Fannie Mae Condo Reserve Requirements: The New 15% Rule

Most condo boards never even think about mortgage rules until a sale falls through. Does this sound familiar? A buyer is approved, the lender reviews the association, and then the loan is declined. This doesn't happen because of the buyer, but because of the building's budget.

The most common reason here is reserves. Fannie Mae and Freddie Mac, which back the majority of conventional mortgages in the US, require condo associations to set aside a minimum share of their budget for replacement reserves. For years, the minimum has been 10%. However, from January 4, 2027, it rises to 15%.

In this article, we'll explain what this rule is, how it's calculated, how a reserve study can help, and what boards should do before January.

What Is the Fannie Mae Reserve Requirement?

When a buyer applies for a conventional loan on a condo unit, the lender has to review the whole project, not just the unit itself. One of these checks is whether the association's annual budget allocates enough for replacement reserves - the fund that pays for things like roofs, elevators and other major components.

Under the Fannie Mae Selling Guide (B4-2.2-02), the budget must allocate at least 10% of the association's annual budgeted assessment income to reserves. Freddie Mac applies the same standard.

In March 2026, Fannie Mae issued Lender Letter LL-2026-03, with a matching Freddie Mac bulletin. It raises the minimum to 15% for loan applications dated on or after January 4, 2027. Note that it's the application date that matters, not the closing date.

How the percentage is calculated

The percentage is very easy to work out, as it's just a ratio. You take the annual reserve contribution in the adopted budget and divide it by the total annual assessment income.

• $250,000 annual assessment income - $25,000 at 10% (current), $37,500 at 15% (from January 2027)
• $500,000 annual assessment income - $50,000 at 10%, $75,000 at 15%
• $1,000,000 annual assessment income - $100,000 at 10%, $150,000 at 15%

There are two finer details here. Firstly, it's measured against the budget, not the balance in the bank - a large reserve fund doesn't help if this year's budget contributes too little. Secondly, special assessments don't count. Fannie Mae has confirmed a special assessment can't be used in place of the budgeted reserve allocation.

What Happens If Your Condo Doesn't Meet It?

If your condo doesn't meet the percentage, the project becomes non-warrantable. This means it's ineligible for loans that Fannie Mae or Freddie Mac will buy. Buyers can still get a mortgage, but only from lenders willing to hold the loan themselves - usually at a higher rate and with a larger down payment - which means some buyers may walk away.

The result is pretty obvious: fewer qualified buyers, longer listing times, and pressure on values for every owner in the building, including those with no plans to sell. As Limited Review was retired in August 2026, almost every condo loan now goes through a Full Review, so there's no longer a lighter-touch route around the check.

The Reserve Study Exception

The percentage rule isn't the only way to qualify. If the budget falls short of the threshold, a lender can accept a reserve study that shows the association is adequately funded at a lower level. For associations whose real reserve needs are modest, this has always been the most practical alternative to an arbitrary percentage.

Some changes in 2026 tightened this route, though:

• The study must have been completed within the last three years.
• The budget must fund reserves at the highest level the study recommends - not the cheapest option.
• Baseline funding plans, which only keep the reserve balance above zero, are no longer accepted.

This three-year window matters a lot. Several states only require a study every five to six years - Maryland and New Jersey every five, Utah every six - so a building can be fully compliant with state law and still be holding a study that's too old for a lender. Our reserve study requirements by state guide sets out each state's cycle.

In Florida, Fannie Mae doesn't distinguish between SIRS reserves and other reserves; it's the combined budgeted total that has to meet the threshold.

What About FHA Loans?

FHA-insured loans have their own condo approval process under HUD Handbook 4000.1. The FHA standard is still 10% of the budget allocated to reserves, and as with Fannie Mae, a current reserve study can be used to support a lower figure.

FHA matters most to first-time buyers, who rely on its low down payments - so an association that fails FHA review loses a large share of its entry-level buyers.

What Boards Should Do Before January 2027

Before January 2027, there are a few things your board needs to do. The checklist below covers them:

1. Check your current percentage. Divide this year's budgeted reserve contribution by total assessment income, and if it's under 15%, you have a decision to make for next year's budget.
2. Look at the date on your reserve study. If it's more than three years old, it won't support an exception. If you don't have one at all, the 15% rule is your only path.
3. Decide which route is cheaper. For some associations, 15% is more than they actually need, and a current study funded at its recommended level will actually cost members less. For others, the study will show they need more than 15% anyway. You won't know until you have one.
4. Build it into the budget now. The rule applies to applications from January 4, so the budget adopted this autumn is the one lenders will see. Our guide to HOA budget best practices covers how to set the reserve line.
5. Tell owners why. A dues increase explained as "protecting your ability to sell" lands very differently from one with no context.

The Lender Is Now Asking the Same Question You Should Be

The 15% rule is blunt, but the question behind it is a fair one: is this building saving enough to pay for its own repairs? Associations that can answer that with a current reserve study - and a budget that follows it - keep their units financeable and avoid the special assessments that underfunded buildings eventually face.

Reserve Study Group prepares reserve studies for condominium associations in 14 states, with funding plans that show exactly where you stand against lender requirements. Request a proposal to find out whether a study or the 15% rule is the better route for your building.

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