New Condo Lending Rules Are Now in Effect: What Chicago Buyers Need to Know Before Making an Offer
CHICAGO— A buyer can have strong credit, sufficient income, a solid down payment and a mortgage preapproval and still run into a financing problem after finding the right Chicago condo.
The reason is simple: with condominium financing, the lender is evaluating two things at once.
The buyer has to qualify for the mortgage, and the condominium building has to qualify for the loan program.
That second part became even more important on August 3, 2026, when major changes from Fannie Mae and Freddie Mac took effect for many conventional condo loans. Fannie Mae retired its Limited Review process, while Freddie Mac retired its comparable Streamlined Review process. Established condo projects that once qualified for these abbreviated reviews will generally need a more comprehensive project review unless they qualify for an exemption or waiver.
For buyers shopping condo-heavy Chicago neighborhoods such as South Loop, West Loop, University Commons, University Village, River North and Streeterville, that means the financial health and physical condition of the building deserve attention before an offer is written, not just after the mortgage application begins.
What Changed on August 3?
Previously, some conventional condo loans could qualify for a Limited Review under Fannie Mae or a streamlined review under Freddie Mac.
That process allowed lenders to evaluate certain transactions without completing the same level of project documentation required under a Full Review.
For loan applications dated August 3, 2026 or later, Fannie Mae has retired Limited Review. Established projects previously eligible for it must now generally go through Full Review or, when applicable, a Waiver of Project Review. Freddie Mac made a parallel change by retiring its Streamlined Review option.
That does not mean every condo building in Chicago automatically needs a brand-new Full Review for every transaction.
Fannie Mae's Condo Project Manager, for example, allows lenders to see whether Fannie Mae has already established an eligible project status. When a project has already been approved, that can reduce duplicate review work. Fannie Mae also expanded its project-review waiver to certain new and established condo projects with 10 or fewer units, although additional restrictions apply to five- to 10-unit buildings that are part of larger developments or master associations.
But for many larger Chicago condo buildings, lenders can now be looking more closely at the association itself.
Your Lender Is Looking Beyond Your Unit
This is the part buyers should understand before falling in love with a condo.
The lender is not simply asking:
Can this buyer afford Unit 1204?
It may also need to determine whether the condominium project meets requirements involving:
Association finances
Operating budget
Replacement reserves
Master insurance coverage
Deferred maintenance
Critical repairs
Special assessments
Pending litigation
HOA assessment delinquencies
Building inspections
Project eligibility
Freddie Mac, for example, states that if a lender cannot obtain required information about inspections, critical repairs or special assessments, a mortgage on a unit in that project may not be eligible for delivery to Freddie Mac.
Fannie Mae similarly identifies critical repairs, inadequate insurance and significant pending litigation among conditions that can make a condo project ineligible.
That leads to one of the most important lessons for a Chicago condo buyer:
A beautiful unit in a building with weak documentation or unresolved building-level issues can become a financing problem even when the buyer is fully qualified.
Reserves Are About to Become Even More Important
Another major change is coming next.
Beginning with applicable loan applications dated January 4, 2027, Fannie Mae and Freddie Mac are increasing the standard replacement-reserve allocation used in Full Review from a minimum of 10% to 15% of annual budgeted assessment income.
These reserves help associations prepare for major expenses such as:
Roof replacement
Masonry work
Elevators
Plumbing systems
Parking structures
Windows
Mechanical systems
Other capital repairs
Fannie Mae said it has observed a relationship between underfunded condo reserves and projects needing critical repairs. Its stated goal is to strengthen project finances and reduce the risk of owners suddenly facing major assessments or higher monthly dues because a building lacks money for necessary work.
Associations can potentially rely on a qualifying reserve study instead of the standard percentage test, but the rules have also tightened there. When that option is used, the project budget must incorporate the highest recommended reserve allocation from the study, and the baseline funding method can no longer be used for this purpose.
For Chicago buyers looking at older high-rises, loft conversions and vintage condo buildings, this makes a question like “How much are the assessments?” far too narrow.
The better questions are:
How healthy are the reserves? What major projects are coming? How will they be paid for?
Could This Lead to Higher HOA Assessments?
Possibly, depending on the building.
An association currently budgeting around the previous 10% reserve threshold may need to put more money aside to satisfy the new standard once it applies.
There are several ways an association could respond, depending on its finances. That could include adjusting the annual budget, increasing regular assessments, using a qualifying reserve study or addressing capital projects differently.
The National Association of REALTORS® has raised concerns that moving from 10% to 15% represents a 50% increase in the minimum reserve allocation and could create affordability pressure for some condo owners, particularly in buildings already dealing with higher insurance, taxes and maintenance expenses.
Industry groups representing lenders, condominium associations and mortgage brokers have also asked federal housing officials to delay or modify portions of the changes, arguing that additional reviews could increase documentation costs and processing times for buyers.
For buyers, however, the practical takeaway is not to assume that every HOA will suddenly raise assessments by the same amount.
The financial impact will depend on the individual building.
There Are Some Changes That Could Make Financing Easier
The new rules are not entirely restrictive.
One potentially helpful change involves smaller condominium projects.
Fannie Mae expanded eligibility for a Waiver of Project Review to qualifying new and established projects with 10 or fewer units. Freddie Mac similarly expanded its Exempt From Review treatment for qualifying small projects. Buildings with five to 10 units generally face additional conditions, including restrictions involving larger developments or master associations.
That could matter in Chicago, where buyers frequently encounter three-flats, six-flats, eight-unit buildings and small boutique condo developments.
The agencies also loosened certain investor-ownership restrictions for established projects. NAR says eliminating the previous 50% investor-owned threshold should make financing easier in some communities, although requirements differ depending on the project and loan scenario.
So the direction of the new rules is not simply “harder condo loans.”
It is more accurate to say:
Some older screening rules are being relaxed, while financial health, reserves and building condition are receiving greater scrutiny.
What Chicago Buyers Should Check Before Making an Offer
This is where these lending changes become practical.
A buyer does not need to personally underwrite an entire condominium association before making an offer. But waiting until late in the transaction to discover obvious financing concerns can waste time and money.
For a financed Chicago condo purchase, consider discussing these questions with your real estate agent and lender before or immediately after writing the offer:
Has your lender financed units in this building recently?
Previous transactions do not guarantee approval today, especially because requirements and building conditions can change.
But recent experience can identify whether a lender already knows the association or expects a more involved project review.
Does the lender see any known project-eligibility issue?
Fannie Mae's systems can identify projects with existing eligibility information, while lenders have their own review processes.
Potential buyers themselves generally cannot access all lender project-review databases, but Fannie Mae specifically recommends asking the lender or HOA to check for known project-status concerns.
What do the building's budget and reserves look like?
A low monthly assessment is not automatically a strength if the building consistently underfunds long-term repairs.
Are there major repairs or special assessments?
Ask what work is underway, what has been approved and how the association intends to pay for it.
Is the master insurance policy acceptable?
Insurance is increasingly important in condominium underwriting. A building can encounter lending issues if its master coverage does not meet applicable requirements.
How quickly does management respond to lender questionnaires?
This one is easy to overlook.
A financially healthy building can still slow a transaction if management takes a long time to provide the questionnaire, budget, insurance certificates, inspection information or other documents the lender needs.
A Preapproval Does Not Mean Every Chicago Condo Is Preapproved
This is probably the most important distinction for buyers.
A mortgage preapproval tells you that a lender has evaluated you based on information such as income, assets, debts and credit.
It does not automatically mean every condominium building within your price range will satisfy the lender's project requirements.
Think of condo financing as having two approvals:
1. Borrower approval: Can you qualify for the mortgage?
2. Project approval: Is the condominium building eligible for that financing?
You generally need both.
This is why the conversation with the lender should change once the home search moves from “I want a $500,000 condo” to “I want this specific $500,000 condo in this specific building.”
What If a Building Does Not Qualify for Fannie or Freddie Financing?
A problem with conventional project eligibility does not necessarily mean the condo can never be financed.
Depending on the property and buyer, some lenders may offer portfolio loans or other financing structures that do not rely on selling the mortgage to Fannie Mae or Freddie Mac.
Those alternatives can have different:
Interest rates
Down-payment requirements
Underwriting standards
Costs
Loan limits
That is why buyers should avoid immediately assuming either extreme:
“My lender declined the building, so nobody can finance it.”
or
“Someone financed a unit here last year, so mine will definitely be fine.”
Neither conclusion is necessarily correct.
The financing strategy needs to be evaluated based on the current building, current rules, current documentation and the buyer's specific loan.
Before You Make an Offer, Know the Condo and the Building
The new lending rules make early due diligence more valuable, not less.
Chicago condo buyers should still focus on location, price, condition, floor plan, views, parking and monthly assessments. But those should now be considered alongside questions about reserves, insurance, repairs, special assessments and financing eligibility.
The goal is not to scare buyers away from older buildings or associations with upcoming projects.
A building investing in necessary maintenance can be a much healthier long-term choice than one simply postponing repairs to keep assessments artificially low.
The goal is to understand what you are buying into before your earnest money, inspection costs and financing timeline are already committed.
Buying a Chicago Condo? Check the Building Before You Commit
The Cory Tanzer Group at Option Premier helps buyers evaluate more than the unit itself, including association information, comparable sales, assessments, parking, building history and potential financing considerations in condo-heavy markets such as South Loop, West Loop, University Commons, University Village, River North and Streeterville.
If you're planning a Chicago condo purchase, getting the lender involved with the specific building early in the process can help uncover potential financing questions before they become closing problems.
Mortgage and condominium eligibility requirements vary by lender, loan type and project. This article is for general informational purposes and is not mortgage, financial or legal advice. Buyers should confirm current requirements with their lender and attorney.
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