Fannie and Freddie’s new rules change the playbook for condo buyers, sellers and managers alike

In March of this year, Fannie Mae and Freddie Mac unveiled a major change to condominium lending, financial and insurance standards aimed at improving the way condos are bought, sold and managed. These updated rules change the criteria for prospective condo buyers to obtain conventional financing through Fannie and Freddie, which has ripple effects across condo marketability, sale timelines and property values.

The changes are significant, impacting how condominium projects are reviewed and how they are expected to fund reserves, as well as setting new minimum standards for a condo’s insurance coverage and deductibles. Anyone in a position to buy, sell or manage a condominium under these new rules needs to know how these changes will affect them.

New flexibility in condo insurance requirements

Most condo owners know that recent years have presented numerous challenges to the condo insurance marketplace. Finding affordable coverage has been a challenge, especially when balanced against the need to maintain policies that include adequate coverage to meet industry or regulatory standards. Fannie and Freddie’s strict insurance requirements have made this more difficult in the past; however, the updated rules should have a favorable impact on a condo’s ability to obtain adequate coverage and thus qualify for conventional financing. 

The revised insurance requirements grant a lot more flexibility when it comes to insuring an association’s buildings. Prior to the issuance of the new lender letter, it could be extremely challenging for certain associations to meet Fannie and Freddie requirements. In particular, older properties, those located in high-potential catastrophic weather areas, or vertical condos with a history of water damage claims, struggled under the old requirements.

Depending on the specific exposures of an association, there could be cases where the underwriting marketplace simply wasn’t willing to offer necessary products, such as replacement-cost coverage for roofs or a deductible structure that complied with regulations, at all. By allowing Actual Cash Value coverage on roofs and specifying a $50,000 per-unit deductible cap, Fannie and Freddie are granting many associations more flexibility with their insurance companies, which will be able to compete and offer terms that meet the new standards. 

The shifting burden: Unit owners and reserve funding

The new rules’ impact on unit owners is a little more nuanced. While the changes offer a better opportunity to qualify for a Fannie- or Freddie-backed loan in a condo, unit owners will have to pay closer attention to the coverage on their HO-6 (condo homeowners) insurance policy, as it serves as the primary backstop to cover against potential gaps or a master deductible assessment. Technically, the revised requirements can potentially shift some burden of risk from the association to the unit owners. 

New requirements to adequately fund reserves are working in tandem with some of the changes to the insurance requirements. For example, if an association chooses Actual Cash Value instead of Replacement Cost for its roof coverage, there is the potential for a coverage gap that will need to be funded out of reserves, or else by special assessment.

In addition, better reserve funding practices over time avoid the potential for deferred maintenance, thus providing for better-maintained properties and reducing the likelihood of an insurance claim because of aging or decaying building features. This is one of the primary reasons for Fannie and Freddie requiring greater reserve funding standards in the most recent update. 

Adapting to the new reality of condo financial planning

Taken together, the March 2026 updates represent a clear shift toward practicality. Fannie Mae and Freddie Mac appear to be acknowledging the realities of today’s insurance market, particularly in higher-risk regions, and are creating a path for more associations to remain eligible for conventional financing. That said, these changes should not be viewed as a relaxation of standards as much as they are a redistribution of risk. Where associations are given flexibility on coverage structure or deductibles, there is a corresponding expectation that they are making informed decisions about reserves, maintenance and overall financial health.

For boards and property managers, the changes reinforce the importance of taking a more integrated approach to financial planning. Insurance, reserves and long-term capital planning can no longer be treated as separate conversations. Decisions in one area will directly impact the others and, ultimately, influence a community’s eligibility for financing. Associations that are proactive, whether by engaging qualified insurance advisors, updating reserve studies or stress-testing different coverage scenarios, will be better positioned to navigate these changes without introducing unintended gaps.

From a unit owner’s perspective, the takeaway is equally important. As associations adjust their insurance programs to align with the new guidelines, individual owners will need to take a more active role in understanding their own coverage. Reviewing HO-6 policies, confirming adequate loss assessment limits and coordinating with the association’s master policy are all becoming critical steps, not optional ones.

Ultimately, the communities that will benefit most from these updates are those that recognize the bigger picture. Financing eligibility, insurability and property values are more interconnected than ever. The associations that strike the right balance between flexibility and discipline will not only meet Fannie and Freddie’s requirements but will also position themselves as stronger, more resilient communities in an increasingly complex market.

Sean Kent, Senior Vice President, Insurance at FirstService Residential
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners. To contact the editor responsible for this piece: zeb@hwmedia.com.