Condo buyers face new mortgage rules under Fannie Mae, Freddie Mac

Prospective homebuyers eyeing a condominium may soon discover that mortgage lenders are as interested in the condo building as they are in the buyer.

New condo-lending policies taking effect on Aug. 3 from Fannie Mae and Freddie Mac — government-sponsored enterprises that purchase qualifying mortgages on the secondary market — mean that some purchases could involve greater scrutiny by lenders. While lenders already review condo associations in many cases, the new policies require a closer look at the association’s finances, reserve funding and building maintenance for some transactions.

The changes are intended to better identify condo buildings with financial or structural problems and reduce the risk that owners face unexpected special assessments or higher association dues, according to a March 18 letter to lenders from Fannie Mae. 

However, some trade groups and loan experts say the change is likely to cause delays in mortgage approvals, and in some cases, lead to mortgage denials if a condo building fails to meet the new standards. 

“It will make the [application] process take much longer and will result in a lot of disqualifying applications,” said Max Slyusarchuk, CEO of AD Mortgage in Fort Lauderdale, Florida. The mortgage wholesaler sent a letter dated July 16 to the Federal Housing Finance Agency, which oversees Fannie and Freddie, urging the agency to modify or postpone the changes.

Buyers “should expect it to be way more difficult to buy a condominium,” Slyusarchuk said.

FHFA did not respond to an email seeking comment.

Fannie and Freddie buy home loans from lenders and package them into mortgage-backed securities for investors. If lenders want to sell mortgages to Fannie or Freddie — and most do because it frees up capital to do more lending — the loans must meet certain underwriting standards, whether for a condo or other type of home.

Buying a condo is generally less expensive than purchasing a single-family home. The median price for a condo or co-op was $380,000 in June, up 1.6% from a year earlier, according to the National Association of Realtors. That compares with a median price of $446,400 for a single-family home.

As of 2023, there were about 8.6 million condominium units in the U.S. overall, according to the Census Bureau’s American Housing Survey.

Since the partial collapse of the 12-story Champlain Towers South condo building in Surfside, Florida, on June 24, 2021, which killed 98 people, lawmakers and policymakers have continued to tighten standards affecting condo purchases and financing.

The National Institute of Standards and Technology, a government agency within the Commerce Department charged with investigating major building failures, released a report on June 22 concluding that the 40-year-old building had design and construction flaws from the time it was built, as well as decades of deterioration that contributed to the…