Because Fannie Mae and Freddie Mac help finance nearly half of all home purchases, changes to their condominium lending standards can have a significant effect on buyers, sellers and transaction timelines.

Ken Fears, NAR’s director of conventional housing finance and valuation policy, recently explained the changes and their potential impact.

The major changes include:

• Limited reviews have been eliminated. More condominium transactions may require additional documentation and review, potentially creating delays.
• Small associations may receive relief. Condominium projects with 10 or fewer units may qualify for a waiver from the full-review requirement.
• The investor-ownership limit is gone. Projects will no longer be restricted by the previous rule limiting investor-owned units to 50%.
• HOA reserve requirements are increasing from 10% to 15%. This could lead to higher association fees or assessments, particularly affecting retirees and other owners on fixed incomes.
• Fannie Mae’s Condominium Project Manager may streamline future transactions. Once a project is approved, participating lenders can see its status and avoid repeatedly collecting the same documentation. However, REALTORS® generally cannot access the database unless they officially represent the HOA.

What does this mean locally? Condo listing and buyer agents should begin financing conversations early. Encourage clients to work with knowledgeable lenders and determine as soon as possible whether the association has adequate reserves, current financial records and any required structural or engineering reports. Waiting until late in the transaction to identify a project-eligibility problem could result in delays—or affect whether the buyer can obtain financing at all.

Read Ken Fears’ full explanation: Why and How Condo Lending Rules Are Changing.