Own a Chicago Condo? 5 Major Lending Rule Changes Buyers, Sellers and HOA Boards Need to Know
CHICAGO— If you own, manage, buy or plan to sell a condo, changes to Fannie Mae and Freddie Mac condominium lending standards deserve attention.
Several rules changed during 2026, affecting how lenders evaluate condo associations, reserves, investor ownership and master insurance policies. Another major change arrives in January 2027, when the standard reserve allocation for many Full Reviews increases from 10% to 15%.
For Chicago's condo-heavy neighborhoods, including South Loop, West Loop, University Commons, University Village, River North and Streeterville, these are not just technical mortgage rules.
A financially qualified buyer can still encounter financing problems if the condo project itself does not meet lender requirements.
Here are five of the biggest changes.
1. Condo Project Reviews Are Changing
One of the most significant changes took effect for applicable Fannie Mae loan applications dated August 3, 2026 or later.
Fannie Mae retired its Limited Review process. Established condo projects that previously qualified for that abbreviated review generally now need a Full Review, unless the transaction qualifies for a Waiver of Project Review. Freddie Mac made a similar change by eliminating its streamlined review option.
That means lenders may need to look more closely at documents such as:
Association budgets
Reserves
Insurance
Special assessments
Deferred maintenance
Critical repairs
HOA delinquencies
Other project-level financial information
There is some good news for smaller Chicago condo buildings.
Fannie Mae expanded its Waiver of Project Review to qualifying projects with 10 or fewer units. For projects with 5 to 10 units, the building generally cannot be part of a larger development or master association to qualify for this expanded waiver.
That could be especially relevant for Chicago's many three-flats, six-flats and smaller boutique condo buildings.
Fannie Mae also eliminated the previous 50% investor-concentration restriction for established projects undergoing Full Review for investment-property loans. This could make financing easier in some buildings with large numbers of rented units.
2. Condo Reserves Will Face More Scrutiny
This may be the change HOA boards should watch most closely.
For applicable Full Reviews beginning with loan applications dated January 4, 2027, Fannie Mae is increasing the standard replacement-reserve allocation from 10% to 15% of annual budgeted assessment income.
That is a 50% increase in the minimum reserve allocation percentage.
Associations can still use qualifying reserve studies in certain circumstances, but another rule changed there too.
When a lender relies on a reserve study, the association's budget must use the highest recommended reserve allocation in the study. Fannie Mae also eliminated use of the baseline funding method for this purpose.
Why the increased attention?
Fannie Mae said it has found a relationship between underfunded reserves and condo projects requiring critical repairs. Insufficient reserves can eventually lead to large special assessments or significant increases in HOA dues.
For owners, this means a building with unusually low assessments is not automatically financially stronger.
Buyers should increasingly ask:
How much does the building have in reserves, what major projects are coming, and how will those projects be funded?
3. Master Insurance Rules Have Also Changed
The insurance side of condo lending was also revised during 2026.
The master policy still generally needs coverage equal to at least 100% of the estimated replacement cost of the project's improvements, but Fannie Mae now allows lenders more ways to document that amount, including insurer estimates, insurance risk appraisals and statements from qualified professionals.
Other changes include:
Roof coverage: Roofs still must be insured, but they no longer have to be insured strictly on a replacement-cost basis. Policies using alternatives such as actual cash value for the roof may be acceptable under the updated requirements.
Inflation guard: Fannie Mae retired the requirement that condo project master policies include inflation guard coverage.
Per-unit deductibles: The maximum allowable per-unit deductible under a master property policy is now $50,000 per unit for required property-insurance perils. When a master policy uses a per-unit deductible, the borrower must also carry an appropriate unit-owner policy.
These changes are intended partly to make insurance compliance easier at a time when condo associations in many markets are facing higher premiums and fewer insurance options.
But insurance remains a major underwriting issue. A building can still create a financing problem if its master policy does not satisfy the applicable lender requirements.
4. What This Means for Chicago Buyers, Sellers and HOA Boards
For buyers, mortgage preapproval is only half the equation.
You may qualify financially while the building does not.
Before or shortly after making an offer, ask your lender how the condo project will be reviewed and whether there are known issues involving:
Reserves
Insurance
Repairs
Special assessments
HOA finances
Project eligibility
For sellers, the health of the association can increasingly affect the size of your buyer pool.
A well-priced condo may still face difficulties if lenders cannot obtain required documents or if the project fails underwriting standards.
That makes it useful to understand your association's financial and insurance position before listing, rather than discovering a problem once a buyer is already under contract.
For HOA boards and property managers, documentation is becoming even more important.
Budgets, reserve studies, insurance information, repair records and lender questionnaires need to be current and accessible. Delays or incomplete records can potentially slow financed transactions throughout the building.
This matters particularly in large Chicago condo markets such as South Loop, River North and Streeterville, where one association may contain hundreds of units and financing issues can affect multiple buyers and sellers.
5. The Biggest Takeaway: Lenders Are Underwriting the Building Too
The direction of the new rules is not simply that condo financing is getting harder.
Some requirements are actually becoming more flexible.
Small projects received expanded review waivers.
The investor-ownership cap was removed in certain established projects.
Some insurance requirements became easier to document.
At the same time, lenders are placing greater emphasis on the areas that may signal long-term financial risk:
reserves, building condition, major repairs and association finances.
That is the most important point for Chicago condo buyers and owners.
A buyer can have excellent credit, sufficient income and a strong down payment, but the building still matters.
Before purchasing a Chicago condo, evaluate more than the unit itself. Review the association, upcoming projects, assessments, reserves and insurance with the appropriate real estate, lending and legal professionals.
And if you already own a condo, understanding how your association measures up under the changing standards can be important before the next buyer in your building applies for financing.
The Cory Tanzer Group at Option Premier helps Chicago condo buyers and sellers evaluate the unit, the building and the surrounding market, with local experience across South Loop, West Loop, University Village, University Commons, River North, Streeterville and surrounding neighborhoods.
This article is for general informational purposes and is not mortgage, insurance, financial or legal advice. Requirements can vary by loan program, lender and condominium project. Buyers and owners should confirm current requirements with their lender, attorney, insurance professional and association.
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