If you're buying or selling a condominium in California, there's an important financing issue you need to know about.
And I can tell you firsthand: this is not just something happening on paper.
I've already had two clients encounter condo financing issues related to project eligibility and warrantability. That's why I believe buyers, sellers, real estate agents and even HOA boards need to understand what's changing.
The issue involves new 2026 condominium lending standards from Fannie Mae and Freddie Mac.
These changes can affect whether a buyer can obtain conventional financing on a condominium—even when the buyer has excellent credit, sufficient income, a strong down payment and is otherwise fully qualified for the loan.
First, What Does "Non-Warrantable Condo" Mean?
The term can sound alarming, but it doesn't necessarily mean there is something wrong with the individual condo.
When lenders refer to a condominium as "warrantable," they generally mean that the condominium project meets the eligibility standards required for a mortgage to be sold to Fannie Mae or Freddie Mac.
With a condo purchase, lenders aren't only evaluating the buyer. They're also evaluating the condominium project itself. That can include reviewing the HOA's finances, reserves, insurance coverage, maintenance, structural condition, litigation and other characteristics of the development. If the project doesn't satisfy applicable requirements, financing through certain conventional loan programs may not be available.
That's why a buyer can be completely qualified for a mortgage—and still encounter a problem financing a particular condo.
What Changed in 2026?
Fannie Mae and Freddie Mac have made significant changes to their condominium project review requirements.
One of the biggest changes is the elimination of the traditional "limited review" process for many condominium transactions.
Previously, certain loans could qualify for a more limited evaluation of the condominium project.
Under the updated standards, attached condominium units in established projects generally must go through a Full Review or another eligible project-review method unless they qualify for a specific waiver.
That means lenders may be looking more closely at the financial and physical condition of condominium developments.
And that can expose problems that might not have prevented financing in the past.
HOA Reserves Are Becoming Extremely Important
One of the areas receiving increased attention is the HOA's replacement reserves.
Condominium associations collect HOA dues to pay ongoing expenses, but associations also need money available for future major repairs and replacements.
Think about things such as:
• Roofs
• Elevators
• Plumbing systems
• Exterior structures
• Balconies and decks
• Paving
• Common-area improvements
• Major building components
If an association hasn't adequately planned or saved for those future expenses, lenders may consider that a financial risk.
Fannie Mae's Full Review standards generally require a condominium project's budget to allocate at least 10% of assessment income to replacement reserves, although qualifying reserve studies can be used under certain circumstances.
Freddie Mac has also strengthened its reserve requirements. For mortgages with applications received on or after August 3, 2026, Freddie Mac changed how reserve studies may be used as an alternative to the standard reserve requirement.
If a reserve study provides different funding recommendations, lenders generally must use the higher applicable recommendation rather than relying on the lowest baseline-funding approach. That could become particularly important for older condominium communities where HOA dues have historically been kept low.
Low HOA dues might look attractive to buyers. But if those low dues have resulted in insufficient reserves or deferred maintenance, they could eventually create financing problems.
California's Inspection Requirements Add Another Layer
California condominium associations also have state requirements concerning inspections of certain exterior elevated elements. These can include balconies, decks, walkways, stairways and related structural components in qualifying developments.
The initial inspection deadline for affected condominium associations was January 1, 2025.
Why does this matter to mortgage financing? Because Fannie Mae and Freddie Mac are concerned about projects with significant deferred maintenance, unresolved structural problems and critical repairs.
If an inspection identifies serious problems and those problems haven't been appropriately addressed, the project could have difficulty meeting conventional lending requirements.
So we're seeing two issues intersect: California's building-safety requirements and the lending standards imposed by Fannie Mae and Freddie Mac.
Insurance Can Cause Problems Too
California condominium associations have faced another major challenge in recent years: insurance. An HOA master insurance policy needs to meet applicable lender requirements. If the project's master insurance policy doesn't provide adequate coverage—or otherwise doesn't satisfy lender requirements—it can potentially interfere with a buyer's conventional financing.
That's especially important in California, where insurance costs and availability have become significant concerns for homeowners and HOAs.
A beautiful condominium with a financially qualified buyer can still run into financing trouble because of an HOA insurance issue.
Other Issues That Can Affect Condo Financing
A condominium project's eligibility can potentially be affected by issues including:
• Inadequate HOA reserves
• Significant deferred maintenance
• Critical structural repairs
• Insufficient master insurance coverage
• Certain pending litigation
• HOA financial problems
• Special assessments associated with unresolved repairs
• Certain commercial or mixed-use characteristics
• Failure to comply with applicable inspection requirements
• Other Fannie Mae or Freddie Mac project-eligibility standards
This is why condominium transactions require additional due diligence.
What This Means for Condo Buyers
If you're considering purchasing a condominium, don't assume financing will be available simply because you've been pre-approved. Your pre-approval primarily tells us whether YOU qualify. We also need to determine whether the CONDO PROJECT qualifies.
Those are two different questions. Before getting too far into the transaction, your lender should investigate the condominium project's eligibility.
Questions worth asking include:
"Has this condo project recently been approved for conventional financing?"
"Does the HOA meet Fannie Mae or Freddie Mac reserve requirements?"
"Are there any major special assessments?"
"Are there unresolved structural or deferred-maintenance issues?"
"Does the HOA's master insurance meet lender requirements?"
"Is there pending litigation?"
"Have required inspections been completed?"
The earlier we identify potential issues, the more options we may have.
What This Means for Condo Sellers
If you're planning to sell a condominium, this issue can be equally important.
Imagine accepting an offer from a strong buyer. The buyer is pre-approved.
The appraisal comes in. Inspections are completed. Everyone thinks the transaction is moving forward. Then the lender reviews the HOA documents and discovers that the project doesn't meet its condo eligibility requirements.
Suddenly the buyer's financing may be in jeopardy. That's why I believe condo sellers and their agents should begin investigating potential warrantability issues BEFORE accepting an offer whenever possible.
Some important documents may include:
• Current HOA budget
• Most recent reserve study
• HOA master insurance information
• Current special assessments
• Pending litigation information
• Recent structural or balcony inspection reports
• Major planned repairs
• HOA delinquency information
• Condo questionnaire information requested by lenders
Identifying an issue early gives us an opportunity to determine whether alternative financing may exist or whether the HOA can provide additional documentation.
Non-Warrantable Doesn't Necessarily Mean "Unsellable"
This is an important distinction. A condo being considered non-warrantable for a particular conventional loan does not automatically mean the property cannot be sold. There may be alternative financing options depending on the property and buyer.
Some portfolio lenders and other lending programs may finance condominium projects that don't meet standard Fannie Mae or Freddie Mac requirements. However, these loans can have different underwriting standards, down-payment requirements, interest rates and costs. That's why experienced lenders are particularly important with condominium transactions.
My Advice: Investigate the HOA Early
The biggest mistake buyers and sellers can make right now is waiting until the end of escrow to discover a condo financing problem. For buyers, I recommend having your lender investigate project eligibility as early as possible. For sellers, I recommend gathering HOA documentation and discussing potential financing concerns before the property goes into escrow whenever practical. And for HOA boards, these lending changes are important too.
An HOA's reserve funding, insurance, maintenance decisions and documentation can ultimately affect whether owners are able to sell or refinance their properties using conventional financing. That can directly affect property values and marketability throughout the community.
Minnie's Market Tip
"With condos, qualifying the buyer is only half the equation. Today, we also need to qualify the building."
That is a conversation I believe every California condo buyer and seller should be having in 2026.
If you're considering buying or selling a condominium in San Diego County, I can help you understand the questions to ask before you get too far into the transaction.
The earlier we identify a potential financing issue, the better positioned we are to explore solutions.
About Minnie Rzeslawski
Minnie Rzeslawski is a Broker Associate with RE/MAX City Real Estate and Broker/Owner of The 24K Real Estate Group. With 38 years of experience serving buyers and sellers throughout San Diego County, she specializes in residential real estate, probate sales, trust sales, first-time homebuyers, and strategic home marketing. Minnie is committed to educating her clients so they can make confident real estate decisions. Follow Minnie on Facebook and Subscribe on Youtube for weekly updates.
Disclaimer: This information is provided for general educational purposes and is not lending, legal, insurance or HOA advice. Condominium eligibility can vary by project, lender and loan program. Buyers and sellers should consult qualified lending and other appropriate professionals regarding a specific property.
