Fannie Mae & Freddie Mac Condo Reserve Requirements — the 10% rule and project approval, explained.

When a buyer can't get a mortgage on a condo, the unit usually wasn't the problem — the association failed the lender's project review. Here's how the 10% reserve guideline and post-Surfside scrutiny quietly decide whether units in your building can be financed at all.

1. Why a lender cares about a building it isn't lending on

Most boards picture a mortgage as a deal between one buyer and one bank. For a condo, it isn't. A loan secured by a condominium unit is only as sound as the association that owns the roof over it, the structure around it, and the budget that keeps both standing. So before a conforming loan on your building can be made, two separate things get reviewed: the borrower, and the condominium project itself.

The reason is the secondary market. Most lenders don't intend to hold the mortgages they originate. They sell them to Fannie Mae and Freddie Mac — the two government-sponsored enterprises that buy conforming loans and, in doing so, set the rules for what's sellable. If a loan is going to be sold to the agencies, it has to meet the agencies' standards. And the agencies have decided that a unit in a financially fragile or physically deteriorating association is a riskier asset than the same unit in a well-run one. So they require the whole project to pass an eligibility review, not just the person signing the note.

This is what the industry calls condo project approval or project review. It happens largely out of view of the seller and, often, the board — which is exactly why it can blindside an association at the worst possible moment, when a unit is under contract and the appraisal comes back fine but the loan still falls apart.

2. The 10% reserve rule — and the reserve-study substitution

The single most cited number in condo project review is the 10% reserve guideline. As a general rule, an established project's annual operating budget should allocate at least 10% of its income to replacement reserves. An underwriter looking at a budget that puts, say, 4% toward reserves sees a red flag: the association may be running thin on the money it will need when the roof, elevators, or pipes reach end of life.

But 10% is a blunt instrument. It's a proxy — a quick stand-in for the real question, which is whether the reserves are adequate for what the building will actually need. That's why the guideline comes with a far more meaningful alternative.

The reserve study substitution

In place of the flat 10% line item, an association can provide a current reserve study, prepared by a qualified provider, that demonstrates the reserves are adequately funded. If the study shows a credible plan that meets the project's projected replacement needs, it can satisfy the requirement on its own merits — even where the budget line happens to be below 10%, or well above it.

This is the professional path, and for most buildings it's the better one. A flat 10% allocation can be far too little for an older high-rise with major structural and mechanical systems coming due, and unnecessarily high for a young, simple project. A study replaces the guess with arithmetic: it inventories every reserve component, estimates remaining useful life and replacement cost, and projects whether the funding plan keeps the reserve solvent over a 20-to-30-year horizon. For more on what counts as adequate funding versus a thin reserve, see our percent-funded explainer.

Reserve adequacy test:  budget ≥ 10% of income (rising to 15% on Jan 4, 2027)  OR  a current study by a qualified provider, funded to its highest recommended level

The phrase that matters is demonstrates adequacy. A reserve study is only a substitute for the 10% line when it actually shows the reserves holding up. A current study that documents a deeply underfunded reserve doesn't rescue the project — it confirms, in writing, the exact weakness the underwriter is looking for.

What's changing in 2026–2027

The agencies are tightening these rules on a published timeline, and a board should plan around the new numbers rather than the old ones:

• The reserve minimum rises from 10% to 15%. Under Fannie Mae's Lender Letter LL-2026-03 and Freddie Mac's parallel guidance, the replacement-reserve allocation must be at least 15% of annual budgeted assessment income for loan applications dated on or after January 4, 2027 — up from 10%.
• A reserve study must fund to its highest recommended level. Where a study is used in place of the percentage test, the budget must adopt the study's highest recommended funding amount; baseline (minimum) funding models are no longer accepted. A study that recommends a Threshold or Fully Funded plan has to be funded to that plan, not to the cheapest option that keeps the balance above zero.
• Limited Review is going away for established projects. For loan applications dated on or after August 3, 2026, the streamlined limited-review path is eliminated for established condo projects of more than 10 units — covered in the next section.

The direction of travel is unmistakable: the agencies want a real, fully funded reserve plan, not a 10% rule of thumb. A current reserve study that funds to its recommended level is the cleanest way to stay on the right side of all three changes at once.

3. What project review actually checks

Reserves are one input among several. A condo project review pulls together a picture of the association's financial health, occupancy and ownership mix, legal exposure, and — since 2021 — its physical condition. The review comes in different intensities depending on the loan and the project.

Limited review vs. full review

For lower-risk loans — typically a strong borrower with a large down payment on a primary residence — a lender may use a limited review, a lighter-touch check that skips some of the documentation. For everything else, including investment properties, lower down payments, and projects with any warning signs, the lender runs a full review, which digs into the budget, reserves, insurance, litigation, delinquencies, and the condition questionnaire. A project that would sail through a limited review can still stumble in a full one — which is why a board can't rely on "we've always closed loans here" as evidence that everything is fine.

Note for 2026: the limited-review path is being retired. For loan applications dated on or after August 3, 2026, Fannie Mae eliminates limited review for established condo projects of more than 10 units (Freddie Mac is making a parallel change), so most such loans will move to a full review — and the budget, reserve, and condition-questionnaire scrutiny that comes with it.

New and newly converted projects

Brand-new construction and conversions get extra attention. Fannie Mae offers a project-level review path (known as PERS) for these, and the agencies maintain lists of approved and unavailable projects. The mechanics differ by agency and change over time, so the practical takeaway for a board is simpler than the alphabet soup: the project's paperwork, not just the borrower's, decides whether a loan closes.

4. The post-Surfside shift: deferred maintenance and special assessments

One of the most consequential changes to condo lending in a generation came after the June 2021 collapse of Champlain Towers South in Surfside, Florida (the 2026–2027 reserve reforms above are the other). In the months that followed, Fannie Mae and Freddie Mac added eligibility scrutiny aimed squarely at the physical condition of the building and the funding of its repairs.

The agencies now expect lenders to gather information about significant deferred maintenance, unsafe conditions, and special assessments through a condominium project questionnaire and supporting documents — inspection reports, engineering studies, board meeting minutes, and the reserve study among them. The questions are pointed: Are there any current or planned special assessments? Is the association aware of any significant deferred maintenance? Has any regulatory body or inspector cited the building for unsafe conditions? Are there directives to make critical repairs?

The link to Florida's Structural Integrity Reserve Study (SIRS) requirement is direct. SIRS was the state's legislative answer to Surfside; the agencies' questionnaire is the secondary market's. A Florida building that's out of step with SIRS — no current structural study, an unfunded structural repair, a milestone inspection flagging problems — is also a building that's likely to trip the agencies' deferred-maintenance questions. The two regimes reinforce each other.

5. What makes a project ineligible

"Ineligible" is the word that ends loans. A project can be deemed ineligible for conforming financing until the underlying issue is fixed. The specific triggers shift over time and differ between the two agencies, but the durable categories are stable. The table below maps the signals that keep a project clean against the ones that move it toward a full review or outright ineligibility.

Notice how many rows trace back to reserves and physical condition — and how often a current, credible reserve study is the document that answers the question favorably. The study isn't just one checkbox; it's the evidence that supports several of them at once.

6. How a current, adequately funded study satisfies the requirement

Put the pieces together and a single document does most of the heavy lifting in a condo project review. A current reserve study by a qualified provider can simultaneously:

• Satisfy the reserve adequacy test — substituting for the 10% line item by demonstrating the funding plan meets projected replacement needs.
• Pre-empt the deferred-maintenance question — a study that inventories components and shows them being funded toward replacement is the opposite of "significant deferred maintenance ignored."
• Frame any special assessment as planned, not panicked — a board that levies an assessment on the schedule its study recommended looks managed; one reacting to a sudden failure looks distressed.
• Give the board accurate questionnaire answers — the study supplies the numbers and the component status that the condominium project questionnaire asks for, so the answers are consistent and defensible.

The cost is modest against what's at stake. A professional reserve study generally runs in the low thousands to low five figures depending on building size and complexity — see our 2026 reserve study cost breakdown. Set that against even a single failed sale: a unit that can only be sold for cash typically trades at a discount, and the discount applies to every unit in the building once the project is known to be unfinanceable.

7. A board action checklist

If your association includes condo units that owners may one day sell or refinance — which is to say, nearly all of them — these are the steps that keep the project loan-eligible:

1. Commission or refresh the reserve study. A current study by a qualified provider is the single most useful document in a project review. If yours is more than a few years old, update it.
2. Fund toward the study's plan. Adequacy isn't proven by having a study — it's proven by following one. A study on the shelf next to a depleted reserve helps no one.
3. Don't let maintenance become "deferred." Address roof, structural, waterproofing, and life-safety items before they harden into an unsafe-condition or critical-repair finding. The questionnaire asks about exactly these.
4. Resolve and disclose special assessments cleanly. If an assessment is needed, tie it to the study's recommendations, document the board vote, and fund the work. An unresolved safety-related assessment is a direct ineligibility trigger.
5. Keep the questionnaire answers accurate. Whoever completes the condominium project questionnaire should be working from the current study, budget, and minutes — not from memory. Inconsistent answers invite a full review.
6. Track Florida (and similar) statutory studies. Where a state mandates a structural study, treat compliance as part of loan eligibility, not a separate chore. See the Florida SIRS guide.
7. Watch your funded percentage over time. A reserve trending downward is a leading indicator that a future review will go badly. Catch it while a contribution ramp can still fix it.

None of this is exotic. It's ordinary reserve discipline — the same practice that protects the building from a surprise assessment also keeps it inside the conforming-loan market. The board that does the boring work quietly preserves the one thing every owner cares about most: that their unit can be sold to a buyer with a normal mortgage, at a normal price.