Condo Financing

You found the perfect condo. The finishes are great, the location is ideal, and the price is surprisingly reasonable. For the past few years, buying condos has been a bit easier as there is more for sale and less demand. But wait – can you actually get financing for it? That’s the million-dollar question. Thanks to Fannie Mae and Freddie Mac, the answer might be: not anymore. What happens if the condo you want to buy isn’t eligible for financing and what do you need to know before you get your heart set on a new home?

I’m Melissa Terzis, DC Real Estate Mama and I’ve been in DC Area Real Estate since 2001. I help people like you buy and sell homes throughout DC Maryland and Virginia so shoot me a message if you want to chat.

After the Surfside collapse, Fannie Mae and Freddie Mac started reviewing guidelines for how they assess the risk of a condo building. These guidelines are constantly being reviewed to ensure lending in these condo buildings and communities is as secure an investment as possible. If the building collapses, the master insurance policy is what determines the rebuilding process. Right now, things are getting stricter, particularly with insurance requirements. 

These aren’t minor tweaks being instituted. These are sweeping changes to underwriting guidelines—some experts think 30–40% of condo buildings might not qualify under the new rules.

And the timing? Impeccable, as always. Between rising insurance costs and lingering post-pandemic repair delays, this is hitting condo communities hard. Just when the condo market was recovering in some areas too. Locally in the DC Area, condos have had a burst of traffic the past few months.

What are the Fannie Mae & Freddie Mac Changes for Underwriting Condos

1. Replacement Cost Requirement
Insurance policies must now cover 100% of the cost to rebuild – not just the depreciated value. You know how insurance used to say, “That 20-year-old roof? Yeah, it’s worth about $50”? That’s done. Full replacement value or bust. The lender has to provide documentation on how the replacement value was calculated.

2. Required Perils Are Now Standardized
Think fire, smoke, wind, water damage—those kinds of things. And no, buyers can’t just tack on a separate policy anymore. These risks must be included in the master policy, regardless of location. Last year I bought a condo in Florida. For some reason there was no wind insurance in the master policy insurance. My mortgage company came back and said, “You need wind coverage.” You know what insurance companies in Florida don’t want to cover? Wind. The mortgage company assigned a policy to me. Uh…thanks?

3. Deductibles Must Be Reasonable
Policies with more than a 5% deductible of replacement cost raise an automatic red flag.

4. Inflation Guard Clause
Insurance policies must include inflation protection on reconstruction costs. Because lumber prices don’t exactly stay the same year to year. My DC Condo Association recently learned that the master insurance policy replacement value hadn’t been updated since the building was built. In 1981. So had something happened to the building, the policy would rebuild. But everyone would end up getting carpeted floors and low-grade cabinets because the policy didn’t account for upgrades or inflation.

5. Waiver of Subrogation
In plain English? If the roof leaks and damages a unit, the insurance company can’t turn around and sue the owner. The master policy has to waive that right.

What’s Happening With Condos Now?

One of my go-to lenders, Kari Sansom at Atlantic Union Bank, shared what she is are seeing locally in the DC Area. She’s awesome so I’m going to share her contact info: 

Kari Sansom
Kari.Sansom@atlanticunionbank.com
(301) 767-6354

Insurance:
Many condo buildings are underinsured. Their current policies only pay out depreciated values—because hey, cheaper premiums, right? But that’s not going to cut it anymore. And most condo boards don’t even know this is an issue. As they learn of the changes, premiums are going to increase so that the insurance can cover what’s needed.

Deferred Maintenance:
New inspection requirements mean more eyes on the building. And those eyes always find something. If it’s structural or a safety concern, forget financing until it’s fixed.

Litigation:
If the building is in the middle of a lawsuit, that’s another strike.

Other common disqualifiers:
Too much commercial space, one owner holding too many units, high condo fee delinquencies—these are all reasons a lender might say: “Hard pass.”

If a condominium isn’t eligible for Fannie / Freddie financing, then they need to pursue the change to insurance with the condo board and management. If not, alternate financing paths – FHA or VA, or non-qualified lenders are options. But the mortgage rates are usually 1-2% higher, and FHA and VA are going to be more restrictive than conventional financing.

What Does this Mean For You?

If you’re a buyer, understand this: it’s not about you. It’s about whether the building qualifies. That’s frustrating, especially if you’re pre-approved and ready to go. But this is a building-level issue. Previous sales are not an indication on whether a property is eligible for financing. And this is where having a local lender is going to be a huge asset. Don’t roll into town with your mom’s credit union contact in Colorado. 

If you’re a seller, know that your buyer pool might shrink to cash buyers only. That’s going to affect pricing and marketability.

And if you’re a condo owner? Get. On. The. Board. Or at least get involved and attend meetings. I say this all the time, but now it’s critical. You need to know what coverage your building has and push for changes if necessary. Your ability to sell—or refinance—may depend on it.

These aren’t necessarily bad changes. You want your condo building to be structurally sound, financially solvent and adequately protected. Get informed. Ask questions. And work with the right Realtor and Lender who are asking questions for you, before you get your heart set on something that may fall apart.