A condominium is “warrantable” when the whole project meets the standards Fannie Mae and Freddie Mac use to buy loans on the secondary market. The warrantable condo requirements go well beyond your credit and income: lenders look at the HOA’s finances, who owns the units, how the units are occupied, the physical condition of the buildings, the insurance the association carries, and any pending lawsuits. If the project fails on any one of these, conventional financing is off the table for every unit inside it.
HOA Financial Health
The association’s books are the single biggest factor. Two numbers do most of the work.
First, reserves. The HOA has to budget at least 10% of its annual assessment income for replacement reserves, the account that pays for capital items like roofs, elevators, and repaving. Lenders check this by dividing the annual reserve allocation by total annual assessment income. A project can meet the requirement a different way: an independent reserve study, completed within the last three years by someone with expertise in reserve analysis, showing that funded reserves meet or exceed the study’s own recommendations.1Fannie Mae. Full Review Process The reserve account has to be kept separate from operating funds.
Second, delinquencies. No more than 15% of the units in the project can be 60 or more days behind on common expense assessments, and the same 15% cap applies separately to each special assessment.1Fannie Mae. Full Review Process Every unit counts toward the calculation, including units held by developers or lenders after foreclosure. High delinquency reads as cash-flow trouble, which is why the number is a hard limit rather than a preference.
Ownership Concentration
Fannie Mae caps how many units a single person, investor group, partnership, or corporation can own in one project. The limits scale with size:
- Projects with 5 to 20 units: no single entity can own more than 2 units.
- Projects with 21 or more units: no single entity can own more than 20% of the total units.
- Projects with 2 to 4 units: the single-entity limit drops to 1 unit, and the project review itself is generally waived.2Federal Home Loan Bank of Chicago. Condominium Project Eligibility and Review
Exceeding either of the main thresholds makes the project ineligible.3Fannie Mae. Ineligible Projects The point is to prevent one owner’s problems from swamping the HOA budget: if a single investor holding a quarter of the units stops paying assessments, the remaining owners cover the gap.
Occupancy and Presale Thresholds
The occupancy rules depend on how you’ll use the unit and whether the project is new or established.
If you’re buying a primary residence or second home in an established project, there is no minimum owner-occupancy ratio for the community, and the lender doesn’t have to verify how other units are used. That flips for an investment purchase: at least 50% of the total units must already be conveyed to principal residence or second home purchasers.1Fannie Mae. Full Review Process Bank-owned units listed for sale (rather than rented) count as owner-occupied for that math.
New construction has its own hurdle. At least 50% of the total units in the project or legal phase must be conveyed or under contract to principal residence or second home buyers before individual loans get approved.4Fannie Mae. Full Review – Additional Eligibility Requirements for Units in New and Newly Converted Condo Projects For phased projects, the calculation combines the current phase with all prior phases, and a single building can only contain one legal phase no matter how the developer markets it.
A project generally counts as established when at least 90% of units have been conveyed, construction of both units and common elements is 100% complete, no more phasing or annexation is planned, and control of the HOA has passed from the developer to the unit owners. A project can still qualify as established with fewer than 90% sold if the shortfall is due to the developer holding units for rent, provided the developer’s share is 20% or less of total units, the developer is current on fees for those units, and there are no active or pending special assessments.5Fannie Mae. General Information on Project Standards
Structural Safety and Unfunded Repairs
Since 2022, both Fannie Mae and Freddie Mac have tightened requirements around building condition. Sellers have to confirm the property is safe, sound, and structurally secure. A project that has failed any state, county, or local mandatory inspection tied to structural safety is flatly ineligible.6Freddie Mac Single-Family. Condominium Unit Mortgage FAQ
Lenders must review any structural or mechanical inspection report from the last three years. When no inspection exists, they have to work through HOA meeting minutes, financial statements, engineer’s reports, and other records that speak to building condition. The appraisal alone doesn’t satisfy this, because appraisals don’t always surface needed repairs.6Freddie Mac Single-Family. Condominium Unit Mortgage FAQ
Then there’s the unfunded-repair rule. If the HOA doesn’t have the money to pay for repairs costing more than $10,000 per unit that should be completed in the next 12 months, those repairs are classified as unfunded and the project is ineligible until the work is done and documented.6Freddie Mac Single-Family. Condominium Unit Mortgage FAQ It doesn’t matter how the HOA plans to pay. Even a levied special assessment or an arranged loan doesn’t cure it; the repairs themselves have to be finished.
Insurance the HOA Must Carry
The HOA has to maintain a master policy covering hazard and liability exposure for common areas and building structures. Individual owner policies don’t satisfy this, because the lender needs the whole building protected.
Projects with more than 20 units must also carry fidelity or crime insurance covering theft of HOA funds. The required amount depends on the association’s financial controls. When the HOA keeps separate operating and reserve accounts, requires two board members to sign reserve-account checks, and has bank statements sent directly to the association, fidelity coverage has to equal at least three months of assessments across all units. Without those controls, coverage has to equal the maximum amount of funds in the HOA’s or its management company’s custody at any time.7Fannie Mae. Fidelity Crime Insurance Requirements for Project Developments The second formula usually produces a much higher number, which is why associations that adopt the controls tend to pay less for coverage.
Litigation Against the HOA
Pending lawsuits can block financing on every unit in the project. Litigation involving structural defects, life-safety concerns, or major construction disputes reads as a serious financial threat because it can trigger large special assessments or hit property values. Projects with that kind of pending case are generally ineligible.
Not every lawsuit disqualifies a project. Routine matters like slip-and-fall claims, individual foreclosure actions, or minor disputes with a single contractor typically don’t affect warrantable status. The question is whether the case poses a material financial threat to the community as a whole. If a claim is fully covered by insurance and doesn’t touch structural integrity, a lender may grant an exception.
Associations disclose active cases through a litigation affidavit or a detailed letter from legal counsel describing the nature of each claim and its potential financial impact. Vague or incomplete disclosures tend to produce denials rather than follow-up questions, so the HOA’s clarity matters.
Commercial Space and Hotel-Like Operations
A condo building can include some commercial space and stay warrantable, but no more than 35% of the total above-grade and below-grade square footage can be used for commercial or non-residential purposes.8Community Associations Institute. Fannie Mae and Freddie Mac New Lender Requirements Go Into Effect in September Retail storefronts, professional offices, and similar uses all count toward the cap, and lenders review plat maps and floor plans to verify.
Projects that operate like hotels are disqualified outright. If the development offers short-term rentals through a centralized program, provides daily housekeeping, runs a registration desk, or requires owners to participate in a rental pool, it is ineligible for conventional financing. The occasional owner listing a unit on a vacation platform isn’t the issue; the problem is a project structured around transient occupancy.
How This Gets Verified
All of the information above reaches the lender through a standardized document called the Condominium Project Questionnaire. The lender sends it to the HOA or its management company, and the association fills in project completion status, phasing, finances, ownership breakdown, insurance, building condition, and any active litigation.9Fannie Mae. Form 1076 Condominium Project Questionnaire
A 2022 addendum added specific questions about building safety, soundness, and structural integrity, including the most recent inspection, any unresolved findings, deferred maintenance funding plans, reserve study history, and current or planned special assessments. If the HOA returns the form without answering those questions or marks them as unknown, the lender has to gather additional documentation confirming no critical repairs are needed. If it can’t confirm, the project is ineligible.6Freddie Mac Single-Family. Condominium Unit Mortgage FAQ
The questionnaire typically costs between $150 and $500, depending on the management company, and the buyer usually pays. Budget for it early because underwriting can’t proceed without it.
If the Project Isn’t Warrantable
A project that fails any of the standards above is non-warrantable, meaning conventional lenders backed by Fannie Mae or Freddie Mac won’t lend on units inside it. You may still be able to buy, but your options narrow and borrowing gets more expensive.
The most common alternative is a portfolio loan. The lender originates, underwrites, and holds the loan instead of selling it, and because the risk stays in-house, terms are set in-house too. Expect a higher interest rate, a larger down payment, and sometimes adjustable rather than fixed terms. Some credit unions and community banks specialize in non-warrantable projects.
FHA-approved condos are another route. FHA keeps its own project approval list with different criteria, so a project that fails conventional standards may still qualify, and the lender can also submit a unit for single-unit approval in certain cases. FHA loans carry mortgage insurance premiums and loan limits of their own, but they can work when the project is the obstacle rather than your finances.
Before accepting a costlier loan, find out exactly why the project failed. Some issues are fixable within a single budget cycle. An HOA that’s under the 10% reserve threshold can amend next year’s budget. A delinquency rate just over 15% may drop with a round of collections. If the project is close to the line, the board’s willingness to address the shortfall can flip its status.