Condo/HOA Requirments

For a condo loan in California, a borrower can qualify perfectly and the loan can still fail because the condo project itself has to meet lender/agency requirements. For conventional financing, the main question is whether the project qualifies for a Limited Review, Full Review, or review waiver under Fannie Mae/Freddie Mac rules.

For a typical Fannie Mae conventional loan, here are the major items to watch:

Project status: An “established” condo generally must be 100% complete, have no additional phases planned, have HOA control turned over to the owners, and normally have at least 90% of units conveyed.
HOA delinquencies: For a Full Review, no more than 15% of the units can be 60+ days delinquent on HOA dues.
Special assessments: Lenders review special assessments, their purpose, amount, remaining term, and whether they indicate a larger structural/financial problem. Under a Limited Review, no more than 15% of units may be 60+ days delinquent on a special assessment.
Insurance: The master policy must meet agency requirements for property, liability and, where applicable, flood coverage. Insurance has become one of the biggest condo issues in California.
Structural/safety issues: Significant deferred maintenance, structural problems, evacuation orders, mandatory repairs, or unresolved building-safety issues can make the project ineligible.
Litigation: Pending litigation involving structural defects, safety, habitability, ownership of common areas, or potentially significant financial exposure can cause problems.
Commercial space / mixed use: Excessive non-residential use can make a project ineligible or require additional review.
Hotel-type operations: Condo-hotels, projects functioning like short-term lodging, mandatory rental programs and similar arrangements can create eligibility problems.
Single-entity ownership: Too many units owned by one investor/entity can cause the project to fail depending on the project and review type.
HOA finances: For a Full Review, the lender reviews the HOA budget, reserves, assessments and overall financial health.
New construction: New condo projects generally require a Full Review and have additional presale requirements. Fannie currently requires at least 50% of the units in the project or applicable legal phase to be conveyed or under contract to principal-residence or second-home buyers.

Limited Review

For an established attached condo in California, Fannie Mae allows a Limited Review at up to:

Occupancy Maximum LTV

Primary Residence 90%

Second Home 75%

Investment Property 75%

For example, an owner-occupied purchase with 10% down may qualify for a Limited Review rather than a Full Review. That can make a significant difference because the Limited Review has fewer project-level requirements.

Some condos can avoid a full project review. Fannie generally waives the extensive project review for certain properties/transactions, including:

Detached condos
2–4 unit condo projects
Certain Fannie-to-Fannie limited cash-out refinances below 80% LTV
Certain high-LTV refinances.

FHA condos

For FHA, the condo can either be in an FHA-approved project or, in some situations, qualify through Single-Unit Approval. For Single-Unit Approval, HUD says the condo generally must be in a completed project with at least 5 units, cannot be manufactured housing, and must satisfy requirements covering such things as owner occupancy, FHA concentration, insurance and the project's financial condition.

Upcoming Changes

The big January 2027 change is the condo reserve requirement for conventional loans sold to Fannie Mae and Freddie Mac.

Starting with loan applications dated on or after January 4, 2027, the minimum HOA budget allocation for replacement reserves/capital expenditures and deferred maintenance increases from 10% to 15% of annual budgeted assessment income.

For example, if an HOA collects $1,000,000 per year in assessments, the old minimum reserve contribution was $100,000. Under the new rule it becomes $150,000 per year.

There is an important alternative: an HOA can potentially qualify based on a recent reserve study rather than simply meeting the flat percentage. But under rules already effective for applications dated August 3, 2026 or later, the association's budget generally has to fund the highest recommended reserve allocation from the reserve study; a baseline-funding approach isn't acceptable for this purpose.

Also, something important changed already on August 3, 2026: Fannie/Freddie's old streamlined/limited condo review approach was substantially changed/retired, meaning project financial condition, reserves, deferred maintenance and related issues are receiving more scrutiny. Freddie Mac, for example, confirms that Streamlined Review can only be used when the application date was before August 3, 2026.

What this means for California condo loans.

The practical issue is going to be HOAs whose budgets only put 10% into reserves. Starting January 4, 2027, those projects could have difficulty qualifying for standard agency financing unless they:

increase the budgeted reserve contribution to 15%, or
have an acceptable reserve study and fund reserves according to the applicable study requirements.

This could be a significant issue in California because an HOA might look financially healthy at first glance but still fail the agency project review because its annual budget doesn't satisfy the new reserve test.

One important distinction: the rule is about the annual contribution/allocation to reserves, not simply having cash equal to 15% sitting in the HOA's reserve account.

Also, the trigger is the loan application date, not the closing date. So a loan application dated January 3, 2027 versus January 4, 2027 can fall under different reserve requirements. Freddie explicitly states the January 4 standard applies based on the Application Received Date.