On March 18, 2026, Fannie Mae (Lender Letter LL-2026-03) and Freddie Mac (Guide Bulletin 2026-C) announced matching changes to how they review condominium projects. Some took effect immediately, some on August 3, 2026, and the one that matters most for budgets takes effect for loan applications dated on or after January 4, 2027: the minimum replacement-reserve allocation rises from 10% to 15% of the association's annual budgeted assessment income.
If your board is adopting a 2027 budget this fall, this is the moment to get it right. This guide covers only the 2026-2027 changes. For general project eligibility — what lenders review and why — see our earlier Fannie Mae and Freddie Mac condo eligibility guide.
What exactly changes on the reserve requirement, and when?
Both agencies are raising the minimum reserve allocation for capital expenditures and deferred maintenance from 10% to 15% of annual budgeted assessment income. Fannie Mae requires lenders to apply it under Full Review for loan applications dated on or after January 4, 2027. Freddie Mac applies it to mortgages with application received dates on or after January 4, 2027. Every other reserve and budget-adequacy requirement stays the same.
You may see January 1, 2027 in some summaries. That date belongs to a different part of the announcements — the deadline for servicers to implement new insurance-monitoring practices. For the reserve increase, both primary documents say January 4, 2027.
How is the 15% calculated?
Fannie Mae's Selling Guide (B4-2.2-01) has the lender divide the annual budgeted replacement-reserve allocation by the association's annual budgeted assessment income, which includes regular common expense fees. The lender may exclude incidental income the project does not rely on, utility income such as cable or internet charges, income allocated to reserve accounts, and special assessment income. So the test is the reserve line in the adopted budget, measured against regular assessments.
Put simply: if regular assessments in the 2027 budget total a given amount, the reserve contribution line needs to be at least 15% of that figure for a lender relying on the budget test. A budget that clears 10% today with a little room may not clear 15%.
Can a reserve study substitute for the 15% test?
Yes, but the rules tightened on August 3, 2026. A lender may rely on a reserve study instead of the percentage test only if the budget includes the highest recommended reserve allocation in the study. Both agencies now prohibit relying on the baseline funding method — where reserves approach but never fall below zero. Fannie Mae also requires the study or update to be completed within three years of project approval.
Fannie Mae's guide also requires the study to be prepared by an independent third party with reserve-study expertise and to address every major component, its remaining useful life, replacement cost, annual contributions including inflation, existing funded reserves and a funding plan. If your study is older than three years, or its recommended contribution is not what the board actually budgets, that study will not carry the building. Our guide on how to read a condo reserve study explains how to find the recommended contribution.
Which buildings are affected — what changed for small associations?
Small buildings got relief. Fannie Mae expanded its Waiver of Project Review to new and established projects with ten or fewer units; Freddie Mac expanded its Exempt From Review option to projects of 2 to 10 units. For 5- to 10-unit projects, the building must not be part of a master association or larger development. Both changes took effect immediately on March 18, 2026.
The waiver is not a blank check. Fannie Mae still requires that the project not be marked "Unavailable" in its Condo Project Manager and that it meet the insurance requirements; Freddie Mac requires, among other things, no critical repairs, no evacuation order, and separately deeded units. Lenders apply these conditions loan by loan.
Larger buildings lost an option. Fannie Mae retired its Limited Review process, and Freddie Mac retired its Streamlined Review, for applications on or after August 3, 2026. Established projects that used to qualify for a lighter review now need a Full Review (Fannie Mae) or Established Condominium Project review (Freddie Mac) — which is where the reserve test is applied. Both agencies also retired the 50% investor-concentration limit for established projects.
What changed on insurance?
Several insurance rules eased. Both agencies retired the requirement that roofs be insured at replacement cost (roofs must still be insured) and retired the inflation guard requirement for master policies. Master policy coverage must still equal at least 100% of estimated replacement cost, and guaranteed or extended replacement cost endorsements can now document that.
One change has a firm number: for loan applications on or after July 1, 2026, a master policy's per-unit deductible may not exceed $50,000 per unit. When the master policy has a per-unit deductible, the owner must carry an HO-6 policy with coverage at least equal to that deductible, and the HO-6 deductible may not exceed the greater of 5% of its coverage amount or $2,500. Boards should confirm their master policy terms at the next renewal.
Why should owners care about a lender rule?
Because most buyers finance with a conventional loan, and most conventional loans are sold to Fannie Mae or Freddie Mac. If a building does not meet their project standards, a lender generally cannot sell that loan to them, and many lenders will not make it at all. Buyers are pushed to cash, portfolio loans or other loan programs, which narrows the pool of buyers.
Fewer qualified buyers usually means longer time on market and weaker prices — for every owner, not only the one selling this month. Refinancing owners face the same problem. A reserve line that is a few points short can affect the whole building's marketability, which is why it belongs on the board's agenda rather than the lender's.
How does this fit with Illinois reserve law?
The agency rule and Illinois law are separate tests. The Illinois Condominium Property Act requires reasonable reserves; the agency 15% figure is a lending standard, not a legal mandate. A building can satisfy one and fall short of the other. Boards should budget to satisfy both, and document the reasoning in the minutes. For the state side, see our guide to reasonable reserves under Illinois condo law.
Board checklist for the 2027 budget
- Calculate the reserve contribution in the proposed 2027 budget as a percentage of regular budgeted assessment income. If it is below 15%, decide now how to close the gap.
- If you plan to rely on a reserve study instead, confirm it was completed or updated within the last three years, uses a funding method other than baseline, and that the budget includes its highest recommended contribution.
- If the study is older than three years, order an update now so it is available before 2027 sales.
- Count your units. If you have 2 to 10 units and are not part of a master association, ask your lender contacts whether loans in your building can use the waiver or exempt option.
- Review the master policy for any per-unit deductible above $50,000 and for how roofs and replacement cost are written, and tell owners in writing what HO-6 coverage they need.
- Fix any critical repair or deferred-maintenance item a lender questionnaire would flag.
- Update your lender questionnaire answers so they describe the 2027 budget accurately.
- Explain the change to owners in the budget cover letter: why the reserve line went up and what it protects.
Timing matters. The Condominium Property Act requires owners to receive the proposed budget at least 25 days before the board adopts it, and CICAA requires at least 30 but not more than 60 days. A board adopting in December needs the reserve decision made in November.
How Stellar helps boards prepare
Stellar reviews proposed budgets against the 15% reserve test and the reserve-study rules, flags gaps before the budget goes to owners, and keeps lender questionnaires consistent with the adopted budget. If your board wants a second look at its 2027 budget, contact our office or learn more about our financial management services and pricing.
This article is general information for community association boards and is not lending or legal advice. It summarizes Fannie Mae Lender Letter LL-2026-03 and Freddie Mac Bulletin 2026-C as announced on March 18, 2026; the agencies update their guides over time and lenders may apply overlays of their own. Confirm current requirements with your lender contacts, your reserve specialist and association counsel.