Two Fannie Mae and Freddie Mac changes decide whether many Michigan condos qualify for a conventional loan. Since August 3, 2026, the lender reads the association’s budget on most loans for an attached unit in a building of more than ten units, and for loan applications dated on or after January 4, 2027, that budget must set aside at least 15 percent of assessment income for reserves, up from 10 percent.

Rules as of October 2026. We checked every date and percentage here against Fannie Mae, Freddie Mac, HUD, VA and State of Michigan documents on October 9, 2026, and linked the main sources.

If a building falls short, the buyer still has routes: FHA, VA and non-QM loans each look at a condo building under their own rules, and the association can rewrite its budget. This guide is for Michigan condo buyers, owners, sellers and boards, written from Grand Rapids; the rules apply statewide.

What changed for condo loans in 2026, and what changes in January 2027?

The short condo review is gone for loan applications dated on or after August 3, 2026, and the reserve mark rises from 10 to 15 percent for applications dated on or after January 4, 2027. Both changes come from Fannie Mae and Freddie Mac. Most conventional loans are written for sale to one of the two, and a loan in a building that misses their project standards generally cannot be sold to either. Both published the changes on March 18, 2026, in Fannie Mae Lender Letter LL-2026-03 and Freddie Mac Bulletin 2026-C.

March 18, 2026: smaller projects got simpler. The project review is waived for projects of two to ten units, as long as a project of five to ten units is not part of a master association or larger development.
August 3, 2026: the short review ended. Fannie Mae’s Limited Review and Freddie Mac’s Streamlined Review are retired for loan applications dated on or after this date. Those buildings now need a full review or another route the agency accepts, and the full review is where the association’s budget is tested for reserves.
January 4, 2027: the reserve mark moves. For loan applications dated on or after this date, a full review requires the budget to put at least 15 percent of the association’s annual budgeted assessment income toward reserves for capital expenditures and deferred maintenance. Until then the mark is 10 percent, the figure in Fannie Mae’s Selling Guide today.

On the percentage test, the lender divides the budgeted reserve contribution by the budgeted assessment income, so a large balance in the reserve account does not offset a small yearly contribution. For that test, the balance matters only if the lender relies on a reserve study instead, covered below. As of October 9, 2026, neither agency had changed the January 4, 2027 date.

Does the full review apply to your building?

Mainly for attached units in projects of more than ten units, and for attached units in a five-to-ten unit project that is part of a master association or larger development. Manufactured homes are the exception on the other side: Fannie Mae does not waive the review for a manufactured home or for any project that contains one. Otherwise, Fannie Mae waives the project review for:

detached condo units, including site condos, where the owner owns the house and the land under it;
units in projects of two to four units;
units in projects of five to ten units that are not part of a larger development or master association.

Freddie Mac’s “Exempt From Review” works much the same way: detached units and projects of two to ten units, as long as a five-to-ten unit project is not part of a master association. New and newly converted attached projects of more than ten units go through a full review or Fannie Mae’s own project review, PERS, and some conversions must go to PERS. In practice, a detached site condo in a subdivision-style development usually skips the project review, while an attached unit in a downtown Grand Rapids building of more than ten units usually gets the full review, budget included.

Even with the review waived, Fannie Mae still checks a short list: the insurance, any “Unavailable” flag in its Condo Project Manager, condo-hotel or timeshare use, and whether the project is being terminated or is in insolvency proceedings.

Which loan fits which kind of condo building?

Conventional fits a building that passes the agency review or has it waived; FHA fits a building on FHA’s approved list, a qualifying site condo, or a unit eligible for Single-Unit Approval; VA needs a VA-approved project; and non-QM can cover a building that fits none of them. The table is a first sort, not an approval. The lender’s review of the specific project and loan decides.

Kind of building	Conventional	FHA	VA
Detached unit, including a site condo	Project review waived, unless the unit is a manufactured home	Site condominium standards if the whole project meets FHA’s site-condo definition; otherwise an approved project or Single-Unit Approval	The condo project must be VA-approved
Two to ten units, not in a master association or larger development	Review waived	FHA-approved project; Single-Unit Approval needs at least five units	The condo project must be VA-approved
Attached unit in a project of more than ten units	Usually the full review, including the reserve test	FHA-approved project, or Single-Unit Approval	VA-approved; projects HUD has approved generally qualify without a second VA review

Conventional: the full review or a waiver

A conventional loan in a building that gets the full review depends on the association’s paperwork as much as on the buyer. Besides the reserve line, the review checks, among other things, that no more than 15 percent of units are 60 or more days behind on dues, that the insurance meets the agencies’ rules, that the project needs no critical repairs, and that the association is not in a lawsuit, or headed for one, unless the lender can document it as minor. For an established attached building, Fannie Mae also lists an FHA project approval granted through HUD’s own review as a way to qualify the project, one more reason for a board to keep its FHA approval current.

FHA: an approved project, a single unit, or a site condo

An FHA loan on a condo needs one of three things under 24 CFR 203.43b: a project approved by HUD or by an FHA lender with approval authority, a Single-Unit Approval, or a site condominium that meets FHA’s definition. A project approval generally lasts three years, and HUD’s FHA-approved condominium search shows which buildings have one.

Single-Unit Approval is for a unit in a building that is not on FHA’s list. The regulation limits it to a unit that is not a manufactured home, in a completed project of at least five units, and it caps how many FHA loans such a building can carry. Under HUD Handbook 4000.1, FHA’s reserve standard is its own: a reserve account funded with at least 10 percent of a year’s unit assessments, unless a reserve study supports less. FHA also limits commercial space and sets a minimum share of owner-occupied units, so it is a different test, not automatically an easier one.

VA: the condo project must be VA-approved

A VA loan can be made on a condo unit only in a project VA has approved. Under VA Pamphlet 26-7, Chapter 16, projects already approved by HUD or USDA generally need no further VA review; VA adds them to its nationwide list. The 15 percent mark is a condition of Fannie Mae and Freddie Mac loans, so it is not what decides a VA loan. VA’s project approval is.

Non-QM: when the building fits none of them

A building that does not meet Fannie Mae or Freddie Mac rules is often called non-warrantable. Some non-QM loans, including programs we offer, can finance a unit in a non-warrantable building. Expect a larger down payment and a higher rate than a conventional loan in a qualifying building, and terms that depend on the building as much as on you.

What does moving from 10 to 15 percent cost an association?

For a building budgeting 10 percent today, raising dues to reach 15 percent takes up to about 5.9 percent more assessment income a year, not 5, because new dues count as income too. Take an example building: 40 units paying $500 a month. That is $240,000 a year of budgeted assessment income, and at 10 percent, $24,000 of it goes to reserves.

Fifteen percent of $240,000 is $36,000, a $12,000 gap. But new dues are income too, so every dollar raised for reserves also enlarges the total the 15 percent is taken from. Reaching 15 percent by raising dues takes about $14,118 more a year, all of it budgeted to reserves: $38,118 of $254,118 is 15 percent. Across 40 units, that is about $30 per unit per month, rounded up so the building clears the mark rather than landing just under it.

The assumptions, stated plainly:

Every dollar of the increase comes from regular dues and goes to reserves.
The math uses the plain ratio: reserve contribution over total budgeted assessment income. Fannie Mae lets the lender leave some income out of the bottom of that ratio, such as special-assessment income or income already set aside for reserves. Any exclusion raises the percentage, so under these assumptions about $30 a month is the ceiling for this building. A budget that also raises dues for operating costs, insurance for example, needs about 18 cents more in reserves for each of those dollars.
It is an illustration. An association’s actual figure comes from its own budget.

Both agencies also accept a reserve study instead of the percentage: one dated within three years and prepared by an independent specialist, with a budget that funds the study’s highest recommended contribution. Fannie Mae also requires the reserves on hand to meet the study’s recommendations. Baseline funding, a method that only keeps the balance from dropping below zero, stopped qualifying for loan applications dated on or after August 3, 2026. For a board, the study is also how to learn whether 15 percent is too much or too little for its building.

How is Michigan’s own reserve rule different?

Michigan sets its own floor, and it measures something other than the lender test: the reserve fund itself must hold at least 10 percent of the association’s current annual budget. Under MCL 559.205, associations must maintain a reserve fund for major repairs and replacement of common elements, and the state’s rule, R 559.511, sets that minimum on a noncumulative basis.

The state rule is written about the fund itself. The lender test reads the yearly budget: how much of this year’s assessment income is set aside for reserves. So passing the state minimum says nothing certain about the lender test, at 10 percent or 15. The rule itself warns, in a sentence every association’s bylaws must carry, that the minimum “may prove to be inadequate for a particular project.”

What should you ask the HOA or management company for?

Eight items, and a buyer’s lender will ask for most of them. Buyers should request them before writing an offer, sellers before listing, and boards should keep them current.

Unit count and layout. How many units, whether the unit is attached or detached, and whether the project is part of a master association. Those facts settle which review applies.
The current budget, and next year’s if adopted. Divide the reserve line by the assessment income line.
The most recent reserve study. Its date, who prepared it, its funding method, and whether the budget funds its highest recommendation.
Delinquencies. How many units are 60 or more days behind on dues. More than 15 percent fails the full review.
Special assessments. Any current or planned, what they pay for, and how much is left.
Insurance. The master policy declarations, including deductibles. For Fannie Mae and Freddie Mac loans with applications dated on or after July 1, 2026, a per-unit master deductible cannot exceed $50,000, and when there is one, the buyer’s own unit-owner (HO-6) policy is required.
Repairs and lawsuits. Known major repairs, recent structural or engineering inspections, and any lawsuit or arbitration involving the association.
Approval status. Whether the project is FHA-approved or VA-approved.

Lenders often gather this with a questionnaire, sometimes Fannie Mae’s Condominium Project Questionnaire (Form 1076). Boards and managers: answer every question. Freddie Mac’s FAQ says that if a lender cannot get the information it needs to rule out critical repairs, the loan is not eligible for sale to Freddie Mac.

Resort and rental-heavy buildings Up North raise a separate question: whether the project counts as a condo hotel. Our team’s Northern Michigan condo guide covers those rules and what they mean for resort buildings there.

What happens if the building does not qualify?

A Fannie Mae or Freddie Mac loan is stuck until something changes: the association fixes the problem, the lender gets an exception, or the buyer switches to a different loan. Some refinances skip the review altogether.

Fix it at the association. A failed review is not a permanent mark. Once the budget or the problem changes, the next review, for this buyer or a later one, can pass; for reserves, that means a larger budget line or a qualifying reserve study.
Ask for an exception. Freddie Mac lets an authorized lender submit a Project Waiver Request for an established project that misses the reserve requirement. Fannie Mae considers exceptions project by project through its own review, PERS. Neither is automatic.
Use a different loan. FHA, VA or non-QM, as in the table above.
Check whether a refinance skips the review. Fannie Mae waives it for a limited cash-out refinance of a loan Fannie Mae already owns, at 80 percent loan-to-value or less, as long as the building has no unaddressed critical repairs or evacuation order. FHA does not require condo approval for an FHA streamline refinance.

If you were told a building does not qualify, ask which rule it failed. Low reserves, an unfinished review and a lawsuit lead to very different next steps, and a mortgage second opinion starts with that question.

Frequently asked questions

Does the application date or the closing date decide which reserve mark applies?

The application date. Fannie Mae applies the 15 percent mark to loan applications dated on or after January 4, 2027, and Freddie Mac to applications received on or after that day. An application dated earlier is not held to 15 percent under either agency’s announcement, even if it closes later, though a lender’s own rules can be stricter.

If a building passed a review in 2026, does it still have to meet 15 percent?

Yes, for a full review. Freddie Mac’s bulletin says a review completed earlier must still be checked against the new rule for applications received on or after the effective date, and Fannie Mae applies 15 percent to every full review used for an application dated on or after January 4, 2027. A 2026 full review does not carry a building past that date for the next buyer.

Are site condos affected by the new reserve rule?

Usually not for a conventional loan. Fannie Mae waives the project review for detached condo units and names site condos as a type of detached condo, and the reserve test is part of that review. FHA has its own site-condominium standard for projects that meet its definition, and a VA loan still needs the condo project to be VA-approved.

Does FHA now require 15 percent reserves?

No. As of October 2026, FHA’s standard is a reserve account funded with at least 10 percent of a year’s unit assessments, unless a reserve study supports a lower amount. FHA’s own rules on owner occupancy, commercial space and the number of FHA loans in a building still apply.

Do special assessments count toward the reserve percentage?

Not at Freddie Mac, which says a special assessment cannot stand in for the budgeted reserve contribution. Fannie Mae lets the lender drop special-assessment income from the calculation. Either way, plan on reaching the mark through regular dues.

This article describes how mortgage eligibility rules work in general. It is not legal, accounting or reserve-planning advice and does not decide whether any building qualifies; that happens in underwriting, on a real loan. Priority Home Mortgage is an Equal Housing Lender.

What the 2026 and 2027 Condo Rule Changes Mean for Michigan Condo Loans