owners and can create budget shortfalls, further complicating a condo’s ability to remain “warrantable” under lending guidelines.

What This Means for Buyers and Sellers

For buyers:

• Always ask your lender early in the process whether the condo is warrantable.

• Be prepared for extra paperwork or delays — even for well-maintained communities.

• If a community is non-warrantable, consider alternate financing options, but know they may come with added cost or risk.

For sellers:

• Know the status of your building before you list. Realize that a building can lose its status at any time.

• Consider ordering a recent condo questionnaire and reserve study (or ask your HOA to do so).

• Be ready to work with buyers who may need flexibility with timing, pricing, or financing terms.

How to Navigate the Process

As a real estate professional, I can often proactively assess condo lending eligibility and work with both lenders and associations to try to avoid last-minute surprises. If you’re planning to buy or sell a condo, especially in a building that hasn’t recently undergone structural or reserve review, now’s the time to ask the right questions and plan ahead.

Transitions are hard – I believe things will settle down to the new normal after things have had time for everyone to adjust. Unfortunately, in the meantime, there may be delays for some condominium sellers and buyers.