Condo Financing Restrictions: A 2026 Buyer’s Guide

Answer box: Since the 2021 Surfside condominium collapse, Fannie Mae, Freddie Mac, and FHA have all tightened the rules for lending against condos, and the practical effect is that a growing slice of the resale condo market has become difficult or impossible to finance with a standard mortgage. If a building is under-reserved for major structural repairs, has a pending or unresolved special assessment above a set dollar threshold, or carries unresolved litigation over safety, it can land on Fannie Mae’s “unavailable” project list or fail an FHA project certification. That single classification can cut your buyer pool down to cash purchasers and a handful of portfolio lenders willing to charge a meaningfully higher rate. Before you write an offer on any condo built before roughly 1990, or any building three stories or taller in a state with a mandatory structural inspection law, get the condo questionnaire and the most recent reserve study before you get attached to the unit.

How Surfside Rewrote the Condo Lending Rulebook

For decades, condo underwriting was mostly a formality. A lender would glance at the HOA budget, confirm the building wasn’t in obvious financial distress, and move on to underwriting the borrower. That changed after June 24, 2021, when Champlain Towers South in Surfside, Florida partially collapsed, killing 98 residents. The investigation that followed pointed to a mix of deferred concrete repairs, a chronically underfunded reserve account, and a board that had spent years debating a special assessment instead of collecting it.

Within a year, Fannie Mae and Freddie Mac both issued guidance that fundamentally changed how condo and co-op projects get evaluated. Fannie Mae’s Lender Letter LL-2022-04, covering the impact of significant deferred maintenance on condo and co-op projects, created a formal “unavailable” designation: a project can be barred from conventional financing if it has unresolved safety hazards, a required repair that hasn’t been completed, or a reserve study showing it can’t fund known capital needs. Freddie Mac followed with parallel bulletins. Both agencies also made a rule permanent that had been floated for years: condo association budgets must allocate at least 10% of their annual assessment income to reserves, unless a current reserve study justifies a lower number based on the building’s actual component needs.

Florida moved even faster at the state level. Senate Bill 4-D, signed in 2022, requires condo and cooperative buildings three stories or taller to complete a Milestone Inspection at 30 years of age (25 years for buildings within three miles of the coast) and every 10 years after that. The same law mandates a Structural Integrity Reserve Study, commonly called a SIRS, covering load-bearing walls, the roof, floors, foundation, fireproofing and fire protection systems, plumbing, electrical, waterproofing, exterior paint and coatings, and windows and doors. Associations that fall under the law can no longer waive reserve funding for those specific components — a practice that was routine before 2022 and one that boards used for years to keep monthly dues artificially low.

Other states followed a similar path without copying Florida’s law word for word. California’s SB 326 requires inspection of exterior elevated elements — balconies, decks, walkways — on multifamily buildings with three or more units, with initial inspections due by January 1, 2025 and every nine years after. Colorado, Virginia, and Illinois have all passed some version of mandatory reserve disclosure or structural inspection requirements for older multifamily buildings. None of these state laws directly regulate mortgage lending, but they generate exactly the kind of paperwork — inspection reports, repair timelines, funding shortfalls — that Fannie Mae, Freddie Mac, and FHA now require lenders to review before approving a loan.

The Four-Step Decision Framework Before You Write an Offer

Buyers tend to treat condo financing as a personal underwriting question: can I qualify for this loan? After 2022, that’s only half the equation. The project has to qualify too, and project-level denials don’t show up until you’re deep into escrow unless you check first. Use this sequence before you get emotionally or financially committed to a specific unit.

Step 1: Pull the condo questionnaire and reserve study before you tour a second time

Ask your agent or the listing agent for the HOA’s most recent condo questionnaire (sometimes called a condo cert), the last reserve study, and the last 12 months of board meeting minutes. If the seller or the HOA management company resists providing these before an accepted offer, treat that reluctance itself as a data point — associations with clean reserves rarely hesitate to share the study.

Step 2: Check the project’s status against agency lists

Your loan officer can run the property address through Fannie Mae’s Condo Project Manager or ask Freddie Mac’s Condo Project Advisor whether the building appears on an ineligible or unavailable list, and whether it qualifies for a Limited Review or requires a Full Review. If you’re considering FHA financing, confirm the project’s current certification status directly through HUD’s condo lookup — approvals lapse every three years and are not automatically renewed.

Step 3: Size the reserve gap, not just the reserve balance

A reserve account with $2 million in it sounds healthy until you learn the building needs a $9 million roof and facade repair within five years. The number that matters is the percent-funded ratio: current reserves divided by the fully funded balance a reserve study calculates for that building’s age and component condition. Below roughly 30% percent-funded, expect either a large special assessment, a reserve increase steep enough to change your monthly cost math, or both.

Step 4: Match the financing path to the project’s actual risk profile

Only after steps one through three should you lock in a financing strategy. A well-reserved 15-year-old mid-rise with no pending litigation is a normal conventional loan. A 45-year-old oceanfront tower mid-way through a court-ordered facade repair is a different animal entirely, and pretending otherwise wastes weeks of your under-contract timeline.

Evaluation Criteria: What Actually Moves a Project From “Eligible” to “Unavailable”

Underwriters aren’t guessing. Fannie Mae, Freddie Mac, and FHA each publish specific triggers, and most overlap heavily. The criteria below are the ones that matter most in practice, roughly in order of how often they sink a deal.

• Unresolved safety hazards or required repairs. If an engineering report, building department order, or milestone inspection has flagged an item as unsafe and it hasn’t been fixed, the project is presumptively unavailable for conventional financing until the repair is complete and documented.
• Reserve funding below the 10% threshold without a supporting study. Since the rule became permanent, a budget that allocates less than 10% of assessments to reserves needs a current reserve study justifying the lower number. No study, no exception — the project fails review.
• Special assessments above defined dollar or percentage thresholds. A special assessment tied to safety or structural issues, or one large enough relative to the unit’s value, pushes a project toward unavailable status even if the association has already approved and is collecting it.
• Single-entity concentration. If one owner (often an investor or the developer) holds more than roughly 10% of the units in a project of five or more units, that concentration itself can trigger extra review or ineligibility, separate from any structural issue.
• Commercial space over roughly 35% (Fannie Mae) or 25-35% depending on program. Mixed-use buildings with a large retail or office footprint face additional scrutiny because commercial vacancy risk bleeds into HOA finances.
• Pending litigation involving safety, structural soundness, or habitability. Litigation over a leaking roof or a landscaping dispute is usually fine. Litigation over cracked structural slabs, water intrusion into the building envelope, or a builder-defect claim tied to the frame is not.
• Delinquency rates above 15%. If more than 15% of unit owners are 60 or more days behind on association dues, most agency guidelines treat that as a financial-instability signal serious enough to restrict financing.

Financing Paths Compared

Once you know where a project stands, four realistic financing paths remain, and they are not close to equivalent in cost or accessibility.

Non-warrantable condo lending has become its own small industry, and it overlaps with a broader shift in how lenders handle any file that doesn’t fit the standard box. As we’ve covered in our guide to automated underwriting for complex mortgages, a growing share of jumbo, self-employed, and asset-depletion loans now get routed through the same manual-review queue as non-warrantable condos, because a project-level red flag or an unconventional income profile can’t be cleared by an automated engine alone — a person still has to read the reserve study or the K-1.

Rising Share of Listings Flagged Non-Warrantable or Restricted

The practical scale of this shift shows up in how many active resale listings now carry some form of financing restriction. The estimates below are drawn from lender and MLS-level condo certification data compiled across major agency lenders between 2019 and 2026.

Roughly one in five condo listings nationally now carries some form of financing friction, and in older coastal markets — South Florida, parts of the Gulf Coast, and aging co-op stock in the Northeast — the share runs meaningfully higher. That friction doesn’t necessarily mean the building is unsafe. It usually means the paperwork trail hasn’t caught up to what agencies now require, which is its own kind of risk for a buyer working against a 30 or 45-day closing deadline.

Worked Example: Three Units, One Courtyard, Three Very Different Loans

Picture a 1985-built, 12-story oceanfront building in a mid-size Gulf Coast city with 140 units. Three nearly identical two-bedroom units come on the market within a month of each other, all listed around $410,000. Here’s how the financing reality diverges once you dig into each building’s actual paperwork — because in this scenario, the units sit in three different associations across the same block, each with a distinct reserve and inspection history.

Unit A: fully funded reserves, milestone inspection passed last year

This association completed its Milestone Inspection in 2025 with no structural findings, and its reserve study shows the fund at 78% of the fully funded target. A buyer here qualifies for a standard 30-year conventional loan through a Limited Review: 10% down ($41,000), a rate matching the prevailing conforming rate, and a 30-day close. Monthly HOA dues run $640, already reflecting full reserve contributions.

Unit B: passed inspection but under-reserved, special assessment pending board vote

This association also passed its Milestone Inspection but never adjusted its budget to the 10% reserve minimum — dues have stayed flat for six years while material and labor costs climbed. The board is now voting on a $6.8 million facade and balcony repair, which works out to roughly $48,500 per unit if approved as a lump-sum special assessment, or about $410 a month for 15 years if financed through an association loan. Until the board formally approves and records a repair plan, Fannie Mae’s Full Review classifies this project as presumptively ineligible. A buyer’s realistic paths are a portfolio lender at roughly 1.5 to 2 points over the prevailing rate with 25% down, or waiting out the board vote and hoping the eventual per-unit number is more favorable than the pending estimate.

Unit C: milestone inspection flagged structural deficiencies, litigation filed

This association’s inspection found spalling concrete on load-bearing columns in the parking garage and moisture intrusion behind the exterior cladding on the ocean-facing side. Several owners have filed suit against the developer’s original contractor over defective waterproofing installed during a 2016 renovation. With unresolved safety findings and open litigation touching structural elements, this project is unavailable for conventional, FHA, and most non-QM financing. Realistically, this unit sells to a cash buyer at a meaningful discount to comparable units — often 15-25% below Unit A’s price per square foot — reflecting both the repair liability and the tiny pool of buyers who can close without a mortgage.

Same block, same view, same floor plan — three completely different transactions. The lesson isn’t that older buildings are uninvestable. It’s that the building’s paperwork, not the unit’s finishes, decides which financing menu you’re actually choosing from.

Common Mistakes Buyers and Even Agents Make

• Assuming personal pre-approval covers the project. A pre-approval letter says your income, credit, and assets qualify you for a loan amount. It says nothing about whether the specific building will pass project review, and that review often doesn’t happen until the loan is well into processing.
• Treating a low HOA fee as a selling point. A suspiciously low monthly assessment on an older high-rise is frequently a sign of underfunded reserves, not efficient management. Ask what percentage of the fully funded reserve target the association is actually carrying.
• Not confirming FHA certification is current. FHA condo approvals expire after three years and require active recertification. An agent listing a unit as “FHA-approved” based on a search from two years ago may be wrong by the time you’re under contract.
• Underestimating how special assessments get financed. A $50,000 special assessment doesn’t have to be paid in one check — many associations offer 5, 10, or 15-year internal financing — but that monthly obligation still affects your true housing cost and, in many cases, your qualifying debt-to-income ratio.
• Waiting until after the inspection contingency to request the reserve study. By the time a buyer discovers a project-level problem during the loan process, they’ve often already spent money on inspections and appraisal and burned weeks of a rate lock.
• Confusing a passed Milestone Inspection with a clean bill of health. A Milestone Inspection can pass with recommendations for future repairs that still show up as reserve gaps in underwriting, even though no immediate safety hazard exists.

Pre-Offer Due Diligence Checklist

• Request the condo questionnaire, most recent reserve study, and board meeting minutes from the last 12-18 months before writing an offer.
• Confirm the reserve fund’s percent-funded ratio, not just its dollar balance.
• Ask directly whether the association has any pending, approved, or discussed special assessment, and get the dollar amount and payment terms in writing.
• Check the building’s Milestone Inspection or equivalent structural inspection status and date, if the state or municipality requires one.
• Ask your lender to run the project through Fannie Mae’s Condo Project Manager or Freddie Mac’s Condo Project Advisor before you remove your loan contingency.
• If pursuing FHA financing, verify current HUD project certification status yourself rather than relying on a listing description.
• Review the last two years of litigation disclosures for anything touching structural integrity, water intrusion, or habitability.
• Confirm the association’s delinquency rate — the share of owners more than 60 days behind on dues.
• Get a written insurance certificate showing current coverage limits, since post-Surfside premium spikes have pushed some associations into inadequate or lapsed coverage.
• Build a financing contingency long enough to accommodate a Full Review if the project doesn’t qualify for a Limited Review.

Key Takeaways

• Post-Surfside rules from Fannie Mae, Freddie Mac, and FHA now evaluate the condo project itself, not just the borrower, and a project can be barred from financing regardless of how strong the buyer’s application is.
• The two numbers that matter most are the reserve fund’s percent-funded ratio and whether any special assessment tied to safety or structural repairs is pending or unresolved.
• Florida’s Milestone Inspection and SIRS requirements, plus similar laws in California and elsewhere, generate the documentation that lenders now demand before approving a loan on an older building.
• Financing options narrow sharply once a project is flagged: conventional and FHA financing disappear, leaving non-QM portfolio loans at a rate premium or an all-cash purchase.
• Request the condo questionnaire, reserve study, and litigation disclosures before you get attached to a unit, not after your offer is accepted.

FAQ

What made condo mortgages so much harder to get after 2021?

The 2021 Surfside condominium collapse in Florida exposed how common it was for associations to underfund reserves and defer structural repairs. In response, Fannie Mae and Freddie Mac created new project-level review standards, including an “unavailable” designation for buildings with unresolved safety hazards, underfunded reserves, or major pending special assessments, and made a 10% minimum reserve contribution rule permanent.

What is a Structural Integrity Reserve Study (SIRS) and why does it affect my loan?

A SIRS is a Florida-mandated study that examines specific structural components — roof, load-bearing walls, floors, foundation, fireproofing, plumbing, electrical, waterproofing, and windows and doors — and calculates how much an association must reserve to fund their eventual repair or replacement. Lenders now often ask for this study because it shows whether a building’s dues and reserves realistically match its future repair costs.

Can I still get a conventional loan on a condo that’s on Fannie Mae’s unavailable list?

Not through standard Fannie Mae or Freddie Mac financing while the project remains on that list. Buyers in that situation typically look at a non-QM or portfolio loan from a lender willing to underwrite the project’s specific risk, usually with a larger down payment and a higher rate, or they pay cash.

Does an FHA-approved condo project stay approved forever?

No. FHA condo project approvals expire three years after certification and must be renewed. A building’s FHA status can also lapse mid-cycle if reserve funding, insurance, or litigation issues arise, so buyers should verify current certification through HUD rather than relying on an older listing description.

How much extra should I budget if a condo building needs a special assessment?

It depends heavily on the scope of the repair and whether the association offers financing. Facade, roof, and structural repairs on older high-rises have produced per-unit special assessments ranging from a few thousand dollars to well over $50,000, sometimes payable as a lump sum or spread over 5 to 15 years through an association loan. Ask for the exact figure and payment terms in writing before you remove any contingencies.

References

• Fannie Mae, Lender Letter LL-2022-04, “Impact of Significant Deferred Maintenance on Condo and Co-op Projects.”
• Fannie Mae Selling Guide, Project Standards chapter, condo and co-op eligibility requirements.
• Freddie Mac Bulletins on condo and co-op project eligibility following 2021-2022 guidance updates.
• Florida Senate Bill 4-D (2022), Milestone Inspection and Structural Integrity Reserve Study requirements.
• California Senate Bill 326, exterior elevated element inspection requirements for multifamily buildings.
• U.S. Department of Housing and Urban Development, FHA condominium project approval and recertification requirements.
• National Institute of Standards and Technology, investigation findings related to the Champlain Towers South collapse.
• Community Associations Institute, research and guidance on reserve funding practices and post-Surfside legislative trends.