FNMA Guideline Changes – Reserves, Insurance, and More

Federal National Mortgage Association (“FNMA”), known as Fannie Mae, has issued an update to its guidelines that will significantly affect community associations. FNMA, and similar government-sponsored enterprise Federal Home Loan Mortgage Corporation (“FHLMC”), known as Freddie Mac, follow these guidelines when purchasing loans made by mortgage lenders. These guidelines influence a significant share of the national mortgage market for community association purchases.

On March 18, 2026, FNMA issued Lender Letter 2026-03 (“LL-2026-03”) announcing important changes to its guidelines.

Higher Minimum Reserve Funding Requirement

Two changes will impact reserves and budgeting. First, after January 4, 2027, FNMA’s traditional requirement that 10% of the annual budgeted income go to reserves will be increased to 15%. Community associations wishing to be FNMA approved must demonstrate a reserve contribution that is at least 15% of their total annual budgeted income, meaning that budgets in consideration this year must factor this increased contribution and be visible as part of the budget as of January 4, 2027. 

Secondly, effective August 3, 2026, when lenders utilize a reserve study to evaluate whether the project has sufficient reserves, the lender must verify that the project’s budget includes the highest recommended reserve allocation amount identified in the reserve study. 

Investor-Owner Allowance

Effective immediately, FNMA is cancelling the investor concentration requirement. Previously, FNMA required buildings to be more than 50% owner occupied. This requirement is now waived, meaning that projects with significant investor-owner concentration may be eligible for approval.

Full Review Required

After August 3, 2026, limited project review is no longer available. All projects must undergo full project review in order to be considered for FNMA eligibility. This means that the FNMA Form 1076, FNMA’s supplemental questionnaire, will be required for virtually all transactions where FNMA approval is desired.

Small Association Exclusions

Effective immediately, community associations of up to ten units are eligible for project review waivers, meaning that FNMA may not require mortgage underwriters to complete a full project review for these smaller associations. These associations must still be free from critical repairs or evacuation orders.

Key Conclusions

As these changes phase in across the mortgage lending landscape, we expect that Boards and managers will see an increase in requests from lenders to complete Form 1076 and increased questions regarding reserve funding determinations and annual budgets. While compliance with FNMA guidelines is not mandatory, many community associations endeavor to meet FNMA guidelines to facilitate unit mortgages.

Associations should carefully review and update promptly their Form 1076 responses. Insurance renewals should take into account changes in insurance requirements and deductible limits. Associations and their members must be prepared to increase reserve contributions and continue to fund fully their reserves going forward. We welcome any inquiries and stand ready to advise on these new changes.