If you are shopping for a condo or townhome in Santa Clara County right now, there is a change you need to know about. As of August 3, 2026, Fannie Mae retired a shortcut that a huge share of condo buyers quietly relied on. A second change lands in January 2027 that will push HOA dues higher in a lot of buildings.
Here is what actually changed, and what it means for your purchase.
What changed on August 3, 2026
Fannie Mae eliminated the Limited Review process.
Before this, if you put down 10% or more on a primary residence, your lender could approve your loan without digging deeply into the HOA’s financial health. The larger down payment essentially bought you a pass on the building review.
That pass is gone. Every condo project with 11 or more units now goes through Full Review, regardless of how much you put down. Your lender must now examine:
- Current operating budget and two or more years of financial statements
- HOA meeting minutes
- A reserve study completed within the last three years
- The master insurance policy, including replacement cost coverage and deductibles
- Any deferred maintenance, engineering reports, or structural issues
- Special assessments, current or pending
Only projects with 2 to 10 units can still bypass Full Review through an expanded waiver.
Translation: your down payment no longer protects you from a building’s problems. A 30% down buyer and a 10% down buyer now face the exact same scrutiny of the HOA.
What changes on January 4, 2027
For loan applications dated on or after January 4, 2027, an HOA’s budget must fund replacement reserves at at least 15% of annual budgeted assessment income, up from the long-standing 10%.
There is an alternative. An association can use a reserve study instead of the 15% floor, but only if that study was completed or updated within three years and the budget follows the study’s highest recommended funding level. Fannie Mae also retired the “baseline funding” method that let reserve balances drift toward zero.
For many associations, meeting that 15% means one of two things: raise the monthly dues, or issue a special assessment. Some will do both.
Why this matters to you as a buyer
Warrantability is now the whole ballgame. If a building fails Full Review, it becomes non-warrantable, and conventional Fannie Mae or Freddie Mac financing disappears for every unit in it. Buyers are then pushed toward portfolio loans at higher rates, or toward cash. Roughly 75% of US condo mortgages run on Fannie Mae standards, so this is not a niche problem.
Deals can die later in escrow. The old process often surfaced HOA problems around appraisal time. Now the documentation demand is front-loaded, and a building issue can surface after you are already emotionally and financially committed.
Values are exposed. Industry estimates put the potential hit to a non-warrantable building’s market value in the range of 5% to 30%, as the buyer pool narrows to cash and investors. I would treat that range as directional rather than precise, but the direction is not in question.
Does this affect FHA loans?
No. This is the question I get most often, and the answer is genuinely useful to know.
FHA is administered by HUD and runs on its own rulebook. Fannie Mae’s Lender Letter does not touch it:
FHA still requires 10% reserve funding, not 15%
FHA has its own project approval process, where the entire building is submitted for approval and must be periodically recertified
The two are independent. A building can be approved by one and rejected by the other. Passing FHA review does not make a project Fannie Mae warrantable, and vice versa
Here is where that becomes practically useful. After January 4, 2027, some buildings will fall out of Fannie Mae warrantability purely because their reserves sit below 15%. If that same building holds an active FHA approval, an FHA loan may still be a viable path. That can be the difference between a financeable unit and a cash-only one.
FHA is a fallback, not a default, and it comes with real tradeoffs:
Mortgage insurance premium of 1.75% upfront plus a monthly premium, which in most cases stays for the life of the loan
Stricter property condition standards, which matters in older buildings
In a competitive multiple-offer situation, many sellers still favor conventional financing
So it is worth knowing whether a building carries FHA approval before you assume a reserve shortfall kills the deal. That is a question I ask on my clients’ behalf.
What I recommend you do
Get the HOA documents reviewed before you write the offer, not after. Ask your lender to run the condo questionnaire and HOA financial package at pre-approval. Waiting until the appraisal is how deals fall apart in this new environment.
Look specifically at reserve funding. Ask what percentage of the budget goes to reserves today, and when the last reserve study was done. A building at 10% with no recent study has real work ahead of it before 2027.
Ask about special assessments, pending and discussed. Meeting minutes often reveal an assessment being debated long before it is voted on.
Do not assume a big down payment solves it. That was true through August 2, 2026. It is not true now.
If you already own a condo
Talk to your board. An association that gets ahead of the 15% requirement protects the resale value of every unit in the building. One that waits until buyers start walking away has a much harder conversation ahead.
Sources:
Fannie Mae Lender Letter LL-2026-03, issued March 18, 2026. Available at singlefamily.fanniemae.com under Originating & Underwriting, Lender Letters
KSN Law, “Fannie Mae Updates Reserve Guidelines for Condominium Associations”: ksnlaw.com
Whiteford Taylor & Preston LLP, Client Alert on Fannie Mae Project Standards: whitefordlaw.com
Condo Approval, “Condo Review Changes: What Happens After August 3, 2026?”: condo-approval.com
HOA Reserves, “FHA Condo Approval & Reserve Requirements”: hoareserves.com
The Mortgage Reports, “FHA approved condos: complete 2026 guidelines”: themortgagereports.com
2026-07-29 
