New Condo Financing Rules: What Los Angeles Buyers and Sellers Need to Know
Published on September 17, 2026 by Leegie Parker
Leegie Parker | Real Estate Advisor | DRE 01020534 | Compass | Leegie.com
Buying or selling a condo? Your credit score may not be the biggest financing issue. The building itself has to qualify too.
Major changes to Fannie Mae and Freddie Mac condominium financing standards took effect on August 3, 2026, and another important reserve-funding change arrives January 4, 2027.
For condo buyers and sellers throughout Los Angeles, including the San Fernando Valley and the Westside, that means an HOA’s reserves, deferred maintenance, special assessments, insurance and other building-level issues can affect whether a buyer is able to obtain the loan they planned to use.
And that can happen even when the buyer is financially well qualified.
Quick Answer
As of August 3, 2026, Fannie Mae and Freddie Mac eliminated their former Limited Review and Streamlined Review options for new condo loan applications. Many loans that previously qualified for a shorter project review now require a more comprehensive review of the condominium project, although certain transactions and projects may still qualify for a Waiver of Project Review or other applicable exemption.
Beginning January 4, 2027, Fannie Mae’s Full Review standards will also increase the minimum budget allocation for replacement reserves from 10% to 15% of annual budgeted assessment income, unless applicable reserve-study provisions are satisfied. This is a mortgage-financing eligibility standard, not a new California law requiring every HOA to contribute 15% of its budget to reserves.
That distinction is important.
Why Condo Financing Is About More Than the Buyer
When you buy a single-family home, much of the lender’s focus is naturally on the borrower and the property itself.
With a condominium, the lender may also have to evaluate the financial and physical health of the entire project.
Depending on the loan and type of project review, the lender may look at issues such as:
· the HOA budget and reserve funding;
· delinquent HOA assessments;
· significant deferred maintenance or critical repairs;
· current or proposed special assessments;
· active or pending litigation;
· structural or mechanical concerns; and
· whether the association’s master insurance meets applicable loan requirements.
So a beautifully remodeled condo owned by a responsible seller can still run into a financing problem because of something happening elsewhere in the building.
That's why I always tell Buyers:
You’re not only buying the unit. You’re buying into the financial health of the association.
What Changed on August 3, 2026?
Fannie Mae retired its Limited Review process for loan applications dated on or after August 3, 2026. Projects that previously qualified for Limited Review must now generally use the Full Review process or, when applicable, the Waiver of Project Review process.
Freddie Mac made a comparable change to its Streamlined Review which is now limited to applications received before August 3, 2026.
That does not mean every conventional condo loan automatically requires Full Review. Certain properties and transactions may qualify for a waiver or another permitted review path.
But for many buyers, the project itself is now receiving greater scrutiny than it might have under the former streamlined processes.
And that makes it even more important to investigate the HOA early.
Another Important Change Is Coming in January 2027
Beginning with loan applications dated on or after January 4, 2027, Fannie Mae will increase its replacement-reserve allocation requirement under the Full Review process from a minimum of 10% to 15% of annual budgeted assessment income.
There is an important distinction here:
This is not a California law requiring every HOA to put 15% of its income into reserves.
It is a Fannie Mae mortgage-project eligibility standard used when a lender is determining whether a condo project qualifies under Full Review.
A qualifying reserve study may also be used in certain circumstances to demonstrate adequate reserve funding. However, the standards surrounding reserve studies have tightened too.
Beginning August 3, 2026, when a lender relies on a reserve study instead of the standard reserve allocation percentage, Fannie Mae requires the budget to fund the highest recommended reserve allocation in that study. The former “baseline funding” methodology can no longer be used for this purpose.
In plain English: simply having a reserve study in the file does not automatically mean the building will satisfy the lender.
Reserve Contribution and “Percent Funded” Are Not the Same Thing
This is an area where people understandably get confused.
An HOA contributing 10% or 15% of annual assessment income to reserves is not the same as saying that the HOA is 10% or 15% funded.
Those are different measurements.
The reserve contribution measures how much of the annual budget is being set aside.
The percentage-funded figure generally compares the amount the association has actually accumulated in reserves with the estimated reserve amount needed for future major components and repairs.
That distinction becomes very important when evaluating the financial strength of an HOA.
Why This Matters If You’re Buying a Condo
A financially strong buyer can still lose their intended financing if the condominium project does not meet the lender’s or loan program’s eligibility standards.
That doesn’t necessarily mean the condo can never be financed. Another lender, loan program or portfolio loan may sometimes provide an alternative.
But those alternatives can come with different interest rates, down-payment requirements, underwriting standards or terms.
This is why I like to investigate the HOA before a buyer gets deep into escrow whenever possible.
Documents worth reviewing include:
· the current reserve study and annual reserve disclosure;
· HOA board meeting minutes;
· the current operating budget and financial statements;
· current, approved or proposed special assessments;
· notices concerning major repairs or deferred maintenance;
· pending litigation or significant insurance claims;
· the association’s master insurance information; and
· applicable inspection reports, including an SB 326 balcony inspection report where relevant.
Board meeting minutes are particularly valuable.
A problem often begins appearing in meeting discussions long before it turns into a formal special assessment or major repair notice.
If you are financing the purchase, I would also ask your lender to investigate project eligibility as early in the transaction as possible.
Why This Matters If You’re Selling a Condo
This issue matters just as much to sellers.
If your condominium project has a financing problem, your individual unit could be beautifully maintained and appropriately priced and you can still lose a buyer because of something involving the HOA.
And if one type of financing is unavailable, the potential buyer pool may become smaller.
That is why, before I take a condo listing, I like to start gathering and reviewing the association documents early rather than waiting until a buyer is already in escrow.
I want to know:
Are the reserves healthy?
Are major repairs coming?
Has the board been discussing a special assessment?
Is there litigation?
Are there insurance problems?
Are there significant maintenance issues that could concern a lender?
Finding something before the property goes on the market gives the seller an opportunity to understand it, address it when possible and position the property appropriately.
Discovering it halfway through escrow is a much more difficult conversation.
I’ve Seen What Happens When Reserves Run Out
Years ago, a client of mine purchased a condo in Studio City.
Not long afterward, the building developed significant water-intrusion problems.
The repairs were expensive and quickly consumed the HOA’s reserves. Once those reserves were depleted, the association imposed a special assessment on the homeowners to replenish them.
For some owners, the assessment was financially overwhelming.
That experience stayed with me.
It is why I don’t look at an HOA reserve study as simply another pile of disclosure paperwork.
It tells you something about the association’s ability to handle the inevitable expenses that come with maintaining a building.
And that matters whether you are buying today or thinking about selling several years from now.
Special Assessments Are a Very Real Issue in California
Recent Southern California examples show just how significant these assessments can become.
In September 2026, ABC7 reported that owners in a 499-unit Torrance condominium complex were facing special assessments exceeding $49,000 per unit. According to a homeowner interviewed for the report, the approximately $19 million in work included rebuilding the complex’s podium, repiping the property and repairing elevators.
That followed ABC7 reporting about a San Clemente condominium community dealing with an approximately $25,000 to $26,000 per-unit emergency roof assessment.
HOA attorney Michael Kushner, interviewed by ABC7, also advised owners to pay close attention to their association’s percentage-funded figure and said homeowners should raise concerns when it falls below 55%.
That 55% figure is not a Fannie Mae lending requirement or an official California statutory threshold. It is guidance from the attorney interviewed in that report.
But it is another reason I believe buyers and existing condo owners should pay attention to reserve funding rather than simply looking at the monthly HOA dues.
Sometimes a building with relatively low monthly dues looks attractive until you discover that the association has not been putting enough money aside for future repairs.
What Can Raise a Red Flag With a Condo Lender?
Every loan and project is different, but issues that can create financing concerns include:
· inadequate reserve funding;
· a reserve study that does not adequately support the budget;
· significant deferred maintenance;
· unresolved structural or mechanical problems;
· major special assessments;
· active or pending litigation that creates financial or property-related risk;
· master insurance that does not meet applicable loan requirements; and
· excessive delinquency in HOA dues or assessments.
Under Fannie Mae’s Full Review requirements, for example, no more than 15% of the total units in a project may be 60 days or more past due on regular HOA assessments, and similar requirements apply to special assessments.
This is the kind of detail most consumers understandably never think about , until it affects their transaction.
Documents I Recommend Reviewing Early
Whether you are buying or selling a condo, I would want to see as many of these as are available:
· Current reserve study
· Annual reserve disclosure
· Recent HOA board meeting minutes
· Current operating budget
· Recent financial statements
· Current or proposed special assessments
· Notices concerning major building repairs
· Master insurance declaration or coverage information
· Active or pending litigation disclosures
· Significant insurance-claim information
· Applicable structural or engineering reports
· Most recent SB 326 balcony inspection report, where applicable
A lender may not request every one of these documents in every transaction, and lenders can use different sources to establish project eligibility.
But from a real-estate standpoint, these are exactly the kinds of records that can help a buyer understand what they are purchasing, and help a seller identify a potential financing problem before the home goes on the market.
What Condo Owners Should Be Watching Now
Even if you aren’t planning to sell today, I would pay attention to what is happening inside your HOA.
Read the annual financial disclosures.
Look at the reserve study.
Attend or read the minutes from board meetings.
Pay attention when major repairs or increasing insurance costs start appearing on the agenda.
And don’t assume that because your monthly HOA dues have remained low, the association is necessarily financially strong.
In fact, artificially low dues can sometimes be part of the problem if necessary reserve contributions or maintenance have been postponed.
The financial condition of your association can ultimately affect not only your monthly expenses, but also the marketability and financing options for your condo when you eventually sell.
Frequently Asked Questions
What changed with condo financing on August 3, 2026?
Fannie Mae retired its Limited Review process and Freddie Mac retired its comparable Streamlined Review option for new applications beginning August 3, 2026. Many loans that previously qualified for a shorter project review now require a more comprehensive project review, although some transactions and projects may still qualify for a waiver or other permitted review process.
Does every condo HOA have to put 15% into reserves starting in 2027?
No. The 15% requirement is not a new California law applying to every HOA. Beginning with applicable loan applications dated January 4, 2027, Fannie Mae’s Full Review standards increase the required replacement-reserve budget allocation from 10% to 15% of annual budgeted assessment income, subject to applicable reserve-study provisions.
Can a buyer with excellent credit still have trouble financing a condo?
Yes. Condo financing can depend both on the borrower and on whether the condominium project satisfies the applicable lender or loan-program requirements. Problems involving reserves, deferred maintenance, assessments, litigation, insurance or other project-level issues can affect eligibility.
Does a condo that fails one lender’s review become impossible to finance?
Not necessarily. Other lenders or portfolio loan programs may have different requirements. However, alternative financing may come with different rates, terms or down-payment requirements.
What should buyers review before purchasing a condo?
I recommend reviewing the HOA reserve study, recent board meeting minutes, budget, financial statements, current and proposed special assessments, significant repair issues, insurance information and applicable inspection reports as early as possible.
Why should condo sellers review the HOA before listing?
Because a problem with the association can affect a buyer’s financing even when there is nothing wrong with the individual condo. Identifying those issues before listing gives the seller time to understand them and plan accordingly.
Key Takeaways
· Fannie Mae and Freddie Mac eliminated their former Limited Review and Streamlined Review options for new condo loan applications beginning August 3, 2026, although certain projects and transactions can still qualify for other review paths or waivers.
· Beginning January 4, 2027, Fannie Mae’s Full Review standards increase the minimum replacement-reserve budget allocation from 10% to 15% of annual budgeted assessment income, subject to applicable reserve-study provisions.
· The 15% requirement is a mortgage-financing standard, not a new California law requiring every HOA to fund reserves at 15%.
· A financially strong buyer can still encounter a financing problem because of the condominium project itself.
· Reserve funding, deferred maintenance, special assessments, insurance, delinquent HOA accounts and pending litigation are worth investigating early.
· HOA board meeting minutes and reserve studies can reveal potential issues well before they become a financing problem or unexpected special assessment.
· Buyers should investigate the building as carefully as they investigate the unit.
· Sellers should understand their HOA’s financial condition before putting their condo on the market.
The Bottom Line
When you're buying a condo, you're purchasing more than the space inside your walls. You're also becoming financially connected to the building and the association responsible for maintaining it.
And when you're selling, the condition of that association can affect how easily the next buyer can finance your property.
That is why I believe the HOA documents should be investigated early, not after everyone is already halfway through escrow.
If your building has an SB 326 balcony inspection coming up, I broke down what that law requires and what it means for sellers in this related post.
If you're buying a condo in the San Fernando Valley, Studio City, Sherman Oaks, Encino, Tarzana, Woodland Hills, Brentwood, Santa Monica or elsewhere in Los Angeles, I can help you understand what to look for before you commit.
And if you're thinking about selling a condo, I like to review the HOA documents before we list so we can identify any potential issues ahead of time rather than being surprised by them in escrow.
Leegie Parker
Real Estate Advisor | Compass
DRE 01020534
310-739-9202 | Leegie@Leegie.com | Leegie.com
Sources & Further Reading
Fannie Mae — Lender Letter LL-2026-03: Updates to Project Standards & Property Insurance Requirements
https://singlefamily.fanniemae.com/media/44986/display
Fannie Mae Selling Guide — Full Review Process
https://selling-guide.fanniemae.com/sel/b4-2.2-02/full-review-process
Freddie Mac — Condominium Unit Mortgage FAQ
https://sf.freddiemac.com/faqs/condominium-unit-mortgage-faq
ABC7 Los Angeles — Torrance Condo Owners Hit With $49K HOA Special Assessment
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