Condominiums play an important role in the Hawai‘i housing market, especially on O‘ahu where condos make up a significant portion of available housing and are typically starting points for the homeownership ladder. Recent changes announced by Fannie Mae and Freddie Mac could affect how some condominium purchases are financed and may also influence how condominium associations plan for the future.
What Condo Buyers and Owners Should Know About New Underwriting Guidelines
These most notable change will affect the rules lenders use when deciding whether a condominium is eligible for certain types of home loans. Lenders will now be required to do full reviews of condos, eliminating the limited review process that fast-tracked some loans previously. The updates come after several years of increased attention on condo financing, especially following the 2021 Surfside condominium collapse in Florida. In response, Fannie Mae and Freddie Mac adopted stricter standards related to building maintenance, reserve funds, engineering inspections, and insurance coverage.
The latest changes take a more balanced approach. Some smaller condominium projects may have an easier time qualifying for financing, while larger condominium associations may need to maintain larger reserve funds and provide additional documentation to remain eligible for conventional loans.
Easier Financing for Some Small Condo Projects
New and existing projects with 10 or fewer units may now qualify for a waiver of project review in certain circumstances. This could simplify the financing process for certain boutique condominium communities and may reduce some of the hurdles that buyers and lenders previously faced. Unfortunately, these kinds of projects are not super common on the island.
Higher Reserve Funding Requirements Ahead
While some rules are becoming more flexible, others are becoming more stringent. For condominium associations undergoing a full project review, required reserve contributions for capital expenditures and deferred maintenance will increase from 10% to 15% of the annual budget beginning in 2027.
Reserve funds are important because they help associations pay for major future expenses such as roof replacement, elevator modernization, plumbing upgrades, and exterior repairs. The new requirements are intended to promote stronger long-term financial health and reduce the risk of deferred maintenance. For some associations, however, meeting these requirements may result in increased maintenance fees or special planning efforts over the coming years.
Greater Reliance on Reserve Studies
Another important change involves reserve studies. If a condominium association uses a reserve study rather than the standard Fannie Mae or Freddie Mac reserve benchmarks, lenders must now use the highest reserve funding recommendation contained in that study. This places greater importance on keeping reserve studies current and ensuring associations have a realistic plan for future capital needs.
Insurance Requirements Are Changing Too
The guidelines also lightly address ongoing challenges in the insurance market. One significant update allows roofs to be insured on an actual cash value (ACV) basis rather than requiring full replacement-cost coverage in every circumstance. This rule tries to ease rising insurance premiums and coverage ability concerns that have affected the industry.
The Bottom Line
The latest changes from Fannie Mae and Freddie Mac appear designed to strike a balance between maintaining access to financing and encouraging stronger financial planning within condominium communities. Smaller projects may benefit from streamlined review requirements, while larger associations will likely face increased expectations related to reserves and documentation.
For buyers, sellers, and condominium associations in Hawai‘i, understanding these changes will become increasingly important as lenders implement the new guidelines. As always, reviewing association documents and conducting thorough due diligence remains one of the most important steps when purchasing a condominium.
If you’d like to talk story about these changes and see how it will affect you, reach out and let me know!
Source: National Association of REALTORS®, “Changes in Condominium Underwriting Guidelines,” March 23, 2026. [nar.realtor]
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